Our Post-Exam Review of the October 2021 CII AF5 Exam
The CII has now released the exam guide for the October sitting of AF5 so we can see how we did in our pre-exam analysis.
If you haven’t already seen the exam guide for October, you can access it here.
This time, the fact-find, released two weeks prior to the exam, concerned Jim and Sandra, a married couple who were planning to retire in September 2023.
The objectives, given on exam day, were as follows:
- To invest the proceeds of the sale of their holiday property.
- To review the tax efficiency of their current financial arrangements.
- To establish the affordability of retirement when they both retire in September 2023.
- To ensure a sustainable and tax-efficient income in retirement.
- To establish a suitable method of providing funds for future University fees for their grandchildren.
- To ensure their estate passes to their daughter in a tax-efficient manner on second death.
The first question was in two parts: firstly, candidates had to identify the additional information required to advise Jim and Sandra on the suitability and tax-efficiency of their retirement planning arrangements. This question was for 12 marks and was fully expected and therefore covered in full in our analysis.
For another 12 marks, candidates had to explain the factors that should be taken into consideration when identifying a suitable level of emergency fund for Jim and Sandra. The model answer for this included the fact they did not have any debts, they had guaranteed income, and they were close to wanting to retire. These are all client-specific factors we had identified that would have influenced their attitude to risk which could have been used to answer this question.
The second question, for 10 marks, asked for an outline of the key issues that Jim and Sandra should consider when making a decision to downsize their current property in order to provide additional funds in retirement. Part (b) was for 6 marks and asked for an explanation of how their entitlement to the Residence Nil Rate Band would be treated after downsizing their property. The second part of the question was covered in sufficient detail to gain the majority of the marks. Although we had not specifically covered the first part of the question, some detail regarding downsizing was given in the analysis which would have picked up some of the marks available.
The third question moved onto their investments. Part (a) asked candidates to recommend and justify why Jim and Sandra might consider using a range of Multi-Asset funds to invest some of their cash. This was for 10 marks, and we had included full analysis within our generic section on why this type of fund might be suitable for Jim.
Part (b) asked for an explanation of the drawbacks for tax purposes if Jim and Sandra made additional investments into a range of collective investment funds. Within our analysis, we had included information on the suitability of their investments which included the fact that they had exceeded their dividend allowance, that any excess dividends would be taxed at their marginal rates and how a disposal would have been treated for CGT purposes, all of which could have been used towards the 9 marks available.
This question was also in two parts for a total of 17 marks. Firstly, candidates had to explain why retaining the risk-based assets within their pension and investment portfolios throughout retirement may be suitable, and in part (b) explain why the investment in the REIT fund within Sandra’s pension is likely to be more suitable for her needs than a traditional UK commercial property fund. The first part of the question we had not specifically considered but we had included the key risks of investing in a global REIT which could have been used to answer part (b).
This question was more technical in that it tested why Jim may be subject to a lifetime allowance charge, for 10 marks, and for another 12 marks, candidates had to explain how each of their pension arrangements will be treated in the event of their deaths after retirement. Our analysis covered the lifetime allowance situation for Jim and each pension arrangement was covered including the taxation. Candidates should therefore have been able to use our analysis and achieve most of the marks available.
This question continued the pension theme. Firstly, candidates had to explain the key issues the clients should consider when identifying an appropriate level of withdrawals from their personal pension plans and investments. This was for 12 marks. In part (b), candidates were asked for the factors that Jim and Sandra should consider when assessing the suitability of Jim’s Defined Benefit pension scheme in their long-term retirement planning. This was for 12 marks. Our analysis contained the current position regarding the Defined Benefit scheme as well as the benefits of Jim retaining his entitlement under the scheme, all of which could have been used to answer this question.
The penultimate question concerned the proposed gift. Firstly, candidates had to recommend and justify a suitable protection policy that Jim and Sandra should consider setting up for IHT purposes if they decide to make the gift of £120,000 to their grandchildren. This was for 12 marks. Secondly, they had to identify the key reasons why Jim and Sandra might consider using an onshore investment bond to meet their own capital and income needs, as well as enabling them to make tax-efficient gifts to their grandchildren in the future. This was for another 12 marks. We had included in our analysis the consequences of making a gift into a discretionary trust and a bare trust with the consequent IHT implications of both. We had also included the use of a whole of life policy to help with IHT mitigation. All of this information could have been used to gain marks in part (a). We had also included the use of an investment bond to use with their retirement planning as well as to support the grandchildren once they were at university which would have covered part (b).
The final question included why Jim and Sandra should consider updating their pension nominations and the key issues that should be discussed in respect of their retirement planning at their next annual review meeting. The question gave a total of 14 marks. Nominations had been mentioned as part of the section on retirement but would need to have been expanded to gain all of the marks on offer, but the second part of this final question was covered for the majority of the marks available.
Overall, this paper tested a fair mixture of product and technical areas. However, it does demonstrate how questions can be worded in the exam slightly differently to the questions that may have been used in exam preparation. Future students must consider this and be fully prepared so as not to be phased on the day. In our analysis, we include a section of self-test questions that gives examples of past CII questions with their model answers and then compares these with how we had provided the question in our analysis. What it demonstrates is that our model answers provide most of the key points of the CII answer even though the question was worded differently.
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!