CII R06 Financial Planning Practice Exam Prep Practice
Questions and Answer Review
This comprehensive document contains 600 practice questions designed to mirror the style,
content, and difficulty of the CII R06 Financial Planning Practice examination. Each question is
followed by multiple correct answers and a detailed rationale explaining the reasoning behind
the correct choices, as well as why the incorrect options are not suitable. This resource is
intended for study purposes only and should be used in conjunction with official CII study texts
and materials.
Question 1
A couple, both aged 45, with two children aged 10 and 12, are reviewing their financial plan.
Their joint income is £120,000 per annum, with a mortgage of £250,000 on a repayment basis
over 20 years. They have no other debts. They have £30,000 in a cash ISA, £50,000 in a stocks
and shares ISA, and each has a defined contribution pension with current values of £60,000 and
£45,000 respectively. Their key objective is to ensure they can maintain their current lifestyle in
retirement, which they estimate requires an income of £50,000 per annum in today’s money.
They are both basic rate taxpayers. Which of the following actions should be prioritised to best
meet their long-term retirement income goal, considering their current financial position and
the need for flexibility?
A) Increase pension contributions to the maximum allowable annual allowance, utilising any
carried forward unused allowance, to benefit from tax relief and employer matching.
B) Use the £30,000 cash ISA to make an overpayment on the mortgage to reduce the term,
thereby freeing up future disposable income for retirement savings.
C) Transfer the stocks and shares ISA into a more diversified portfolio of global equities to seek
higher long-term growth, while maintaining the cash ISA as an emergency fund.
D) Review their expenditure to identify surplus cash flow that can be directed into both pension
and ISA investments, ensuring a balance between tax efficiency and accessibility.
E) Consolidate both defined contribution pensions into a single self-invested personal pension
(SIPP) to achieve lower charges and a wider range of investment options.
Rationale: The correct answers are A and D. Option A is correct because increasing pension
contributions is a tax-efficient way to save for retirement, especially for basic rate taxpayers who
receive 20% relief, and they can potentially use carry forward to contribute more than the
£40,000 annual allowance if they have unused allowances from the previous three years. This
,directly addresses their retirement income goal. Option D is also correct because a
comprehensive review of expenditure is essential to identify surplus cash flow, which can then
be strategically allocated to both pensions (for tax relief) and ISAs (for tax-free growth and
accessibility). Option B is less suitable because mortgage overpayment, while reducing debt,
offers a return equivalent to the mortgage interest rate (likely lower than potential investment
returns over a 20-year horizon) and uses liquid assets that could be better deployed for
retirement, especially as they have a long investment horizon. Option C is too narrow; while
diversification is important, it does not address the core issue of contribution levels. Option E is
not a priority; consolidation may have benefits but is not the most critical immediate action,
and SIPPs may have higher costs, and the existing pensions may have valuable guarantees or
lower charges.
Question 2
A client aged 60 is planning to retire in 5 years. He has a final salary pension scheme with a
normal retirement age of 65, a defined contribution pension pot of £200,000, and £100,000 in
ISAs. He is a higher-rate taxpayer. He is considering transferring his final salary scheme to a
personal pension. He is concerned about inflation and wants a guaranteed income in
retirement. Which of the following factors must be considered in the advice regarding the
transfer, and what is the most appropriate course of action?
A) The transfer value offered by the scheme, which must be compared with the potential
benefits of the scheme, including the guaranteed income and survivor benefits.
B) The client's attitude to risk, as a transfer would put the investment risk on him, whereas the
final salary scheme places the risk on the employer.
C) The client's health and life expectancy, as a transfer might be suitable if he has a shorter life
expectancy due to the potential for higher income drawdown.
D) The client's need for flexibility in retirement, as a transfer could provide access to a wider
range of income options, including flexi-access drawdown.
E) The guaranteed annuity rates that may be available within the final salary scheme, which
could be more favourable than those on the open market.
Rationale: The correct answers are A, B, D, and E. Option A is correct because the transfer value
must be compared to the scheme benefits to assess if it provides a fair value for the benefits
being given up. Option B is crucial because a transfer changes the risk profile from the employer
to the client, and the client must be able to accept this investment risk. Option D is correct
because one potential benefit of a transfer is greater flexibility in accessing benefits, including
drawdown. Option E is correct because many older schemes have guaranteed annuity rates
(GARs) which are valuable and would be lost on transfer, a key consideration. Option C is
incorrect because a transfer to a personal pension would not necessarily provide higher income
if life expectancy is shorter; in fact, the final salary scheme might provide a higher income for a
,longer period, and a shorter life expectancy would make the guaranteed income more valuable,
not less.
