DC Schemes

Question 1

What are the main types of defined contribution schemes?

Answer 1

Answer: The main types of defined contribution schemes are trust-based schemes and contract-based schemes.

Question 2

What are the legal bases of defined contribution schemes?

Answer 2

Answer: Defined contribution schemes can be trust-based or contract-based. Trust-based schemes are governed by a trust deed and have a board of trustees, while contract-based schemes are outsourced to a third-party provider.

Question 3

What are the factors to consider and benefits of defined contribution schemes?

Answer 3

Answer: The factors to consider and benefits of defined contribution schemes include the types of schemes, legal bases, factors to consider, benefits on leaving and transfer, and stakeholder pensions.

Question 4

What information should be included in Section 1 of a pension plan summary?

Answer 4

Answer: Section 1 should include information about the member, their employer(s), and the pension provider.

Question 5

What information should be included in Section 2 of a pension plan summary?

Answer 5

Answer: Section 2 should include information about the contributions credited to the member, the total amount saved, and any monies transferred into the pension scheme.

Question 6

What information should be included in Section 3 of a pension plan summary?

Answer 6

Answer: Section 3 should provide an illustration of how much the member’s pension could be worth at retirement and the estimated retirement income.

Question 7

What information should be included in Section 4 of a pension plan summary?

Answer 7

Answer: Section 4 should prompt the member to think about their retirement income and lifestyle, including actions to increase their pension pot.

Question 8

What are the legal bases of defined contribution schemes?

Answer 8

Answer: Defined contribution schemes can be trust-based or contract-based. Trust-based schemes are governed by a trust deed and have a board of trustees, while contract-based schemes are outsourced to a third-party provider.

Question 9

What are the factors to consider and benefits of defined contribution schemes?

Answer 9

Answer: The factors to consider and benefits of defined contribution schemes include the types of schemes, legal bases, factors to consider, benefits on leaving and transfer, and stakeholder pensions.

Question 10

Q: What is a targeted money purchase scheme and what is its primary aim?

Answer 10

A: A targeted money purchase scheme is a hybrid scheme with features common to both defined benefit and defined contribution schemes. Its primary aim is to provide a targeted level of pension that is a proportion of final salary at or close to retirement.

Question 11

Q: Who sets the eligibility requirements for a group personal/stakeholder pension, and where are these usually outlined?

Answer 11

A: The eligibility requirements of a group personal/stakeholder pension are set by the employer and are usually outlined in the scheme rules.

Question 12

Q: What is the maximum contribution that may be paid to a defined contribution scheme?

Answer 12

A: The maximum contribution that may be paid to a defined contribution scheme is unlimited.

Question 13

Q: Who decides the level of contributions to a personal or stakeholder pension, and what conditions might exist if the arrangement is offered by an employer?

Answer 13

A: An individual decides their own level of contributions to a personal or stakeholder pension. If the arrangement is offered by an employer, a defined level of contribution may need to be paid as a condition of membership.

Question 14

Q: Who determines the level of contribution made into a defined contribution scheme by an employer, and how is it usually defined?

Answer 14

A: The employer decides on the level of contribution they are prepared to make into a defined contribution scheme; this is often defined as a percentage of pensionable salary.

Question 15

Q: What do Statutory Money Purchase Illustrations (SMPIs) represent, and in what terms are they shown?

Answer 15

A: Statutory Money Purchase Illustrations (SMPIs) represent the amount of future pension that might become available under the scheme, shown in ‘real terms’.

Question 16

Q: What characterizes a trust-based pension scheme, and who sponsors it?

Answer 16

A: A trust-based scheme is characterized by being governed by a trust deed and is typically sponsored by an employer.

Question 17

Q: What defines a contract-based pension scheme, and who manages it?

Answer 17

A: A contract-based scheme is defined as being ‘outsourced’ to a third-party provider, such as an insurance company, who will manage all aspects of the scheme.

Question 18

Q: Why are Master trusts becoming more popular?

