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The Technical Quiz: 1 May

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To help you to keep up with the fundamentals of tax, retirement and financial planning, try answering these questions.

The following questions relate to pensions.

Question one

What is the difference between quantitative and qualitative statements and questions in the fact-finding process?

A A qualitative statement is a description of what the client has or wants in general terms (eg ‘I would like to be comfortably off when I retire’). A quantitative statement is about amounts and numbers (eg ‘I want a pension of £40,000 a year in real terms’).

B A quantitative statement is about how much the client has or wants (eg ‘I would like to be comfortably off when I retire’). A qualitative statement is about amounts and numbers (eg ‘I want a pension of £40,000 a year in real terms’).

C A quantitative statement is a precise assertion of how much the client has or wants (eg ‘I want a pension of exactly £40,000 a year in real terms’). A qualitative statement is a vague estimate (eg ‘I want a pension of roughly between £30,000 and £40,000 a year in real terms’).

D A quantitative statement is about short-term objectives (eg ‘I want a pension of exactly £40,000 a year starting in five years’). A qualitative statement is about longer term and less specific aims (eg ‘I would like a pension of roughly £30,000 to £40,000 a year in real terms in about 20 years’ time’).

Question two

What are the main retirement options a client can effect when discussing pension provision?

A Third way, variable or lifetime annuities, capped pension drawdown, and unlimited flexible drawdown, phased retirement or a combination of them all.

B Third way, variable or lifetime annuities, capped pension drawdown, phased retirement or a combination of all.

C Third way, variable or 15-year temporary annuities, unlimited flexible pension drawdown, phased retirement or a combination of all.

D Third way, variable or lifetime annuities, capped pension drawdown, phased retirement and 30% tax-free cash or a combination of all.

Question three

When is it usually best to recommend a client to take the PCLS from a pension plan and when may drawing the PCLS be inadvisable? Assume that the option to take a higher pension and not draw the PCLS is available.

A It is almost always better to draw an income from either a defined benefit or a defined contribution pension scheme than take the PCLS. This is because of the poor rate of commuting income into capital offered by most DB schemes. DC schemes offer attractive annuity rates.

B It is usually better to take the PCLS from a defined benefit pension and often better to leave the PCLS in a defined contribution scheme. This is because of the attractive rates of commuting income into capital in DB schemes. DC schemes generally offer attractive annuity rates.

C It is usually better to take the PCLS from a defined contribution pension and often better to leave the PCLS in a defined benefit scheme. If a DC member wants to draw all their benefits as an annuity, they generally get a better net return from using the PCLS to buy a purchased life annuity. Most DB schemes offer a poor rate of commuting income into capital.

D It is almost always better to take the PCLS from both defined contribution and defined benefit pension schemes. If a DC member wants an annuity, they generally get a better net return from using the PCLS to buy a purchased life annuity. Most DB schemes offer an attractive rate of commuting income into capital.

 Scroll down for the answers

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Questions supplied by the CPD Centre. For more help keeping up to date with your technical knowledge go to www.ifacpd.com

Answers

1 A

2 B

3 C

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