Question 3
A client, aged 35, has just received a significant inheritance of £150,000. She is a basic rate
taxpayer and is currently renting. She has no existing investments, except for a workplace
pension where she contributes 5% of her salary and her employer matches 5%. Her financial
goals are to purchase her first home within the next 5 years and to start a family in the near
future. She is risk-averse and has no debt. Which of the following recommendations would be
most suitable for her immediate financial planning?
A) Invest the entire inheritance in a diversified portfolio of equities, as she has a long-term
horizon and needs growth to meet her goals.
B) Open a Lifetime ISA (LISA) and contribute the maximum £4,000 per tax year to benefit from
the 25% government bonus towards her first home purchase.
C) Place the majority of the inheritance in a high-interest savings account or a cash ISA to
provide a secure deposit for a house purchase, as her time horizon is short.
D) Use a portion of the inheritance to set up a general investment account for long-term
growth, while maintaining a cash reserve for the house deposit and emergency fund.
E) Maximise her pension contributions using the inheritance to benefit from tax relief, as this is
the most tax-efficient vehicle for long-term savings.
Rationale: The correct answers are B, C, and D. Option B is correct because a LISA is specifically
designed for first-time buyers and provides a 25% government bonus on contributions up to
£4,000 per year, making it an excellent vehicle for a house deposit, especially for a basic rate
taxpayer. Option C is correct because her short-term goal of buying a house in 5 years requires
capital preservation, so cash or near-cash products are suitable. Option D is correct because a
balanced approach, using some funds for long-term growth and maintaining cash for the
deposit, meets both her goals while managing risk. Option A is incorrect because equities are
too volatile for a 5-year goal, and her risk-averse nature would make this unsuitable. Option E is
incorrect because locking money into a pension until age 55 (or later) is not suitable for her
short-term house purchase goal and does not provide immediate access to funds.
Question 4
A retired couple, aged 72 and 70, have a combined income from state pensions and a small
private pension of £30,000 per annum. They own their home outright, valued at £400,000. They
have £50,000 in cash savings. They are concerned about long-term care costs and wish to leave
an inheritance to their two children. They are considering equity release. Which of the following
statements are correct regarding equity release for this couple?
A) A lifetime mortgage allows them to borrow against the value of their home while retaining
ownership, with interest rolling up, reducing the inheritance.
, B) A home reversion plan involves selling a portion of the property to a provider in exchange for
a lump sum or income, while they continue to live in the property rent-free.
C) The funds from equity release are exempt from inheritance tax, providing a tax-efficient way
to pass on wealth.
D) They should consider the impact of equity release on their means-tested benefits, such as
pension credit, as the capital raised may affect eligibility.
E) An equity release plan must be regulated by the Financial Conduct Authority (FCA) and
should include a 'no negative equity' guarantee.
Rationale: The correct answers are A, B, D, and E. Option A correctly describes a lifetime
mortgage. Option B correctly describes a home reversion plan. Option D is correct because
raising capital could push them above the means-test thresholds for benefits like pension credit.
Option E is correct because all equity release plans are regulated by the FCA and must include a
'no negative equity' guarantee. Option C is incorrect because the funds released are not exempt
from inheritance tax; the loan reduces the estate, but the property value (or the remaining
portion) is still subject to IHT, and the released funds, if not spent, would form part of the estate
for IHT purposes.
Question 5
A client aged 50 is a higher-rate taxpayer with a salary of £65,000 and a bonus of £10,000. He
has a defined contribution pension pot of £150,000. He is considering making a personal
pension contribution of £30,000 gross. He has unused annual allowance from the previous
three years. His total income for the tax year is £75,000. Which of the following are the correct
tax implications of this contribution?
A) He will receive basic rate tax relief at source, increasing the net contribution to £24,000.
B) He can claim higher rate tax relief of 20% on the gross contribution, reducing his tax liability
by £6,000.
C) The net contribution of £24,000 will be paid to the pension provider, who will claim basic rate
relief of £6,000 from HMRC, making the gross contribution £30,000.
D) He can also claim the additional higher rate relief of 20% through his self-assessment tax
return, making the total tax relief £12,000.
E) The gross contribution will reduce his adjusted net income for the purposes of the personal
allowance taper, which starts at £100,000, so no impact.
Rationale: The correct answers are C and D. Option C is correct: a personal pension contribution
is made net of basic rate tax, so to get a gross contribution of £30,000, he pays £24,000, and the
provider claims £6,000 from HMRC. Option D is correct: as a higher-rate taxpayer, he can claim
an additional 20% relief (£6,000) through his tax return, making total relief £12,000. Option A is
incorrect because the basic rate relief is claimed by the provider, not the client. Option B is
incorrect because the higher rate relief is 20% of the gross contribution (£6,000), but the total
Questions and Answer Review
This comprehensive document contains 600 practice questions designed to mirror the style,
content, and difficulty of the CII R06 Financial Planning Practice examination. Each question is
followed by multiple correct answers and a detailed rationale explaining the reasoning behind
the correct choices, as well as why the incorrect options are not suitable. This resource is
intended for study purposes only and should be used in conjunction with official CII study texts
and materials.
