Our Post-Exam Review of the April 2019 CII AF5 Exam

Now the CII have released the papers for the April exams, we can see how we did in our AF5 pre-exam analysis. This is useful reading if you’re planning to sit the AF5 exam in October.

If you haven’t already seen the question paper for April, you can access it on the CII website.

Let’s start with the objectives, which are given on exam day.

Immediate objectives:

• to review the suitability of Tom and Sally’s current savings and investments
• to establish a strategy to protect the long-term financial security of Tom’s business
• to mitigate Tom’s current income tax liabilities

Longer-term objectives:

• to ensure they are able to generate sufficient income in retirement
• to construct a long-term investment strategy to meet all of their objectives
• to evaluate the benefits of purchasing a buy-to-let property

Fact-Finding Analysis Proves Useful

For the first question, candidates had to identify the additional information needed to enable an assessment of the existing pensions to meet their retirement objectives. In each analysis, we cover fact-finding for each of our own anticipated objectives.  Further analysis, which can include further fact-finding, is then provided when tackling each aim in full. In this paper, candidates would have found useful the initial fact-finding analysis as well as the further information given in our assumed objective, which was ‘to ensure they have sufficient income in retirement’.

A Heavy Focus on Pensions

The next question was heavily focused on pensions and had three parts. First, candidates were asked to provide twelve benefits for Tom and his company of increasing employer pension contributions, and we are pleased to say we had covered this in full in our analysis.  Next, candidates had to explain in detail why it may not be suitable to use Tom’s existing personal pension as a vehicle to repay their mortgage. We had included analysis on the benefits of their staying with their interest only mortgage and using the PCLS as repayment vehicles, so candidates would have picked up the majority of marks here.  The third part was a ‘recommend-and-justify question’ to ensure that Sally can maximise State pension entitlement and income from her existing plan.  We had covered State pension, including what Sally might be entitled to and why she should consider paying voluntary contributions, as well as providing a table of recommendations and justifications to ensure they both have an adequate income in retirement; candidates should have scored well in this section.

Moving on to Savings and Investments

The third question moved onto their savings and investments. Firstly, an explanation was needed on why the existing corporate bond holdings might not be suitable and our analysis covered this. Next, candidates had to outline the process to follow to review the performance of their existing ISAs; and although we didn’t have this in our main section, our generic section includes details which could have been adapted.  Finally, candidates had to identify the factors to take into consideration when constructing an investment portfolio to enable them to repay their mortgage, which we hadn’t included in our analysis this time.

Business Protection

The fourth question was around the expected business protection area, and for ten marks, candidates had to explain how a key person protection policy could be set up and used to protect the company in the event of the sales manager’s becoming ill.  We had covered the position of illness as well as death. The first part of the question was covered; however, we hadn’t anticipated the exam asking for the drawbacks of doing this for Tom and his company, which was the second part but only offered five marks.

Using EIS to Mitigate Income Tax Liability

Next, candidates had to explain in detail how Tom could use an EIS to mitigate his income tax liability and state the long-term benefits of the scheme. This question was for fourteen marks in total, and we are pleased to say a model answer was provided.

The Purchase of a Buy-to-Let Property

Question six tested the purchase of the buy-to-let property. For twelve marks, candidates had to recommend and justify a suitable and tax efficient strategy to enable them to buy the property, minimising use of their existing savings and investments. Part (b) of the question asked for six benefits of their buying such a property.  In our analysis, we had provided information on the key benefits of using a buy-to-let mortgage to fund the purchase as well as the implications of their gifting the money to Hannah for her to buy the property, taking advantage of first time buyer’s relief.  Within our analysis, candidates would have also been able to answer part (b) of this question. However, it will be interesting to see the model answer when it becomes available to this particular question.

Impact of a Will on Asset Distribution and IHT

Question seven was a twelve-mark question. Candidates had to explain how Tom and Sally’s assets would be distributed and treated for IHT in the event of either of their deaths before they complete their wills, and the second part asked candidates to outline how setting up wills could improve the financial situation of the survivor in the event of either death.  These questions were expected, and we had model answers commenting on their current position, an explanation of how their estate would be distributed on either of their deaths and also why they should each write a will.

The Review Question

Finally, question eight was the review question. This time, candidates were asked for the factors to consider when reviewing Tom and Sally’s mortgage repayment strategy for their main residence at the next annual review.  We had included general review questions and model answers, and we had covered their mortgage objective in full, so we feel that some of this information would have been useful to answer this question.

Objectives Generally Expected

Overall, the objectives were generally expected, and many of the resulting questions were anticipated.  Some of the expected curve balls, such as Hannah’s student loan, were not tested and nor was their general income tax position or personal protection position; however, we are confident that candidates using our analysis would have been able to prepare well for this exam to provide solid answers to the majority of the questions.

Grab the resources you need!

If you’re studying for your CII AF5 exam, and you’re wanting to prepare as much as possible, grab our free taster analysis to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF5 fact-find analysis taster now!