LLQP Segregated Funds & Annuities · Component 2.4 · 30% of the exam
A member of a defined contribution pension plan is retiring. Her options typically include:
- Aleaving the money invested indefinitely with no requirement to begin an income ever
- Bconverting the account into a defined benefit entitlement calculated on her final salary
- transferring to a life income fund or using the balance to purchase a life annuity
- Dtaking the entire account balance in cash without any tax consequence at all
Correct answer: C) transferring to a life income fund or using the balance to purchase a life annuity
Defined contribution money is pension money, so it must be converted into retirement income. The usual choices are a life income fund, a life annuity or a combination, subject to the rules of the governing pension legislation.
Why the other options are wrong
- APension legislation and the tax rules require income to begin by a set age.
- BA member cannot convert an account balance into a defined benefit promise.
- DCashing out pension money is generally not permitted and would be fully taxable.
Exam tip
Defined contribution at retirement equals life income fund, annuity or a mix of both.
Common mistake
Offering a defined contribution member the cash-out available from a savings plan.
What this tests
CISRO competency component 2.4 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.