ACCA Taxation (F6) Practice Exam

Which of the following accurately describes the key feature of the personal pension scheme?

1. It is only for employees

2. It allows contributions regardless of income status

3. It only benefits individuals with a high income

4. It is mandatory for all self-employed individuals

The correct answer is: It allows contributions regardless of income status

The key feature of a personal pension scheme is that it allows individuals to make contributions regardless of their income status. This flexibility is important because it enables individuals who might have variable or low income, including part-time workers and the self-employed, to still save for retirement. Personal pension schemes are designed to encourage saving for retirement, and they do so by allowing contributions from anyone interested in building a retirement fund, irrespective of their current income situation. In contrast, the other choices do not accurately represent the features of personal pension schemes. While some pension schemes may target specific groups, personal pensions are inclusive. They are not limited to employees alone; anyone can open a personal pension. They also do not exclusively benefit high-income individuals, as individuals with lower or variable incomes can also participate and benefit from tax relief on contributions. Moreover, personal pensions are not mandatory for self-employed individuals; rather, they are an option that self-employed individuals can choose to establish for their retirement savings.