The CII AF7 April 2019 Exam in Review

We have been reviewing the CII exam papers from the April 2019 sitting, and this week it’s the turn of the AF7 Pension Transfer exam.

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

The AF7 exam is just 2 hours long and carries a total of 100 marks over two sections. Section A has four short-answer questions, and in this paper, the marks allocated were 31.

Section A

The first question asked for the eligibility criteria for a member of a DB scheme to have a right to transfer safeguarded benefits to a personal pension plan, as well as how the statutory right is applied when more than one category of benefit exists.  This seemed like a nice way to start the paper and was for a total of 6 marks.

The next question tested public sector schemes and the Transfer Club, with explanations needed on how the pension benefits are calculated and the advantages of the Transfer Club to a deferred member.

The third question was on transitional protection for the lifetime allowance and why the client could not benefit from any form of the currently available protection.  All the clues were there in the question so should have caused candidates no problems.

Finally, the last question in this section was on the appropriate pension transfer analysis (APTA).  Considering this was introduced in October 2018 (and many candidates did expect it to be in the October paper), then anyone sitting the April 2019 exam should have been very prepared for this question.

Section B

Onto Section B and the two pension transfer advice case studies. Case study 1 introduced us to a widower (with two minor children) who had reduced life expectancy and was unable to work due to illness.   He was receiving a dependant’s scheme pension (which did not provide a children’s scheme pension) and had preserved benefits in his previous employer’s DB scheme.  He had the choice of taking an ill-health scheme pension with no early retirement factor or to take a transfer; he had been given a CETV of £458,000.

The questions were on:

• The HMRC requirements for taking an ill-health scheme pension
• The factors to consider and their relevance when considering a transfer
• The benefits of taking a scheme pension
• The benefits of transferring a DB pension and buying a lifetime annuity with protection
• The death benefits payable under a scheme pension and a lifetime annuity including the income tax treatment
• Use of nomination forms with an annuity protection lump sum death benefit

Case study 2 introduced us to an older married couple with grown up children.  The wife had retired and was in receipt of a DB pension income and was imminently due to receive her State pension.  The husband was still self-employed and wanted to shortly retire.  He had fairly modest preserved benefits in a former employer’s DB scheme and a State pension payable in 2020.

The questions were on:

• Fact-finding on the income payable under the scheme and financial circumstances and objectives
• Factors to consider when assessing capacity for loss
• Benefits and drawbacks of transferring the DB pension to a personal pension plan
• Stress tests as part of an annual review of the cash flow model

Comparison with the October 2018 Exam

Let’s compare this with October 2018 which can be found here.

Questions over the whole paper covered:

• Risk factors to consider when dealing with a client who wishes to transfer
• Benefits and drawbacks of transferring pre-1997 excess benefits to a personal pension whilst retaining GMP and post-1997 benefits within the DB scheme
• Sequencing risk and strategies that could be used to reduce its potential impact
• The reasons that may have contributed to a reduction in a CETV
• The features specific to a section 32 policy to be considered before recommending a transfer
• Why a transfer from a DB scheme should not be made
• A series of PCLS payments rather than taking an UFPLS
• Fact-finding on suitability or otherwise of transferring to a personal pension
• Benefits and drawbacks of transferring to a personal pension
• Suitability and income tax position if death benefits are nominated directly or via a bypass trust

As we are now into the fourth AF7 paper, we can start to see the pattern emerging. Fact-finding and ‘factors’ questions are going to appear each time.  Recent legislation will be tested as soon as it is practically possible to do so.  There is a mixture of technical knowledge needed but plenty of its application needed too; it goes without saying that candidates must be prepared for the benefits and drawbacks of transferring out of a DB scheme. To gain the marks on offer, candidates must carefully read each case study in Section B to ensure that they relate their answers (which must be specific) to those clients.

For someone who works with pension transfers, the April 2019 paper should not have caused any problems.

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!