Answer 18

A: Master trusts are growing in popularity as they are cost-effective, simple, and convenient for employers.

Question 19

Q: How are occupational and individual defined contribution schemes generally categorized in terms of their basis?

Answer 19

A: Occupational defined contribution schemes are generally trust-based schemes, and individual defined contribution schemes are generally contract-based schemes.

Question 20

Q: What protections does a trust-based scheme offer to its members, and how does a contract-based scheme compare in terms of cost and time for employers?

Answer 20

A: A trust-based scheme offers members the protection of the trustees. Compared to this, a contract-based scheme is less costly and time-consuming for employers.

Question 21

Q: What responsibilities do the trustees and managers of an occupational defined contribution scheme have in terms of governance standards and compliance?

Answer 21

A: The trustees and managers of an occupational defined contribution scheme must ensure that it meets governance standards and, where it is a qualifying scheme, that it is compliant with charge controls.

Question 22

Q: Do parallel rules apply to any other types of pension schemes, and if so, which ones?

Answer 22

A: Yes, parallel rules apply to workplace personal pension schemes.

Question 23

Q: What is required of contract-based workplace pension schemes in terms of governance, and what is the role of the Independent Governance Committee (IGC)?

Answer 23

A: Contract-based workplace pension schemes must establish an Independent Governance Committee (IGC), which must ensure that all aspects of value for money in workplace pension schemes are independently reviewed.

Question 24

Q: What characterizes collective money purchase schemes, and how are the assets managed in these schemes?

Answer 24

A: Collective money purchase schemes are characterized as risk-sharing or target pension plans under which the assets are pooled between members.

Question 25

Q: What provision is made for membership in an occupational defined contribution pension scheme if an employee works beyond the normal pension age?

Answer 25

A: If the employee continues to work beyond the normal pension age, membership of the pension scheme must also be able to continue.

Question 26

Q: What provisions are made for selected pension age in an individual defined contribution scheme, especially regarding benefits and employer contributions?

Answer 26

A: A selected pension age may be set for an individual defined contribution scheme, but benefits may be taken at any age once the normal minimum pension age has been reached. If the employer contributes, contributions must continue while the member remains in employment, even if this is beyond the selected pension age.

Question 27

Q: What are the possible forms of lump sums in DC pension schemes?

Answer 27

A: The lump sum may be a Pension Commencement Lump Sum (PCLS) or an Uncrystallised Funds Pension Lump Sum (UFPLS).

Question 28

Q: What are the options for receiving pension income in DC schemes?

Answer 28

A: Pension income may be provided via a scheme pension, lifetime annuity, or drawdown pension.

Question 29

Q: How is the pension income determined if a lifetime annuity is selected?

Answer 29

A: If a lifetime annuity is selected, the pension income will depend upon the size of the fund and annuity rates available at retirement.

Question 30

Q: Under what conditions can benefits be taken before the normal minimum pension age?

Answer 30

A: Benefits may be taken before the normal minimum pension age on the grounds of ill health, subject to certain conditions.

Question 31

Q: What provision exists for members with a life expectancy of less than one year?

Answer 31

A: If life expectancy is less than one year, it is possible to commute benefits for a ‘serious ill-health lump sum’.

Question 32

Q: What is the purpose of Pension Contribution Insurance (PCI)?

Answer 32

A: Pension Contribution Insurance (PCI) may be taken out so that contributions will continue to be paid if the member is unable to work due to ill-health or incapacity.

Question 33

Q: What does an income protection policy/permanent health insurance policy provide?

Answer 33

A: An income protection policy/permanent health insurance policy will pay an income in the event of an individual being unable to work due to ill-health or incapacity, enabling membership of the pension scheme to continue.

Question 34

Q: What happens to the defined contribution fund if a member dies before benefits are taken?

Answer 34

A: In the event of death before benefits are taken, the defined contribution fund will be available to provide pension and/or lump sum death benefits.

Question 35

Q: How do the benefits on a member’s death after retirement vary in relation to a DC scheme?

