Our Post-Exam Review of the October 2018 CII AF5 Exam

Now the CII have released the papers for the October 2018 exams, we can see how we did in our AF5 pre-exam analysis.  

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

Our comment over the last couple of papers has been that there has been a focus on pensions, and once again, this paper seemed to be going down the same route. First, let’s start with the objectives, which are only given at the time of the exam.

The immediate objectives were:

• to analyse the benefits offered to Nick through his new employer
• to assess the suitability of Nick and Jane’s current savings and investments
• to evaluate Nick’s options in respect of his deferred pension benefits
• to provide a lump sum to assist their son in purchasing his first home

The longer-term objectives were:

• to ensure that Nick and Jane are able to generate an adequate and tax efficient income in retirement
• to maximise their estate for the benefit of Sally and Daniel
• to establish a suitable strategy to ensure that any long term care fees can be met

Assessing Capacity for Loss

For the first question, candidates had to identify and explain client specific factors that should be taken into consideration when assessing capacity for loss.  Capacity for loss involves assessing the facts; looking at the client’s ability to absorb falls in value and the impact this will have on their standard of living.  To this end, although we hadn’t covered this particular question, candidates should have been able to assess the facts such as the fact they want to lend money to their son, the amount of money they hold in cash and Nick’s preserved pension benefits.

Benefits Adequately Covered

The exam moved from there to the benefits being offered by Nick’s new employer.  This question was made up of three parts; (a) was a fact-finding question, and we had provided analysis on general protection fact-finding as well as specifics around being a member of his employer CIC and PMI scheme.  Part (b) was on the benefits of joining his workplace pension scheme, and again we had provided plenty of information throughout the analysis on the benefits of his doing this.  Part (c) was on the target date fund, and we had this covered in full also.

Deferred Defined Benefit Scheme

Question 3 covered the deferred defined benefit scheme; firstly for 10 marks, candidates had to specify the reasons why Nick might consider transferring to a personal pension and secondly what the key drawbacks would be.  We had covered both these areas in full, so candidates using our analysis should have achieved most marks in these questions.

Cash Flow Modelling

Question 4 was on cash flow modelling, and we are pleased to say this is covered in full in our generic section.

Generating a Sustainable Income for Retirement

Next came a recommend-and-justify question – candidates had to state the actions Nick and Jane could take to ensure that they will be able to generate a tax-efficient and sustainable income from all of their pensions and investments throughout retirement.  This was for 14 marks, and although we didn’t specifically cover it in a recommend and justify style, we did cover enough detail around their investments and pensions to answer the question.

Long-Term Care Funding

One part of this paper we didn’t consider for this couple was long-term care funding; candidates had to outline the key issues to be considered when planning a strategy to meet costs.  We hope that students would have been able to give a considered answer to this question using their knowledge and experience. It does show that for this exam, we do need to consider all areas, not just those we would normally concentrate on for clients in a particular age group.

Inherited SIPP

The inherited SIPP was up next, and we did go down a slightly different track than the actual paper.  In part (a) of the question, candidates had to recommend and justify why Jane should use a diversified portfolio of collectives.  Some feedback we received after the exam questioned how this can be a recommend-and-justify question, when the question already gives the recommendation.  Now we have seen the question, it’s hard not to agree with them.  Safe rate of withdrawal was also tested, which we hadn’t covered.

Mitigating IHT Liability

The next question was again split – this time covering the choice of investment funds for their non-pension investments and investments and specifically, how AIM shares can help mitigate their IHT liability. We covered funds in some detail, so we do feel that candidates could have picked through the analysis to help them with part (a). In our analysis of the IHT objective, we did talk about using EIS and SEIS’s for the IHT business relief after 2 years, so some marks would have been achieved here.

Treatment of an Interest-Free Loan for IHT Purposes

Next, was the objective of providing their son with a lump sum to help him buy his first home. For 6 marks, candidates had to explain how an interest-free loan would be treated for IHT purposes on second death.  We had covered the fact that the outstanding loan would be included in their estates for IHT purposes but may not have had enough detail for the six marks on offer.

Benefits/Drawbacks of Encashing an Investment Bond

The exam also asked for the benefits and drawbacks if they choose to fully encash their Investment Bond when it reaches the 20-year anniversary.  We had covered using the bond for the gift so had sufficient detail in this section for candidates to be able to give a good answer to this question.  One part of the question – for 5 marks – we didn’t cover however, was the actions they could take to protect Daniel from a forced repayment of the loan on their deaths.

Ending on a High

Finally, the review question, and again this was on pensions; we are pleased to say we ended on a high by providing a model answer to this very question.

Covered Objectives as Given

Overall, the paper covered the objectives as given, and candidates would have been able to plan well using our analysis in order to provide good answers to the majority of the questions in this exam sitting.

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!