The CII AF7 Exam in Focus – Part 2

In this series of ‘AF7 Exam in Focus’ articles, we are looking at the topics and questions which have come up in the CII’s AF7 exam over the years and how to address them. This is the second part, focusing on Section B.

In last week’s article, we focused on the questions in section A and in this article, we will be looking at section B of the AF7 exam.  This section covers two case studies and whilst curveballs and staple diet questions can also arise here, it is focused far more heavily on the practicalities of giving advice. The sort of things that you are likely to be asked to do include:

• Stating whether you would recommend the client to transfer their benefits or not and appropriately justifying your answer (a slight variant on this is being given the recommendation and asked to justify it, i.e., ‘explain why you would NOT recommend that client X transfers out of their scheme).
• Listing the further information that you would require from the client or about their scheme in order to provide a recommendation. Basically a fact-finding question. It is important to read the question carefully and identify which it is asking for. If the question asks for information about the scheme, then talking about the client’s attitude to risk etc. isn’t going to get you any marks.
• Outlining the factors you would consider when making a recommendation to the client. Again, this can be about the client and their circumstances or about the scheme itself. This is similar to the first point in essence, but only requires a general statement rather than a recommendation.
• Advantages and disadvantages of the client’s transferring the pension – again, a fundamentally similar question couched in a slightly different manner.
• Investment approach and vesting choices available were the client to transfer their pension.

The other thing you have to bear in mind with these questions is that they are generally going to want an answer related to the facts of the case study. There is no use, for example, in talking about how the client’s benefits may be restricted if the scheme enters the PPF where the client in the case study is past normal retirement age.

Occasionally again, you will get something unusual which requires a bit of thinking power. For example, this from the October 2019 paper:

Based on the objectives outlined in the case study: 

(a) Explain why the pre-retirement death benefits payable under the Bowforce Retirement Plan do not meet their objectives should Anupa die before drawing her benefits. (4)

 (b) State five actions that could be taken to help meet their objectives. (5) 

Or this from April 2021:

Assume Jake has transferred his defined benefit pension scheme into his SIPP and used part of the fund to purchase the commercial property. Explain why you would recommend most of the remaining funds in the SIPP are invested into a portfolio of equities. (8)

These are questions which should be answerable for an experienced pension transfer specialist/investment adviser. However, those with less practical experience may struggle. Again, the key is not to get flustered and if nothing is coming to mind, then move on. It is perfectly possible to pass the AF7 exam simply by picking the low hanging fruit, even if there are two or three questions on which you don’t have a clue.

One other tip to bear in mind is that candidates need to consider the verb used in the question. Where the question asks you to state or list something, the correct approach is to do just that. For example:

State the factors you would consider when advising a client on whether to transfer out of their defined benefit scheme.

Answers would include:

• Investment objectives
• Why these cannot be met using the existing scheme
• Attitude to investment risk
• Attitude to transfer risk
• Capacity for loss
• Lifetime allowance position

Etc. etc.

The answer should be written in the format above. The CII’s own exam guide says that you are advised to answer briefly and concisely, using short sentences on separate lines wherever possible. It is prudent to take their advice.

When a question asks you to name or state factors, you are not going to get additional marks for going into chapter and verse to explain them. However, conversely, some questions ask you to describe or explain the issue in question. In this instance, candidates need to be aware that one line per point is probably not going to be enough and some further detail is required.

Interestingly, whilst calculations are a pretty core part of some of the R0 and J0 papers, questions requiring this have not tended to come up in AF7 to date. However, some of the questions may indirectly require you to do a few sums, for example, those relating to lifetime allowance consequences.

AF7 is a tricky little exam, as evidenced by its pass rate, which has consistently hung around the 43-44% mark since its inception in 2017. There is no doubt that those with practical experience in the defined benefit transfer process are likely to find it easier than those going in without the benefit of such a background. However, it is not insurmountable for those who are well enough prepared.

Plenty to chew over there.

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Information in this article is correct as at 11 March 2022.