Answer 35

A: Benefits on a member’s death after retirement will depend upon the way in which benefits were taken at retirement.

Question 36

Q: Why do ‘Early leaver’ considerations only apply to occupational defined contribution pension schemes?

Answer 36

A: ‘Early leaver’ considerations only apply to occupational defined contribution pension schemes because individual defined contribution schemes are fully portable.

Question 37

Q: Under what condition is a refund available in an occupational defined contribution pension scheme?

Answer 37

A: A refund is only available if the member has completed less than 30 days of qualifying service in the scheme.

Question 38

Q: What constitutes a preserved benefit within an occupational defined contribution pension scheme?

Answer 38

A: A preserved benefit within an occupational defined contribution pension scheme is simply the value of the fund that has built up.

Question 39

Q: When must an employee be offered the option of a transfer value from an occupational defined contribution scheme?

Answer 39

A: An employee with at least three months’ service must be offered the option of a transfer value from an occupational defined contribution scheme.

Question 40

Q: What is a transfer value from an occupational defined contribution pension scheme comprised of?

Answer 40

A: A transfer value from an occupational defined contribution pension scheme is the value of the fund less any disinvestment charge.

Question 41

Q: Why might an individual decide to transfer out of a defined contribution pension scheme?

Answer 41

A: An individual may decide to transfer out of a defined contribution pension scheme for a number of reasons, such as a wider fund choice or the opportunity to take advantage of the drawdown pension option.

Question 42

Q: How does a stakeholder pension compare to a personal pension in terms of limits, tax treatment, and standards?

Answer 42

A: A stakeholder pension has the same limits and tax treatment as a personal pension but is subject to certain minimum standards relating to minimum contributions, charges, and investment options.

Question 43

What factors should an individual consider when deciding how to take their benefits from an uncrystallised defined contribution scheme?

a.
If they take an uncrystallised funds pension lump sum, they will not receive a pension commencement lump sum.

b.
If they purchase a lifetime annuity, they may get a better annuity rate on the open market.

c.
They may be able to select a series of short term annuities without having to designate any funds into a drawdown pension.

d.
If they select an uncrystallised funds pension lump sum, they will not have to designate funds to a drawdown plan.

e.
They must be given the option of a scheme pension.

Answer 43

a.
If they take an uncrystallised funds pension lump sum, they will not receive a pension commencement lump sum.

b.
If they purchase a lifetime annuity, they may get a better annuity rate on the open market.

d.
If they select an uncrystallised funds pension lump sum, they will not have to designate funds to a drawdown plan.

Question 44

Charge controls apply to the default arrangements of occupational defined contribution schemes being used as qualifying schemes. Where the charges are calculated as a percentage of members’ funds, the maximum annual charge is:

a.
1.0%.

b.
0.5%.

c.
0.75%.

d.
1.25%.

Answer 44

c.
0.75%.

Question 45

What is NOT a benefit of a defined contribution scheme being set up under a master trust?

a.
Consolidated accounting and governance requirement.

b.
Trustees are appointed by each employer and so there will be trustee representation for each employer under the master trust.

c.
Lower operating costs and greater simplicity and convenience than a single employer scheme.

d.
Members benefit from ongoing management and oversight of investments.

Answer 45

b.
Trustees are appointed by each employer and so there will be trustee representation for each employer under the master trust.

Question 46

Isobel, who is in good health, was born on 17 July 1970. Under current legislation, the earliest date on which she will be able to take benefits from her defined contribution pension arrangement will be 17 July:

a.
2027.

b.
2037.

c.
2025.

d.
2035.

Answer 46

c.
2025.

Question 47

What is the minimum period of membership of an occupational defined contribution scheme that a member must complete before a transfer value can be offered?

a.
One year.

b.
Three months.

c.
Six months.

d.
One month.

Answer 47

b.
Three months.

