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The CII AF7 July 2020 Exam in Review

The CII AF7 July 2020 Exam in Review

We have been reviewing the CII exam papers from the July 2020 sitting and this time, it’s the turn of the AF7 Pension Transfer exam.

If you haven’t seen July’s exam guide, it can be found here.

In this sitting, Section A had 33 marks and section B had 67 marks.

Section A

The first question asked candidates to outline the FCA’s rules that must be followed when two separate advisers work together to provide DB pension transfer advice and the advice on the proposed receiving scheme and its investments – 7 marks.

Question 2 was a mini case study and tested how a higher assumed rate of future inflation would impact a client’s CETV calculation – 9 marks.

Question 3 was another mini case study and had two parts; part (a) asked candidates to outline benefits of using a lifetime cashflow model as part of the advice process and part (b) asked for an explanation of why the lifetime cash flow model will need to be reviewed regularly – 9 marks.

The last question in Section A asked for an outline of the key factors that should be considered when assessing an individual’s attitude to investment risk and outline why they are important – 8 marks.

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Section B

The first case study of Section B concerned William and Olivia.   The three questions asked were:

  • List the factors you would consider and outline their relevance when making a recommendation on the potential transfer of the cash equivalent value of William’s DB pension scheme – 15 marks.
  • State all the potential death benefit options and their tax treatment, if William transfers his DB pension scheme benefits to a personal pension in order to access his benefits flexibly – 10 marks.
  • Compare the tax implications of using the couple’s investment portfolio to provide any income or capital requirements as opposed to taking funds from William’s personal pension – 9 marks.

In Case Study 2, we were introduced to Nisha and Sanjay.  The four questions were:

  • State the additional information you would need prior to advising Nisha on the suitability or otherwise of transferring the value of her DB pension scheme to a personal pension – 8 marks.
  • Explain why the results of a TVC will be of limited relevance in determining whether a transfer is suitable or not – 12 marks.
  • List the potential benefits and potential drawbacks of transferring the value of her DB pension scheme to a personal pension now rather than when Nisha approaches age 60 – 8 marks.
  • Outline how Nisha’s benefits will be affected if the scheme enters the PPF before she reaches age 65 – 5 marks.

Overall, this seemed another reasonable paper with a similar mix of application and technical knowledge that we have seen in previous papers.

As AF7 is a specialist paper, we thought it might be useful to see what has been tested over the previous five papers starting with the first sitting in October 2017.

Section A
Section B – Case Study 1
Section B – Case Study 2
October 2017Suitability report requirements and how the FCA expects an insistent client to be dealt with

How a CETV is calculated / how the assumptions used to work out CY in a TVAS differ from those used to work out a CETV

Employer covenants

Fact-finding a client with an EPP and the steps they must take before being able to transfer to a PP

38 marks
Fact-finding the client before advising on a transfer

Factors to consider before making a recommendation

Limitations of the critical yield produced by TVAS

Options available (assuming a transfer to a SIPP) to the children in the event of death before 75

Why a nomination form doesn’t guarantee children would receive death benefits

31 marks
Benefits and drawbacks of transferring to a PP

Currently available transitional reliefs

Safe withdrawal rate

Stress testing as part of an annual review

31 marks
Section A
Section B – Case Study 1
Section B – Case Study 2
April 2018Statutory transfer process including timescales and responsibility

How inflation assumption increases impact a cash flow model and the suitability of a transfer

Key documentation that should be retained on file for compliance

Death benefits from a DB scheme and FAD following transfer

35 marks
Critical yields

Reasons for an increase in a CETV

Factors to consider when advising whether to transfer

Why transferred funds should be held in cash rather than any other asset class

33 marks
Fact-finding of client before advising on a transfer

PPF and rate of revaluation in deferment and pension benefits provided in retirement

Reasons for recommending a client should not transfer

32 marks
Section A
Section B – Case Study 1
Section B – Case Study 2
October 2018Risk 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
Section A
Section B – Case Study 1
Section B – Case Study 2
April 2019Member 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
Section A
Section B – Case Study 1
Section B – Case Study 2
October 2019How 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

As you can see with all of the AF7 papers, there has been a fact-finding question and often more than one ‘factors’ question.  Recent legislation will be tested as soon as it is practically possible to do so.  It goes without saying that candidates must be prepared for the question on the benefits and drawbacks of transferring out of a DB scheme into a personal pension as well as the reasons for not transferring.

Within each exam, generally, there is a good mix of technical knowledge and application of that knowledge. Using the past papers will really help with various scenarios, but of course, in each sitting delegates will have to very carefully read each case study to ensure that they relate their answers specifically to those clients; this is essential to achieve good 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!

Click here to download our free taster mock paper for CII AF7