Our Post-Exam Review of the February 2023 CII AF5 Exam
Last updated on August 3rd, 2023 at 7:30 am
The CII has now released the exam guide for the February sitting of AF5 so we can see how we did in our pre-exam analysis.
This article is correct as at 18 May 2023.
If you haven’t already seen the exam guide for February, you can access it here.
This time, the fact-find, released two weeks prior to the exam, concerned Steve and Linda, both aged 52, considering taking early retirement with planned extended overseas trips.
The objectives, given on exam day, were as follows:
- To consider the affordability of early retirement
- To identify any actions to be taken in advance of leaving employment
- To consider whether they should repay their mortgage on receipt of the inheritance
- Set up a long-term investment strategy for Linda’s inheritance
- Improve the tax-efficiency of their financial arrangements
- To ensure a sustainable income can be generated in retirement
Identify the additional information that you would require in order to advise Steve and Linda on the affordability of retiring early following receipt of Linda’s inheritance.
Explain the key financial drawbacks for Steve and Linda if they decide to take early retirement.
|Our fact-finding question covered many of the points in the marking scheme with other relevant points mentioned in other parts of the analysis to cover off both parts of this question.
Recommend and justify how Steve and Linda can improve their personal pension arrangements before taking early retirement.
Explain in detail to Steve and Linda the process that must be followed to establish and make use of their maximum carry forward pension allowance.
|We included a table of recommendations and justifications of the steps that Steve and Linda could have taken immediately to help them meet their retirement objectives as well as how their maximum tax-relievable pension contribution for the current tax year is determined.
Explain to Steve and Linda why they could consider retaining their existing mortgage rather than using part of their inheritance to repay this.
Identify the key reasons why Steve and Linda’s pension fund investments may not be suitable for their longer-term objectives
|We included analysis of why they should not pay off their outstanding mortgage immediately using their inheritance, as well as why their current pension fund choices may/may not be suitable and the risks associated with the funds as they approach retirement.
Outline the key protection issues that should be considered by Steve and Linda once they leave employment.
Identify the key reasons why Steve and Linda may wish to retain at least two years’ planned expenditure in low-risk assets, following their retirement.
|Analysis was provided in various sections around their protection needs now and once their retire although we had not considered the question asked in part (b).
Explain in detail to Steve and Linda why they may wish to consider a portfolio of global and UK passive equity tracker funds to invest a portion of the inheritance
Identify the key drawbacks for Steve and Linda of using passive equity tracker funds within their portfolio.
|Within our generic section, we include a comparison of active versus passive fund management which could have been used to answer this question.
Identify the key issues that Steve and Linda should take into consideration when establishing a safe level of withdrawal from their investment portfolio.
Explain to Steve and Linda the key factors that they should take into consideration when setting up fixed monthly withdrawals from the investment portfolio, instead of drawing the natural income.
|Our question in the main part of the analysis explained the key factors that Linda and Steve would need to consider when deciding when they can afford to retire.
The second part of the question we had covered in full as a self-test question.
Recommend and justify how Steve and Linda can generate a tax-efficient income from their financial arrangements before they reach State Pension Age.
Explain to Steve and Linda the key benefits of making voluntary National Insurance contributions for the State Pension after leaving employment.
|The ability to use personal allowances and unused personal savings allowances and dividend allowances were all included in various parts of the analysis although we had not considered the benefits of their making class 3 National Insurance contributions.
Identify the key changes in Steve and Linda’s circumstances which should trigger an immediate review of their financial arrangements.
Identify six key issues that you would discuss with Steve and Linda when their mortgage reaches the end of its fixed term in November 2026.
|Review questions are always covered which could have been used to answer these questions.
Overall, this exam sitting did seem fair with many of the expected standard AF5 exam questions, albeit with a couple of unexpected areas such as making voluntary NICs after they leave employment.
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