Question 48

John wants to work beyond the selected pension age of his employer’s group personal pension plan into which his employer contributes. What will happen with his membership of the scheme and his employer’s contributions?

a.
John can remain a member of the scheme but the employer is no longer required to contribute.

b.
John’s employer can demand that John takes his benefits at the selected pension age.

c.
John can remain a member of the scheme and his employer must continue to contribute while John remains in employment with them.

d.
John’s employer can insist that any further contributions are made to an individual stakeholder contract.

Answer 48

c.
John can remain a member of the scheme and his employer must continue to contribute while John remains in employment with them.

Question 49

A member leaving a defined contribution occupational pension scheme in the current tax year will only become entitled to a short service refund if they have completed less than how many days of qualifying service?

a.
60.

b.
90.

c.
120.

d.
30.

Answer 49

d.
30.

Question 50

With a statutory money purchase illustration, what assumptions are used for inflation and expenses at retirement?

a.
2% p.a. for inflation and 4% of the value of the annuity for expenses at retirement.

b.
2.5% p.a. for inflation and 4% of the value of the annuity for expenses at retirement.

c.
2.5% p.a. for inflation and 2% of the value of the annuity for expenses at retirement.

d.
2% p.a. for inflation and 2% of the value of the annuity for expenses at retirement.

Answer 50

b.
2.5% p.a. for inflation and 4% of the value of the annuity for expenses at retirement.

Question 51

What is the maximum contribution, if any, a member can make to their own personal pension plan in any tax year?

a.
There is no limit.

b.
£60,000 plus any available carry forward.

c.
The amount of their relevant UK earnings.

d.
£60,000.

Answer 51

a.
There is no limit.

Question 52

The directors of a limited company want to set up a contract based self-invested personal pension or a small self-administered scheme [SSAS]. They are most likely to choose a SSAS because they want:

a.
a contract that does not have too much administration.

b.
to be able to use part of the pension fund to make loans back to the company.

c.
each member to have their own individual contract with the pension provider.

d.
the funds to be earmarked for each member.

Answer 52

b.
to be able to use part of the pension fund to make loans back to the company.

Question 53

Luisa, aged 50, has a paid up retirement annuity contract [RAC] with a transfer value of £126,000. She is considering transferring this fund into a personal pension and has consulted a financial adviser. Which factors should her adviser take into account in determining whether the transfer is appropriate for Luisa?

a.
Charges on the ceding scheme and the new scheme.

b.
The potential loss of a pension commencement lump sum in excess of 25% of the fund.

c.
Any guaranteed annuity rates, bonus rates and/or guaranteed growth rates within the RAC.

d.
Past performance of investment funds.

Answer 53

a.
Charges on the ceding scheme and the new scheme.

c.
Any guaranteed annuity rates, bonus rates and/or guaranteed growth rates within the RAC.

d.
Past performance of investment funds.

Question 54

When considering the differences between a trust based pension scheme and a contract based pension scheme, an adviser should be aware that:

a.
employees typically see membership of a contract-based scheme as a less valuable benefit than membership of a trust-based scheme.

b.
member contributions to a trust-based scheme can be made on a ‘net pay’ basis, but must be made using the relief at source method to a contract based scheme.

c.
trust based and contract based defined contribution schemes are broadly the same in terms of the benefits they can offer.

d.
a contract-based scheme is more costly for employers to run than a trust-based scheme.
Incorrect
Incorrect, chapter reference 6B1

e.
an employer wishing to set up a defined contribution scheme for their workforce must use a trust based scheme.

Answer 54

a.
employees typically see membership of a contract-based scheme as a less valuable benefit than membership of a trust-based scheme.

b.
member contributions to a trust-based scheme can be made on a ‘net pay’ basis, but must be made using the relief at source method to a contract based scheme.

c.
trust based and contract based defined contribution schemes are broadly the same in terms of the benefits they can offer.

Question 55

Angus, aged 58, has uncrystallised benefits in a previous employer’s occupational defined contribution scheme. Angus has the statutory right to a transfer these benefits until:

a.
the date he crystallises the benefits.

b.
one year before the scheme’s normal pension age.

c.
the scheme’s normal pension age.

d.
he reaches the age of 75.

