The CII AF7 April 2021 Exam in Review
We have been reviewing the CII exam papers from the April 2021 sitting, and this week we’re looking at AF7 – the Pension Transfer exam.
You can find the exam guide here.
In this paper, Section A had 33 marks allocated to it and Section B had 67 marks.
Section A
There were four questions in section A starting with a process question; candidates were told that they were advising a client with deferred benefits in a DB scheme using the abridged advice process. They then had to outline the actions that must be taken if, following this process, they are unable to make a personal recommendation that the client remains in the scheme. This was for five marks.
Question 2 asked for the key factors to consider in assessing a client’s capacity for loss when advising on the potential transfer of safeguarded benefits. This was for 10 marks.
In Question 3, we were introduced to Frank, aged 62, who had a RAC that offered a guaranteed annuity rate. For 8 marks, candidates had to outline the additional information needed regarding the RAC before advising Frank on whether to transfer this pension fund to access these benefits flexibly.
Question 4 was another factors question: this time, for 10 marks, the factors to consider when determining a safe rate of withdrawal from their transferred funds.
Section A was a very good mix of pension transfer process and application; candidates should have done well in this section.
Here's a review of the Apr 21 exam paper for #CII #AF7. Share on XSection B
Case Study 1
The first case study involved Jake and Kay, a couple in their fifties. Jake had two children from his previous marriage. Kay was a GP and a member of the NHS Pension Scheme. Jake was the client who had previous membership of a DB scheme. He also had a SIPP.
Firstly, candidates had to state the additional information needed from the scheme administrator of the DB scheme, before making a personal recommendation regarding the potential transfer of Jake’s benefits. This was for 10 marks and should have caused no problems for most.
Next, candidates were asked for the factors to consider before making a personal recommendation about the potential transfer of benefits. Again, a question that should have been expected and practised enough to gain most, if not all, of the 12 marks on offer.
Then candidates were told to assume that Jake had transferred his DB scheme into his SIPP and used part of the fund to purchase a commercial property. The question however was why a recommendation would be made to invest the rest of the funds into a portfolio of equities. This was for eight marks and again, should not have caused issues for those sitting this paper.
Finally, candidates were informed that Jake would like his children to benefit from the SIPP fund in the event of his death and then had to explain how the death benefits may be distributed if Jake were to die once the children are financially independent, having not completed a nomination form in their favour if (a) in the event that Kay is still alive (for three marks) and (b) in the event that Kay has predeceased Jake (for another three marks).
Case Study 2
This case study involved a slightly older couple: Tim and Alice both aged 63, having spent most of 2020 on furlough, had now decided to retire. They had no children, both with full State pensions and DB schemes.
There were just three questions. Firstly, candidates were asked (having agreed to undertake the full pension transfer advice process for them) to outline the information that must be included in the one-page summary at the front of the suitability report. This was for 10 marks.
Next, for another 10 marks, candidates had to explain, why they recommend that Tim’s pension is the one that should be transferred rather than Alice’s. This type of question has been asked before so well-prepared students should have easily picked up most of the 12 marks on offer.
Finally, candidates were asked to explain the compensation available in respect of the pension income received by Alice in the event her scheme enters the Pension Protection Fund before she starts taking her benefits at the scheme pension age of 65. This final question was for 9 marks and again has been tested in previous papers.
The paper overall tested a wide range of areas including some of the more recent and topical areas. Candidates should always expect this to be the case with this exam.
As AF7 is a specialist paper we thought it might be useful to see what has been tested over the previous six papers starting with the first sitting in October 2018.
