Pension Transfers Starting to Appear on the CII R06 Exam
In January’s R06 exam, it was interesting to see that one of the questions was very much like one you might expect to see in the AF7 pension transfers exam. Here, we take a closer look.
The question in R06 was:
Explain the reasons to remain in an employer’s defined benefit scheme.
This area was tested the year before in April 2019 when the question was ‘state the benefits of retaining the current defined benefit pension scheme entitlement’. When we look at the examiner’s comments from that exam guide, we read that it was ‘disappointing to see many candidates not achieving high marks in this defined benefit section’. Perhaps then it’s no surprise to see it come up again less than 12 months later.
The benefits as given in the model answer for the April 2019 question were:
- Guaranteed income
- No investment risk
- No annuity rate risk
- Spouses pension
- Dependents pension (the son had a disability)
- Indexation
- Employer takes on liability/Pension Protection Fund in place (PPF)
- No admin/no ongoing advice/costs
A typical AF7 question is:
List the potential benefits and drawbacks of transferring a defined benefit scheme into a personal pension.
The model answer for this has been:
Benefits
- Able to access benefits from age 55
- Can access benefits flexibly if required/can vary income
- Potentially higher PCLS
- Will be able to provide death benefits for children
- Death benefits will be tax-free if death occurs before age 75
- Potential for future growth
Drawbacks
- Loss of guaranteed income
- Exposure to investment risk
- Loss of inflation-linked income
- Income may not be sustainable/funds could fun out/longevity risk
- Cost of advice and complexity
Both exams are case study based, the difference being of course that with R06, these are provided to candidates two weeks in advance of the exam.
A similarity is that when answering both questions, candidates are expected to use the information in the case study when providing answers; although the expectation is much greater with AF7, with it being an advanced paper. Future AF7 candidates should ensure they practise relating their answers to the case study using past papers and ensure they have a prepared answer to the above question as it’s hard to imagine that a variation of this won’t appear in each exam sitting.
One other reminder with AF7 is that the marking is strict; it has to be because of the nature of the work that the adviser can then go onto practise. Students must ensure they are precise with their answers in order to be awarded the marks.
Grab the resources you need!
If you’re studying for your CII AF7 exam, and you’re wanting to feel confident on exam day, grab our free taster to try out one of Brand Financial Training’s resources for yourself. Click the link to download the AF7 mock paper taster now!
Alternatively, you can download a taster for one of our R06 resources, here.