Answer 55

a.
the date he crystallises the benefits.

Question 56

Chi contributes 5% of her total remuneration into a group personal pension plan and her employer contributes 3% of her pensionable salary. Her basic salary is £33,000 p.a. and she has a company car with a taxable value of £6,000. If pensionable salary is defined as basic salary, what gross contributions will Chi and her employer pay into the scheme in the current tax year?

a.
£1,950 by Chi and £990 by her employer.

b.
£1,650 by Chi and £990 by her employer.

c.
£1,650 by Chi and £1,170 by her employer.

d.
£1,950 by Chi and £1,170 by her employer.

Answer 56

a.
£1,950 by Chi and £990 by her employer.

Question 57

A defined contribution pension arrangement was set up in 1998 to receive a transfer in from a previous employer’s defined benefit scheme. If the scheme provides benefits at least equal to the Guaranteed Minimum Pension at State Pension Age, what type of scheme is it?

a.
An executive pension plan.

b.
A targeted money purchase scheme.

c.
A section 32 policy.

d.
A small self-administered scheme.

Answer 57

c.
A section 32 policy.

Question 58

A small self-administered scheme is permitted to lend what maximum percentage of its net assets to the sponsoring employer?

a.
25%.

b.
45%.

c.
50%.

d.
35%.

Answer 58

c.
50%.

Question 59

What payment method CANNOT be used to make monthly contributions into a stakeholder pension plan?

a.
Standing order.

b.
Debit card.

c.
Cheque.

d.
Direct debit.

Answer 59

b.
Debit card.

Question 60

A client has an old individual pension contract. Why has his adviser concluded that he has a retirement annuity contract?

a.
It offers all of the pension flexibility options.

b.
The client started the contract in 1991.

c.
On death before retirement only contributions with interest are returned.

d.
It includes a guaranteed minimum pension.

e.
It offers a guaranteed annuity rate at retirement.

Answer 60

c.
On death before retirement only contributions with interest are returned.

e.
It offers a guaranteed annuity rate at retirement.

Question 61

When a director compares a contract based self-invested personal pension plan [SIPP] and a small self-administered scheme [SSAS], they should be aware that:

a.
a SIPP is an individual defined contribution scheme whereas a SSAS is an occupational defined contribution scheme.

b.
the company can pay higher contributions into a SSAS than into a SIPP.

c.
greater levels of administration are required with a SSAS compared to a SIPP.

d.
the benefits under a SSAS are earmarked but the benefits under a SIPP are not.

e.
a SSAS can lend to the sponsoring employer but the SIPP cannot.

f.
both SIPPs and SSASs are regulated by The Pensions Regulator.

Answer 61

a.
a SIPP is an individual defined contribution scheme whereas a SSAS is an occupational defined contribution scheme.

c.
greater levels of administration are required with a SSAS compared to a SIPP.

e.
a SSAS can lend to the sponsoring employer but the SIPP cannot.

Question 62

When considering the charge controls that apply to certain defined contribution schemes, an adviser should be aware that:

a.
one member schemes are exempt.

b.
the cap on charges applies to transaction costs which are incurred as a result of buying or selling investments.

c.
if charges are calculated solely as a simple percentage of members’ funds, the limit per year is 0.75%.

d.
these regulations apply to all occupational defined contribution schemes.

e.
active member discounts are banned in qualifying schemes and this applies to all arrangements, not just their default arrangement.

Answer 62

a.
one member schemes are exempt.

c.
if charges are calculated solely as a simple percentage of members’ funds, the limit per year is 0.75%.

e.
active member discounts are banned in qualifying schemes and this applies to all arrangements, not just their default arrangement.

Question 63

Naseem, who is 48, is unable to work due to ill-health, although his life expectancy has not been affected. He can take the benefits from his employer’s group personal pension plan [GPP], currently valued at £150,000, on the grounds of ill-health. His GPP offers all of the flexible benefit options. What option will NOT be available to Naseem?

a.
A tax free lump sum of £150,000.

b.
An uncrystallised funds pension lump sum.

c.
A pension commencement lump sum and a lifetime annuity.

d.
A pension commencement lump sum with the balance designated into flexi-access drawdown.

