Our Post-Exam Review of the May 2022 CII AF5 Exam

Here, we look at the exam guide for the May sitting of CII’s AF5 exam, so we can see how we did in our pre-exam analysis.

If you haven’t already seen the exam guide for May, you can access it here. 

This time, the fact-find, released two weeks prior to the exam, concerned Mike and Emma Rees.  

The objectives, given on exam day, were as follows:  

Immediate objectives  

• Assess the suitability and tax efficiency of their current financial arrangements
• Identify a suitable investment plan for their surplus income
• Consider an appropriate method of funding for the house renovations
• Set up a suitable investment strategy for Emma’s inherited self-invested personal pension (SIPP).

Longer-term objectives 

• Consider the merits of self-insuring for future private medical costs
• Ensure they can meet their objective of retiring in 10 years’ time.

Question 1

(a) Identify the additional information that you would require in order to advise Mike and Emma on the suitability and tax efficiency of their current pensions and investments. (12)

(b) Outline the key factors that you would take into consideration when recommending a suitable investment strategy for Mike and Emma’s surplus income. (12)

One of our predicted objectives was to review the suitability and tax efficiency of their savings and investments so a fact-finding question was the first model question and answer with supplementary information in the analysis to cover off part (b) of this question as well.

Question 2 

(a) Recommend and justify to Mike and Emma why making further pension contributions to their workplace pension plans might be more beneficial than investing further into their existing ISA plans. (12)

(b) Explain to Mike why joining the new company Share Incentive Plan might be suitable for him and explain how this will operate. (12)

Our analysis included various aspects of pension planning including a suitable strategy to help the couple meet their retirement objectives; part of the analysis recommended they increase pension contributions and with at least eight justifications for this.  We also included plenty of information on their ISAs including what would happen in the event of death.  All of this information could have been used to gain the majority of marks in part (a).

We had covered the options for the Share Incentive Plan including the benefits and drawbacks in our self-test section which would have achieved full marks in part (b).

Question 3 

(a) Identify five benefits and five drawbacks for Mike and Emma of re-mortgaging their property to fund the full cost of the proposed renovations. (10)

(b) Explain to Mike and Emma why they should not use Emma’s inherited self-invested personal pension (SIPP) to provide a lump sum to fund the full cost of the proposed property renovation. (12)

We had suggested they take out an interest-only mortgage whereas question 3(a) tested re-mortgaging.  The CII model answer was virtually the same as our own model answer.

The second part of this question was covered in full; we had included a table which included why they should keep the SIPP for future pension provision and a separate question on the issues of using their inherited SIPP to fund the house renovation and how this could impact their longer-term goals.

Question 4 

(a) Identify the key benefits for Mike and Emma of retaining the existing joint life first death life assurance policy. (10)

(b) Explain to Mike and Emma the potential disadvantages for them if they decide to cancel the existing Private Medical Insurance policy. (8)

We had included a question on why Mike and Emma should keep their existing level term policy which covered part (a).

We had included the factors Mike and Emma should consider before deciding to cancel the PMI policy to cover most of the points in part (b) of this question.

Our Post-Exam Review of the May 2022 #CII #AF5 Exam. Share on X 

Question 5 

(a) Explain in detail to Emma the tax considerations and options available to her in respect of managing and drawing benefits from her inherited self-invested personal pension (SIPP) when she retires. (12)

(b) Outline the key reasons why Emma should put in place a suitable long-term investment strategy for her late father’s SIPP. (10)

In our analysis, we had the question and model answer to explain the taxation position of the inherited SIPP and the options available to Emma to cover the marks available in part (a). We also had the model answer to explain why Emma should consider retaining the inherited SIPP for the long term.  This provided the information needed to answer part (b).

Question 6

(a) Recommend and justify a range of suitable actions that Mike and Emma can take in respect of their pensions and investments to improve their financial position in advance of their proposed retirement in ten years’ time. (12)

(b) Explain to Mike and Emma the key benefits of using cashflow modelling to assist them in achieving their retirement objectives. (8)

We had included a table of recommendations and justifications to help Mike and Emma to meet their retirement objectives as well as the benefits of increasing regular contributions which would have covered most of the marks in part (a).

We covered part (b) of this question in full with two suggested questions on cashflow modelling.

Question 7 

(a) Identify the key factors that Mike should consider when deciding if he should retain or sell his existing UK Equity Investment Trust. (10)

(b) Identify the key benefits for Emma of retaining the Global Equity Exchange Traded fund in her pension fund. (6)

In our generic section, we included a table on the benefits and drawbacks of retaining an investment trust – the model answer would have provided most of the marks in part (a).

Within the main section of the analysis, we included a question and model answer explaining why a range of ETFs may be a suitable investment for Emma’s pension fund which would have gained the marks in part (b).

Question 8 

(a) Explain to Mike and Emma why it is important to keep their regular savings plans under review. (7)

(b) Identify seven key issues that you would discuss with Mike and Emma in respect of their personal circumstances at your next annual review meeting. (7)

Unusually there were two parts to this review question – we had provided model answers to two review questions all of which could have been used to answer these two questions.

Overall, this paper seemed fair with some good questions relating to the fact find.  We are pleased to see that any candidates using our analysis should have easily gained enough marks for a pass result.

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