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The Technical Quiz – Aug 2

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

The following questions all relate to lifetime annuity:
Question 1

To qualify as a “lifetime annuity” under the pensions’ tax regime it must:
A) be purchased from an insurance company that the member had the opportunity to select
B) be purchased from a UK insurance company that the member had the opportunity to select
C) not allow the income paid in any one year to be lower than that paid in a previous year
D) not be capable of assignment or surrender in any circumstances

Question 2

Which one of the following statements concerning a lifetime annuity is not correct?
A) It can be set up with annuity protection
B) A guarantee period can continue beyond age 75
C) Where a five-year guarantee period has been selected, it can be commuted for a lump sum on the death of a member
D) Where a ten-year guarantee period has been selected, it cannot be commuted for a lump sum on the death of a member

Question 3
Which one of the following statements is not correct in respect of HMRC’s rules in respect of lifetime annuities?

A) A lifetime annuity must be set up before a member’s 75th birthday
B) A lifetime annuity must be purchased from an insurance company that the member had the opportunity to select
C) A lifetime annuity must not allow the payment, either directly or indirectly, of a capital sum triggered by the member’s death, (apart from annuity protection)
D) A lifetime annuity must not be capable of assignment or surrender (except to give effect to a pension sharing order).

Question 4
Freda is in receipt of a lifetime annuity of £10,000 gross p.a. (£8,000 net p.a.) paid annually in arrears. She received three payments but then died. The annuity was established with “annuity protection” and originally the annuity purchase price was £200,000. The net lump sum payable on her death will be

A) £76,500
B) £79,200
C) £110,500
D) £114,400

Question 5
Which one of the following statements in respect of a dependant’s annuity is not correct

A) A dependant’s annuity can include escalation in payment
B) A dependant’s annuity can include a guarantee period
C) A dependant’s annuity can cease if the dependant’s remarries
D) A dependant’s annuity can be provided by a different insurance company to the one who provided the member’s lifetime annuity.

Questions supplied by Technical Connection

Answers

1 A)
See RPSM09101710

2 C)
See RPSM10104050 and RPSM10104340

3 A)

4 A)

5 B)

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