Question 1
A couple, both aged 45, with two children aged 10 and 12, are reviewing their financial plan.
Their joint income is £120,000 per annum, with a mortgage of £250,000 on a repayment basis
over 20 years. They have no other debts. They have £30,000 in a cash ISA, £50,000 in a stocks
and shares ISA, and each has a defined contribution pension with current values of £60,000 and
£45,000 respectively. Their key objective is to ensure they can maintain their current lifestyle in
retirement, which they estimate requires an income of £50,000 per annum in today’s money.
They are both basic rate taxpayers. Which of the following actions should be prioritised to best
meet their long-term retirement income goal, considering their current financial position and
the need for flexibility?
A) Increase pension contributions to the maximum allowable annual allowance, utilising any
carried forward unused allowance, to benefit from tax relief and employer matching.
B) Use the £30,000 cash ISA to make an overpayment on the mortgage to reduce the term,
thereby freeing up future disposable income for retirement savings.
C) Transfer the stocks and shares ISA into a more diversified portfolio of global equities to seek
higher long-term growth, while maintaining the cash ISA as an emergency fund.
D) Review their expenditure to identify surplus cash flow that can be directed into both pension
and ISA investments, ensuring a balance between tax efficiency and accessibility.
E) Consolidate both defined contribution pensions into a single self-invested personal pension
(SIPP) to achieve lower charges and a wider range of investment options.
Rationale: The correct answers are A and D. Option A is correct because increasing pension
contributions is a tax-efficient way to save for retirement, especially for basic rate taxpayers who
receive 20% relief, and they can potentially use carry forward to contribute more than the
£40,000 annual allowance if they have unused allowances from the previous three years. This
,directly addresses their retirement income goal. Option D is also correct because a
comprehensive review of expenditure is essential to identify surplus cash flow, which can then
be strategically allocated to both pensions (for tax relief) and ISAs (for tax-free growth and
accessibility). Option B is less suitable because mortgage overpayment, while reducing debt,
offers a return equivalent to the mortgage interest rate (likely lower than potential investment
returns over a 20-year horizon) and uses liquid assets that could be better deployed for
retirement, especially as they have a long investment horizon. Option C is too narrow; while
diversification is important, it does not address the core issue of contribution levels. Option E is
not a priority; consolidation may have benefits but is not the most critical immediate action,
and SIPPs may have higher costs, and the existing pensions may have valuable guarantees or
lower charges.
Question 2
A client aged 60 is planning to retire in 5 years. He has a final salary pension scheme with a
normal retirement age of 65, a defined contribution pension pot of £200,000, and £100,000 in
ISAs. He is a higher-rate taxpayer. He is considering transferring his final salary scheme to a
personal pension. He is concerned about inflation and wants a guaranteed income in
retirement. Which of the following factors must be considered in the advice regarding the
transfer, and what is the most appropriate course of action?
A) The transfer value offered by the scheme, which must be compared with the potential
benefits of the scheme, including the guaranteed income and survivor benefits.
B) The client's attitude to risk, as a transfer would put the investment risk on him, whereas the
final salary scheme places the risk on the employer.
C) The client's health and life expectancy, as a transfer might be suitable if he has a shorter life
expectancy due to the potential for higher income drawdown.
D) The client's need for flexibility in retirement, as a transfer could provide access to a wider
range of income options, including flexi-access drawdown.
E) The guaranteed annuity rates that may be available within the final salary scheme, which
could be more favourable than those on the open market.
Rationale: The correct answers are A, B, D, and E. Option A is correct because the transfer value
must be compared to the scheme benefits to assess if it provides a fair value for the benefits
being given up. Option B is crucial because a transfer changes the risk profile from the employer
to the client, and the client must be able to accept this investment risk. Option D is correct
because one potential benefit of a transfer is greater flexibility in accessing benefits, including
drawdown. Option E is correct because many older schemes have guaranteed annuity rates
(GARs) which are valuable and would be lost on transfer, a key consideration. Option C is
incorrect because a transfer to a personal pension would not necessarily provide higher income
if life expectancy is shorter; in fact, the final salary scheme might provide a higher income for a
,longer period, and a shorter life expectancy would make the guaranteed income more valuable,
not less.
