R04 Pension fund investments and self-investment: free practice questions

1. Question 1 of 5

   Which of these factors affect attitude to risk during accumulation? 1. Time to retirement 2. The pension's share of total wealth 3. Past investment experience 4. The client's State Pension age only

   Option A: 2, 3 and 4 onlyOption B: 1, 2 and 3 onlyOption C: 1, 2, 3 and 4Option D: 1 and 2 only

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   The answer is B: 1, 2 and 3 only

   Timescale, wealth, past experience and other investments shape attitude to risk.

   Why the other options are wrong

   A

   SPA alone isn't a listed factor.

   C

   Statement 4 is wrong.

   D

   Past experience also matters.

2. Question 2 of 5

   Why can cash be useful within a drawdown pension?

   Option A: It guarantees annuity ratesOption B: It funds withdrawals without selling units after fallsOption C: It is free of all chargesOption D: It reliably beats inflation over the long term

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   The answer is B: It funds withdrawals without selling units after falls

   Taking withdrawals from cash avoids reverse pound cost averaging, cashing in units when prices are low.

   Why the other options are wrong

   A

   Cash doesn't guarantee annuity rates.

   C

   Cash isn't free of charges.

   D

   Cash tends to lose value to inflation.

3. Question 3 of 5

   How do with-profits funds differ from unit-linked insurance funds?

   Option A: Returns are smoothed through bonusesOption B: Their value can't fall at allOption C: Terminal bonuses are guaranteed from outsetOption D: They invest only in cash

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   The answer is A: Returns are smoothed through bonuses

   Annual bonuses smooth returns and can't be removed once added; terminal bonuses aren't guaranteed. Unit-linked values follow the assets directly.

   Why the other options are wrong

   B

   Values can be affected by deductions such as MVRs.

   C

   Terminal bonuses aren't guaranteed.

   D

   They invest across asset classes.

4. Question 4 of 5

   Which of these is one of the four investment pathways?

   Option A: I want the highest possible growthOption B: I want an ethical portfolio that avoids tobacco and armamentsOption C: I plan to take out all my money within the next five yearsOption D: I plan to buy a buy-to-let property

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   The answer is C: I plan to take out all my money within the next five years

   The pathways cover no plans for five years, buying an annuity, taking long-term income, and taking all the money, each within five years.

   Why the other options are wrong

   A

   Pathways aren't growth-target based.

   B

   Ethical preference isn't a pathway.

   D

   Property purchase isn't a pathway.

5. Question 5 of 5

   What limits apply to a SSAS holding shares in its sponsoring employer?

   Option A: No limits applyOption B: Under 10% of the employer's issued share capitalOption C: Under 5% of assets in one employer, under 20% across allOption D: Under 50% of assets

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   The answer is C: Under 5% of assets in one employer, under 20% across all

   The under-5% and under-20% limits apply to occupational schemes such as SSASs, measured when shares are bought. They don't apply to contract-based SIPPs.

   Why the other options are wrong

   A

   Limits do apply to a SSAS.

   B

   The limit is on scheme assets, not share capital.

   D

   50% is the loan and borrowing limit.

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