Answer 63

a.
A tax free lump sum of £150,000.

Question 64

Tim has a defined contribution pension arrangement, but is not sure what it is. Which feature is most likely to indicate that it is a retirement annuity contract?

a.
He can choose from over 200 insured funds offered by the pension provider.

b.
In the event of Tim’s death before retirement the only lump sum death benefit is a return of contributions without interest.

c.
The annual management charge is limited to 1% p.a.

d.
His tax free pension commencement lump sum is in excess of 25% of his fund.

Answer 64

b.
In the event of Tim’s death before retirement the only lump sum death benefit is a return of contributions without interest.

Question 65

What is the main way in which a collective money purchase scheme differs from a traditional defined contribution pension scheme?

a.
Assets are pooled between members.

b.
A far wider range of fund choices is offered.

c.
The employer defines the amount of contributions paid into the scheme.

d.
The benefits that will be paid at retirement are guaranteed.

Answer 65

a.
Assets are pooled between members.

Question 66

Ji-hye left her company’s occupational defined contribution scheme recently having been a member of the scheme for 15 months. What should she be aware of in respect of her early leaver options?

a.
It is likely that any transfer value will only be accepted by a stakeholder pension due to the potentially small amount involved.

b.
She must be offered the option of preserved benefits.

c.
The value of her benefits will be the accrued value of her own personal contributions plus investment growth.

d.
She may be entitled to receive a refund of her own contributions.

e.
She must be offered the option of a transfer value.

Answer 66

a.
It is likely that any transfer value will only be accepted by a stakeholder pension due to the potentially small amount involved.

b.
She must be offered the option of preserved benefits.

e.
She must be offered the option of a transfer value.

Question 67

Gerry intends to make contributions of £500 per month into a personal pension and is considering a pension contribution insurance [PCI] policy. He should be aware that:

a.
he will be eligible for tax relief on his PCI premiums.

b.
in the event of a claim the PCI contributions will be paid net of basic rate tax.

c.
PCI premiums are paid into a separate insurance contract.

d.
in the event of a claim the PCI contributions will begin after a specified deferred period, usually of 26 weeks.

e.
in the event of a claim he will receive tax relief in full on his monthly contributions.

Answer 67

b.
in the event of a claim the PCI contributions will be paid net of basic rate tax.

c.
PCI premiums are paid into a separate insurance contract.

d.
in the event of a claim the PCI contributions will begin after a specified deferred period, usually of 26 weeks.

Question 68

Xavier, who is 62, has been diagnosed with a terminal illness and has a life expectancy of less than one year. He has an uncrystallised personal pension fund of £150,000 and a flexi-access drawdown fund of £220,000. What gross amount, if any, will Xavier be able to take as a serious ill-health lump sum?

a.
Nil.

b.
£150,000.

c.
£370,000.

d.
£220,000.

Answer 68

b.
£150,000.

Question 69

When considering a statutory money purchase illustration issued on or after 1 October 2023:

a.
no allowance is made for mortality before retirement.

b.
expenses at retirement are ignored.

c.
the pension is shown in today’s money terms.

d.
the pension illustrated must be the pension after the pension commencement lump sum is taken.

e.
the projection is based on an accumulation rate determined according to the fund’s volatility group.

Answer 69

a.
no allowance is made for mortality before retirement.

c.
the pension is shown in today’s money terms.

e.
the projection is based on an accumulation rate determined according to the fund’s volatility group.

Question 70

From 1 October 2023, statutory money purchase illustrations must assume that the pension illustrated is level in payment, payable monthly in advance and on a:

a.
single life basis, with a ten year guarantee.

b.
single life basis, with a five year guarantee.

c.
joint life basis, with a ten year guarantee.

d.
joint life basis, with a five year guarantee.