Question 3
A client, aged 35, has just received a significant inheritance of £150,000. She is a basic rate
taxpayer and is currently renting. She has no existing investments, except for a workplace
pension where she contributes 5% of her salary and her employer matches 5%. Her financial
goals are to purchase her first home within the next 5 years and to start a family in the near
future. She is risk-averse and has no debt. Which of the following recommendations would be
most suitable for her immediate financial planning?
A) Invest the entire inheritance in a diversified portfolio of equities, as she has a long-term
horizon and needs growth to meet her goals.
B) Open a Lifetime ISA (LISA) and contribute the maximum £4,000 per tax year to benefit from
the 25% government bonus towards her first home purchase.
C) Place the majority of the inheritance in a high-interest savings account or a cash ISA to
provide a secure deposit for a house purchase, as her time horizon is short.
D) Use a portion of the inheritance to set up a general investment account for long-term
growth, while maintaining a cash reserve for the house deposit and emergency fund.
E) Maximise her pension contributions using the inheritance to benefit from tax relief, as this is
the most tax-efficient vehicle for long-term savings.
Rationale: The correct answers are B, C, and D. Option B is correct because a LISA is specifically
designed for first-time buyers and provides a 25% government bonus on contributions up to
£4,000 per year, making it an excellent vehicle for a house deposit, especially for a basic rate
taxpayer. Option C is correct because her short-term goal of buying a house in 5 years requires
capital preservation, so cash or near-cash products are suitable. Option D is correct because a
balanced approach, using some funds for long-term growth and maintaining cash for the
deposit, meets both her goals while managing risk. Option A is incorrect because equities are
too volatile for a 5-year goal, and her risk-averse nature would make this unsuitable. Option E is
incorrect because locking money into a pension until age 55 (or later) is not suitable for her
short-term house purchase goal and does not provide immediate access to funds.
Question 4
A retired couple, aged 72 and 70, have a combined income from state pensions and a small
private pension of £30,000 per annum. They own their home outright, valued at £400,000. They
have £50,000 in cash savings. They are concerned about long-term care costs and wish to leave
an inheritance to their two children. They are considering equity release. Which of the following
statements are correct regarding equity release for this couple?
A) A lifetime mortgage allows them to borrow against the value of their home while retaining
ownership, with interest rolling up, reducing the inheritance.
, B) A home reversion plan involves selling a portion of the property to a provider in exchange for
a lump sum or income, while they continue to live in the property rent-free.
C) The funds from equity release are exempt from inheritance tax, providing a tax-efficient way
to pass on wealth.
D) They should consider the impact of equity release on their means-tested benefits, such as
pension credit, as the capital raised may affect eligibility.
E) An equity release plan must be regulated by the Financial Conduct Authority (FCA) and
should include a 'no negative equity' guarantee.
Rationale: The correct answers are A, B, D, and E. Option A correctly describes a lifetime
mortgage. Option B correctly describes a home reversion plan. Option D is correct because
raising capital could push them above the means-test thresholds for benefits like pension credit.
Option E is correct because all equity release plans are regulated by the FCA and must include a
'no negative equity' guarantee. Option C is incorrect because the funds released are not exempt
from inheritance tax; the loan reduces the estate, but the property value (or the remaining
portion) is still subject to IHT, and the released funds, if not spent, would form part of the estate
for IHT purposes.
Question 5
A client aged 50 is a higher-rate taxpayer with a salary of £65,000 and a bonus of £10,000. He
has a defined contribution pension pot of £150,000. He is considering making a personal
pension contribution of £30,000 gross. He has unused annual allowance from the previous
three years. His total income for the tax year is £75,000. Which of the following are the correct
tax implications of this contribution?
A) He will receive basic rate tax relief at source, increasing the net contribution to £24,000.
B) He can claim higher rate tax relief of 20% on the gross contribution, reducing his tax liability
by £6,000.
C) The net contribution of £24,000 will be paid to the pension provider, who will claim basic rate
relief of £6,000 from HMRC, making the gross contribution £30,000.
D) He can also claim the additional higher rate relief of 20% through his self-assessment tax
return, making the total tax relief £12,000.
E) The gross contribution will reduce his adjusted net income for the purposes of the personal
allowance taper, which starts at £100,000, so no impact.
Rationale: The correct answers are C and D. Option C is correct: a personal pension contribution
is made net of basic rate tax, so to get a gross contribution of £30,000, he pays £24,000, and the
provider claims £6,000 from HMRC. Option D is correct: as a higher-rate taxpayer, he can claim
an additional 20% relief (£6,000) through his tax return, making total relief £12,000. Option A is
incorrect because the basic rate relief is claimed by the provider, not the client. Option B is
incorrect because the higher rate relief is 20% of the gross contribution (£6,000), but the total