| October 2018 | Risk warnings and risk factors FCA expects firms to consider Benefits and drawbacks of transferring pre-97 excess benefits to a PP whilst retaining GMP and post-97 benefits within DB scheme Sequencing risk and strategies to reduce its potential impact Reasons that may have contributed to a reduction in CETV 36 marks | Features specific to a section 32 policy that should be considered before recommending a transfer Reasons for not transferring Why client should take £10,000 pa needed as PCLS payments rather than UFPLS each year 30 marks | Fact-finding client before advising on whether to transfer or not Benefits and drawbacks of transfer to a PP Suitability and children’s income tax position if death benefits are nominated to children directly or via a bypass trust (after transfer) 34 marks |
| April 2019 | Member eligibility criteria for right to transfer safeguarded benefits and how this is applied when more than one category of benefit exists Pension benefit calculation of public sector schemes/advantages of the Transfer Club Transitional protection Factors FCA expects to be considered within an APTA 31 marks | HMRC requirements for taking ill-health pension Factors to consider and their relevance when considering a transfer The benefits of taking a scheme pension The benefits of transferring and buying a lifetime annuity with protection Death benefits under a scheme pension and a lifetime annuity including income tax treatment Use of nomination forms with an annuity protection lump sum death benefit 36 marks | Fact-finding on income payable under the scheme and financial circumstances and objectives Factors to consider when assessing capacity for loss Benefits and drawbacks of transferring to a PP Stress tests as part of an annual review of the cash flow model 33 marks |
| October 2019 | How a triage service works including benefits for client. Factors to consider when advising whether to transfer a RAC with a GAR. Factors to consider when assessing security of scheme benefits from an underfunded scheme. How the estimated costs of providing same benefits in a DC scheme as those in a deferred DB scheme are calculated, stating assumptions used. 32 marks | Information needed from the administrator of the scheme. Factors to focus on when assessing attitude to transfer risk. Client-specific factors to be considered when undertaking APTA. The reasons why the recommendation was for client to leave benefits in the scheme. 34 marks | The benefits and drawbacks of transferring a DB scheme to a PP. Why the pre-retirement death benefits payable under the scheme don’t meet their objectives should client die before drawing benefits and the actions they could take to help meet their objectives. Following a recommendation to transfer, the factors to take account of when assessing sustainability of withdrawals needed to meet their income needs and the additional information needed to advise on a suitable investment strategy. 34 marks |
| July 2020 | FCAs rules when two advisers work together to provide advice and the advice on the proposed receiving scheme and its investments How a higher assumed rate of future inflation would impact a CETV Benefits of using a lifetime cashflow model and why it needs to be reviewed regularly Key factors, and their importance, when assessing ATR 33 marks | Factors to consider and their relevance when recommending a potential transfer Death benefit options and their tax treatment on a transfer to a PP Tax implications of using an investment portfolio to provide income / capital requirements as opposed to taking funds from a PP 34 marks | Additional information needed to advise on the suitability or otherwise of transferring a DB pension scheme to a PP Why the results of a TVC will be of limited relevance in determining whether a transfer is suitable or not Benefits and drawbacks of transferring to a PP now rather than when the client approaches age 60 How benefits will be affected if the scheme enters the PPF before age 65 33 marks |
| October 2020 | Independent advice and transfers. Criteria for ill-health pension; PPF compensation and why CETV when in poor health might be good value. Factors when transferring/GMP benefits. Reasons for higher CETV. 33 marks | Factors when transferring pre-97 benefits leaving post 97 benefits in scheme. Death benefits and taxation for post-97 benefits and DC pension following transfer of cash equivalent pre-97 benefits. Factors when designing an investment strategy for a transferred pension fund. 34 marks | Additional information needed before advising on suitability of transferring benefits. Factors to support a recommendation to retain benefits in DB scheme. Why nominations for dependent’s FAD and workplace pension should be made. IHT Planning 33 marks |
| February 2021 | Section 32 policy that included GMP. Employer covenants. Death benefits and tax treatment in the event of death before crystallisation if scheme is retained or a transfer to a PP is made. Abridged advice. 30 marks | Factors to consider when deciding which DB pension to transfer. Benefits and drawbacks of using part of a fund to buy an annuity. Factors to consider when deciding which annuity basis should be recommended for partial annuitisation. Class 3 NICs. 38 marks | Contingent charging Cash flow modelling – FCA requirements when used as part of the APTA and reviews. Risks regarding accepting a CETV, withdrawing the PCLS to repay debt with balance placed on deposit. 32 marks |
We offer resources to support you as you revise for the AF7 Pension Transfers exam. AF7 has a large number of ‘staple questions’ which come up time and again in the exam paper.
Our ‘Core Knowledge’ resource focuses on these ‘staple questions’ and includes questions, answers, detailed explanations, and cross-references to the CII study text. The resource also includes some of the core calculation questions you would be expected to understand. This is a resource that we developed specifically for the AF7 exam.
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 Core Knowledge Taster now!
