The CII AF7 April 2018 Exam in Review

We have been reviewing the CII exam papers from April, and this week it’s the turn of the second AF7 Pension Transfer exam.

If you haven’t seen it yet, then the paper can be found here.

Two hours are allowed, and the exam is split like the other AF exams into a section A and a Section B.

Section A

Section A comprises four questions with a total of 35 marks available.

Question 1 started with the statutory transfer process including the timescales and who is responsible.  It was a 10-mark question and should have been a nice start for most well-prepared candidates.  This process is clearly important, and it would have been necessary, we suspect, for the student to get the particular timescales and responsibilities very accurate to be awarded all of the marks on offer.

Question 2 asked for a description of how an increase in the inflation assumption used will impact a cash flow model and the suitability of a transfer.

Next, for 8 marks, candidates had to state the key documentation an adviser should retain on file for compliance purposes in respect of an advised transfer.

And the last question in Section A concerned a deferred member considering how to take his benefits in retirement.  Candidates had to outline the death benefits payable to children including their tax treatment from both a DB scheme and a FAD arrangement following a transfer.  The total question gave 10 marks.

Section B

Section B comprises 2 case studies for an overall 65 marks.  As we said following the October paper, these are not as detailed as other AF case study equivalents, such as the old AF3 pensions paper and AF1 the tax and trusts paper.

The first case study involved a single man, David, a deferred member of two previously contracted-out DB schemes. The relevant details regarding both deferred schemes were given in table format.

Questions 5 – 8 then tested various aspects of a potential transfer including 9 marks covering critical yield, 7 marks for reasons for an increase in CETV, 10 marks for the factors that need to be considered regarding a transfer and for 7 marks an explanation of why the transferred funds should be held in cash.

The second case study concerned a couple in their forties with two teenage children; they had recently set up a coffee shop.  The husband, Ian, was a deferred member of his former employer’s DB scheme, which is underfunded with a recovery plan in place. The details of this scheme were also given in table format.

The first question was fact finding for 10 marks.  The next question was on the Pension Protection Fund and the last question was for 12 marks, which required an explanation of why Ian should not transfer his benefits.

Again, for a focused pension transfer qualification, this exam seemed to us very fair.  Now we have two past exam papers and an exemplar guide too, future students are in a good position to closely study the types of question being asked and prepare a detailed study plan, with all key areas of transfers covered.

Comparison to the October 2017 Exam

If we compare this exam with the one sat in October, and see what the examiner said about how candidates tackled each part, we can see that the subjects tested in Section A included:

• Suitability reports (answered well)
• Calculation of a CETV and critical yield assumptions (most candidates answered this well)
• Employer covenants (most candidates did not understand the relevance of it), and
• DC plan with safeguarded rights (answered well)

Questions 5 – 8 tested various aspects of a transfer including fact finding and explaining factors an adviser should consider; the limitations of the critical yield produced by the TVAS and finally the options available to children in the event of death before 75 and an explanation of why a nomination form doesn’t guarantee the children would receive the death benefits.

The second case study concerned a couple, and the questions covered benefits and drawbacks of the husband transferring to a personal pension; why he couldn’t use the transitional reliefs currently available; what the ‘safe withdrawal rate’ is and finally a question on stress testing as part of a review.

Despite what we’ve said about the apparently straightforward questions, it is still an advanced paper covering a very important subject and the examiner’s comments on a lot of the AF papers usually include the fact that students do not relate their answers to the case study.  AF7 is no exception with the exam guide for the October paper several times stating that questions should be read carefully and that factors questions are different from ‘general information’ type questions as they are very specific to the case study scenario.  The examiner also stated that ‘areas such as calculation and assumptions of a CETV and the differences with TVA’ is fundamental knowledge and goes on to say that the exam should not be attempted by a student unless they have a good understanding of basic areas such as this.

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!