The CII AF7 March 2024 Exam in Review

We’re looking at the exam guide from the CII’s March 2024 sitting of AF7 – the Pension Transfer exam. 

This article is correct as at 30 May 2024.

You can find the exam guide here. 

In this paper, Section A had 31 marks allocated to it, and Section B had 69 marks.

Section A

Section A consisted of the usual four questions and had 31 marks available. First up, we had the usual regulatory question which covered triage services and their purpose in relation to the potential transfer of benefits held in a defined benefit scheme. This topic has come up on multiple occasions previously and so its presence ought not to have been a surprise. However, the model answer was much briefer than may be expected for a question of this nature.

It would have been perfectly possible to write a single sentence sufficient to cover all five points. However, there were also a number of points which would seem to be relevant to this topic (the need for it to be informational only and not cross the advice boundary for example) which it seems would not have been considered scoring points. The CII remarked that most candidate answered well, however, a small number confused triage with abridged advice, which is a rather basic error at this level.

Question 2 asked candidates to consider the key factors that they would consider when assessing a client’s capacity for loss in respect of a safeguarded benefit transfer. Capacity for loss assessment is a fundamental of retirement planning advice and is covered regularly in written pension exams. This ought to have held no fear for well-prepared candidates and for ten marks could be considered low-hanging fruit with most candidates scoring well on it.

Likewise, Question 3, where we were introduced to Rami who had a scheme pension which had been taken into the PPF.  Candidates were asked to explain how his future pension benefits will be impacted as a result. Again, this is a fairly basic staple diet question for this exam and well-prepared candidates should have been able to score close to the full six marks available.

Question 4, unusually for this section of the exam, was a fact-finding question. The scenario concerned Sabine, aged 63, who had a retirement annuity contract with a guaranteed annuity rate and asked for the additional information we would require to advise her on whether to accept the guaranteed rate or transfer to an alternative arrangement. This type of question is more commonly found in Section B. Nonetheless, it is something which is asked in every exam, and the CII examiner commented that most candidates answered well. A high proportion gained the maximum marks available.

Section B

Case Study 1

In this section, we were introduced to Lily, aged 52, who is married to Patrick aged 55 with two daughters in high school. Both had semi-retired and needed to supplement their income until they fully retired when Patrick reached age 60. Lily had recently received a statement of entitlement from her previous employer. They also owned various other pensions and ISAs. Whilst both were in good health with a family history of longevity, they also wished to ensure the security of their daughters should they die before their daughters were financially independent.

Question 5 was another fact-finding one and asked us to identify the additional information that we would require from the scheme administrator in order to make a personal recommendation to Lily regarding the potential transfer of her benefits. This differed from the previous question in that we were asked to identify the information required of the administrator and not Lily herself, a subtle but key distinction and one that well-prepared candidates should be used to by now. It was described as well answered by most candidates, with some gaining the maximum nine marks. With the previous question scoring a possible ten, this does highlight the importance of reviewing fact-finding questions in previous exam papers. These two questions alone could have had the candidate approximately one third of the way to passing.

Next-up, we were asked about appropriate pension transfer analysis (APTA) and the factors it would take into account when considering how best to meet her death benefit objective. This was a subtle little curveball from the CII. APTA questions have been asked on numerous occasions previously, however, usually in the general context of the wider aspects that it would consider. This one focused specifically on the death benefit objective.

The CII commented that many fell into the trap of not focusing on the death benefits and simply describing the wider aspects of an APTA, with the result that performance was below what was expected. Slightly subtle and sneaky from the question writers, but this does highlight the importance of reading the question thoroughly and answering the one asked and not the one the candidate would like to have been asked. The good news was that this was a relatively small question for six marks, so dropped marks should not have been crucial if marks were successfully picked up elsewhere.

Question 7 was a recommendation question of the alternative type. Rather than being asked to make a recommendation as to whether she should transfer, we were given the recommendation (not to transfer) and asked to explain why we would make it. This was a big one for 13 marks, and the CII stated that although few achieved full marks, most scored well on it. A number of the answers covered fairly basic points such as having sufficient other assets to cover their needs, no need to make the decision now, cautious risk profile, lack of investment experience and dependents pension available from the scheme. The challenge was covering the points in sufficient detail to pick the marks up.

Finally, we had Question 8, whereby we were asked the factors we would take into account when advising them on the best way to meet their income shortfall in line with their objectives. This is something which those active in the retirement planning space should have been comfortable with, even if they have not previously advised on the transfer of safeguarded benefits. This required consideration of tax planning issues, availability of other assets and the practicalities (Lily is aged under 55 and hence cannot access her pension). The challenge, as ever, was trying to interpret exactly the kind of answers that the CII would wish to see here.

Case Study 2

In this case study, we met Jack and Eleanor, aged 61 and 59, in good health with a family history of longevity. They planned to retire when Eleanor reached her upcoming 60^th birthday. Each had defined benefit schemes, and they required income of £23,000 net to cover basic expenditure and £16,000 variable to cover discretionary expenditure.

In Question 9, we were asked another recommendation question with a difference, albeit one which has come up on multiple previous occasions. We were asked to justify why we would recommend that Eleanor draw her scheme pension and Jack transfer his. This was a big question for 15 marks.

There were a plethora of scheme-specific points that could have been made here including an early retirement factor and funding deficit on Jack’s scheme and better inflation protection and spouse’s protection on Eleanor’s. However, there were also a number of marks available for what could be considered really stating the obvious. For example, Jack’s scheme providing flexible benefits to cover the rest of their essential and discretionary expenditure and Jack’s transfer providing legacy benefits for his grandchildren, plus potential investment growth on the transferred funds. All of which goes to highlight the importance of stating everything that springs to mind, however silly it may sound. Marks cannot be awarded for information in the candidate’s mind.

Question 10 asked for four benefits and two drawbacks of meeting their income shortfall by making annual flexi-access drawdown withdrawals as opposed to purchasing a short-term annuity. This kind of ‘compare the options’ question is asked quite frequently, however, many candidates may not deal regularly with short-term annuities, and it can be hard to know what the CII is looking for. Fortunately, again, this question was only for a relatively minor 6 marks.

In Question 11, we were asked the factors that would be taken into consideration when determining whether Jack should nominate his pension death benefits into a spousal bypass trust. This was a type of arrangement which has declined in popularity since the pension freedoms, but may still be relevant for situations such as this where one partner has children from a previous relationship and would ultimately like to provide for them. It could be considered a less ‘core’ area of the syllabus, but has come up a few times in recent CII pension exams. Whilst, again, it was only for six marks, it is an area that candidates would do well to familiarise themselves with going forward. The CII commented that performance was mixed with ‘some candidates not appearing to know anything about them’.

We finished with a question on Class 3 National Insurance and the benefits of Jack paying them to maximise his state pension. These are very good value where the client does not have a full 35 qualifying years. Again, this has been questioned a few times recently, and candidates largely scored well on it.

Overall, this was an interesting paper with a few smaller questions from the less core areas of the syllabus. However, the main message would be the key importance of core advisory skills, fact-finding, analysis, and recommendation. These, by themselves, could almost have seen candidates home on this paper.

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 sitting in September 2021.

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!