Answer 70

b.
single life basis, with a five year guarantee.

Question 71

Jessie, aged 36, runs her own limited company. She wants to set up either a contract based self-invested personal pension [SIPP] or a small self-administered scheme. She is most likely to choose a SIPP because she wants:

a.
a contract that does not have too much administration.

b.
a pension arrangement that is governed by a trust deed and rules.

c.
to be able to use part of her pension fund to make loans back to her company.

d.
an occupational pension scheme.

Answer 71

a.
a contract that does not have too much administration.

Question 72

If Patrick, aged 42, has just provided a discharge to the trustees of his previous employer’s occupational pension scheme, this is most likely to be because:

a.
he is transferring his benefits to a personal pension plan.

b.
he is switching the investments his funds are held in.

c.
the scheme is about to be closed.

d.
he is crystallising his benefits.

Answer 72

a.
he is transferring his benefits to a personal pension plan.

Question 73

Vikram has just taken out a new stakeholder pension plan. He should be aware that:

a.
a lifestyle arrangement must be provided as the default investment option.

b.
transfers from other pension sources may not be permitted.

c.
the minimum contribution can be no higher than £20.

d.
the maximum annual charge will be 1% of the value of the fund.

e.
the scheme must allow him to contribute by credit card.

Answer 73

a.
a lifestyle arrangement must be provided as the default investment option.

c.
the minimum contribution can be no higher than £20.

Question 74

A client requires advice about transferring a retirement annuity contract [RAC] into a personal pension plan [PPP] to take advantage of the flexible income options. Why might his adviser decide that the fund should remain within the retirement annuity contract?

a.
The RAC is wholly invested in a with-profits fund, which is currently subject to a significant market value reduction factor.

b.
The PPP has higher charges than the RAC, but offers a wide range of funds that are in line with the client’s attitude to risk, whereas the RAC is wholly invested in a with-profits fund.

c.
A transfer to the PPP will need ongoing investment reviews and the client is happy with this.

d.
The PPP has higher charges than the RAC, but offers the drawdown pension option, whereas the only option under the RAC is a lifetime annuity.

e.
The RAC has a generous guaranteed annuity rate that will give the client a much higher income at his selected pension age.

Answer 74

a.
The RAC is wholly invested in a with-profits fund, which is currently subject to a significant market value reduction factor.

e.
The RAC has a generous guaranteed annuity rate that will give the client a much higher income at his selected pension age.

Question 75

What type of fund is the default investment choice for someone taking out a new stakeholder pension?

a.
Lifestyle fund.

b.
With-profits fund.

c.
Target date fund.

d.
Managed fund.

Answer 75

a.
Lifestyle fund.

Question 76

What is the minimum number of members required for an Independent Governance Committee?

a.
Seven, the majority of whom must be independent.

b.
Five, the majority of whom must be independent.

c.
Seven, at least two of whom must be independent.

d.
Five, at least two of whom must be independent.

Answer 76

b.
Five, the majority of whom must be independent.

Question 77

All members of a defined contribution scheme must be sent a statutory money purchase illustration each year, unless they are a member of a:

a.
personal pension plan.

b.
self-invested personal pension plan.

c.
stakeholder pension plan.

d.
small self-administered scheme.

Answer 77

d.
small self-administered scheme.

Question 78

Paula has recently left her job having been a member of the company’s occupational defined contribution pension scheme for three years. What should Paula be aware of in respect of her early leaver options?

a.
If she chooses to transfer a disinvestment charge may apply.

b.
She may be entitled to receive a short service refund.

c.
She can choose to leave her benefits preserved within the scheme.

d.
The transfer value cannot be less than the value of the employer and employee contributions made.

e.
If she transfers to a non registered pension scheme, the transfer will be taxed as an unauthorised payment.

Answer 78

a.
If she chooses to transfer a disinvestment charge may apply.

c.
She can choose to leave her benefits preserved within the scheme.

e.
If she transfers to a non registered pension scheme, the transfer will be taxed as an unauthorised payment.