R05 Pension term assurance and relevant life policies: free practice questions

1. Question 1 of 5

   Which statement about pension term assurance (PTA) is correct today?

   Option A: Tax relief continues only on 'protected' policies, a small number of legacy contractsOption B: Tax relief is available only where the policy is written under a discretionary trustOption C: Any new term assurance policy can still attract tax relief if linked to a personal pensionOption D: Tax relief was withdrawn completely, including on all existing policies, in April 2006

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   The answer is A: Tax relief continues only on 'protected' policies, a small number of legacy contracts

   Since April 2006 new PTA policies no longer receive tax relief. Relief continues only on member contributions to 'protected' legacy policies, and only the provider can confirm whether the conditions were met.

   Why the other options are wrong

   B

   Relief doesn't depend on the type of trust.

   C

   New policies no longer get tax relief, whatever they're linked to.

   D

   Relief wasn't withdrawn from all policies; protected legacy policies keep it.

2. Question 2 of 5

   Priya holds a protected pension term assurance policy. She wants to extend the term by five years. What is the main consequence she should be warned about?

   Option A: The tax relief on her premiums will be lostOption B: The trust over the policy will automatically endOption C: The policy will become a qualifying policy for income tax purposesOption D: The sum assured must be reduced to compensate

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   The answer is A: The tax relief on her premiums will be lost

   Protected status is fragile: increasing the benefits or extending the term causes the tax relief to be lost. This is why clients should take advice before changing an existing PTA policy.

   Why the other options are wrong

   B

   The trust doesn't end because the term is extended.

   C

   Extending the term doesn't make a PTA policy qualifying.

   D

   There's no requirement to reduce the sum assured; the problem is losing tax relief.

3. Question 3 of 5

   Which of the following is NOT a condition for a policy to qualify as a relevant life policy?

   Option A: The policy must be capable of acquiring a surrender value after two yearsOption B: Only prescribed benefits may be paid under the policyOption C: Benefits must be paid to an individual or charity beneficially entitled, or via a trusteeOption D: A capital sum must be payable on death before age 75

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   The answer is A: The policy must be capable of acquiring a surrender value after two years

   A relevant life policy must NOT have, and must not be capable of acquiring, a surrender value. The other statements are conditions: death benefit before 75, prescribed benefits only, and payment to beneficially entitled individuals or charities, directly or through trustees.

   Why the other options are wrong

   B

   This is a genuine condition: the policy can only pay prescribed benefits.

   C

   This is a genuine condition: benefits must go to individuals or charities beneficially entitled, directly or through trustees.

   D

   This is a genuine condition: a capital sum must be payable on death before age 75.

4. Question 4 of 5

   Apart from a death benefit, what other type of benefit may the legislation permit a relevant life policy to provide for an employee during service?

   Option A: A maturity value paid to the employee at retirementOption B: An ill-health, disablement or accidental death benefitOption C: A guaranteed annuity from age 75Option D: A cash lump sum if the employee is made redundant

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   The answer is B: An ill-health, disablement or accidental death benefit

   The rules allow ill-health, disablement or death-by-accident benefits during service alongside the death benefit. In practice most relevant life policies provide life cover only, though some add terminal illness cover.

   Why the other options are wrong

   A

   A relevant life policy has no maturity value.

   C

   It can't provide an annuity; benefits end at 75 at the latest.

   D

   Redundancy lump sums aren't permitted benefits.

5. Question 5 of 5

   An excepted group life scheme and a relevant life policy share a key feature. What is it?

   Option A: Both must be registered pension schemesOption B: Both may have tax avoidance as one of their main purposesOption C: Both can pay benefits to a life assured on the death of another memberOption D: Both pay a capital sum on death before a specified age not greater than 75

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   The answer is D: Both pay a capital sum on death before a specified age not greater than 75

   Both require a death benefit payable before an age no greater than 75. Neither needs to be a registered pension scheme. An excepted scheme cannot pay benefits to a life assured or connected person on another member's death, and tax avoidance must not be a main purpose.

   Why the other options are wrong

   A

   Neither needs to be a registered pension scheme; that's part of their appeal.

   B

   For both, tax avoidance must not be a main purpose.

   C

   An excepted scheme can't pay benefits to a life assured or connected person on another member's death.

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