DipFA · 3 timed mocks
AFAR2 — Retirement planning — Unit 2
Decumulation: how people take money out — annuity, drawdown, UFPLS, PCLS — and later-life issues including IHT on pensions from April 2027. Same format. Suitability over product features.
- Questions
- 30
- Minutes
- 45
- Pass (70%)
- 21/30
What AFAR2 covers
- •Pension Commencement Lump Sum, UFPLS and small-pot rules
- •Lifetime annuity vs flexi-access drawdown vs mix
- •Death benefits: pre- and post-75, nominated beneficiaries
- •IHT on unused pension funds from 6 April 2027
- •Annuity features: guaranteed periods, value protection, escalation, joint life
- •Suitability: secure income need vs flexibility vs health (enhanced annuity)
3 free AFAR2 practice questions
Straight from Mock Paper 1, in the real exam style — no sign-up, no paywall.
Q1.Pension Commencement Lump Sum (PCLS) is normally:
- A100% of the pension pot, always tax-free
- BUp to 25% of the pot, tax-free subject to the lump sum allowance of £268,275
- CTaxed as income at 40%
- DOnly available from DB schemes
Reveal the answer
B is correct. PCLS is typically 25% of the crystallised amount, tax-free up to the client's remaining LSA (£268,275 lifetime cap from 2024/25 onwards).
Q2.Uncrystallised Funds Pension Lump Sum (UFPLS) means:
- AThe entire payment is tax-free
- BEach payment is 25% tax-free and 75% taxed as pension income, taken directly from uncrystallised funds
- COnly available after age 75
- DA DB scheme transfer
Reveal the answer
B is correct. UFPLS splits each withdrawal: 25% tax-free (using LSA) and 75% taxable as income. It triggers the MPAA when taken.
Q3.A lifetime annuity primarily provides:
- AUnlimited investment control and flexible withdrawals
- BA guaranteed income for life (or a fixed term) in exchange for giving up access to the capital
- CTax-free growth with no income
- DAccess to the full fund at any time
Reveal the answer
B is correct. An annuity exchanges capital for secure income. Drawdown keeps the pot invested with flexible withdrawals but no income guarantee.
How to pass AFAR2
- ✓An unhealthy client may get a much higher enhanced annuity — ignoring health is a fail.
- ✓From April 2027 most unused pensions fall into the estate for IHT — older 'IHT-free pension' notes are stale.
- ✓PCLS is usually 25% tax-free up to the lump sum allowance; the rest is taxed as income.
AFAR2 exam — common questions
What does the AFAR2 exam cover?
AFAR2 covers pension commencement lump sum, ufpls and small-pot rules, lifetime annuity vs flexi-access drawdown vs mix, death benefits, iht on unused pension funds from 6 april 2027 and more. In full: Pension Commencement Lump Sum, UFPLS and small-pot rules; Lifetime annuity vs flexi-access drawdown vs mix; Death benefits: pre- and post-75, nominated beneficiaries; IHT on unused pension funds from 6 April 2027; Annuity features: guaranteed periods, value protection, escalation, joint life; Suitability: secure income need vs flexibility vs health (enhanced annuity).
How long is the AFAR2 exam?
45 minutes. Our AFAR2 mock papers run to the same clock, so you practise at exam pace rather than at your own.
What is the pass mark for AFAR2?
70% — 21 out of 30 marks. You have to clear 70% in each unit independently; there is no compensation between units.
How many questions are in the AFAR2 exam?
30 questions — 20 standalone questions + 2 case studies × 5 linked questions, worth 30 marks in total.
Is AFAR2 part of DipFA or CeMAP?
AFAR2 is a DipFA Applied Financial Advice unit. It is not part of CeMAP.