The CII AF7 October 2018 Exam in Review

We have been reviewing the CII October exam papers and this time, it’s the turn of the still relatively new AF7 Pension Transfer exam.

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

This is only the third paper and unlike the other AF exams, is only two hours long although split, like the others, into Section A and Section B.

Section A

This section covers four questions and in this paper, gave a total mark of 36.

The first question was for 10 of those marks, and delegates had to identify risk factors that firms should consider when dealing with a client who wishes to transfer their DB pension benefits to access pension fund flexibility.  Most delegates would not have been surprised to see this question.

Question two gave five paragraphs of information before asking for the benefits and drawbacks of transferring pre-1997 excess benefits to a personal pension, whilst retaining GMP and post-1997 benefits within the DB scheme.  This question gave eight marks.

For another eight marks, delegates were asked to explain sequencing risk and strategies that could be used to reduce its potential impact.

Finally in this section, for 10 marks, delegates had to explain the reasons that may have contributed to a reduction in a CETV.  This, we feel, should not have caused problems for the AF7 student.

Section B

Onto Section B and Case Study 1 introduced us to Graham, a 55-year-old recent widower.  He was in receipt of a dependant’s scheme pension, had a Section 32 policy and was a member of the Local Government Pension Scheme.

Three questions were then set on this case study. The first one, for 9 marks, asked for the features specific to a Section 32 policy that should be considered before recommending whether it should be transferred to a personal pension.  Delegates were then asked for an explanation of why they would recommend that he should not transfer the benefits of his DB pension scheme. Finally, they were asked to explain why he should take the additional amount he needs as a series of PCLS payments rather than taking an UFPLS.

Case Study 2 involved an unmarried couple, with children from previous relationships.  Again, another three questions were set; the first of which was a fact-finding question. Candidates had to state the additional information needed to advise on the suitability or otherwise of transferring a DB scheme into a personal pension.  There was then a question, for 10 marks, on the benefits and drawbacks of transferring to a personal pension. Finally came a two-part question: firstly, having recommended a transfer, candidates had to evaluate the suitability and then outline the children’s income tax position if death benefits are nominated directly to them or via a bypass trust with the children as potential beneficiaries.

For a specialist paper on pension transfers this exam seemed, yet again, to be a fair one.

Comparison to the April 2018 Exam

Let’s compare it with the April 2018 exam.

This included questions on the following:

• The statutory transfer process, including the timescales and responsibilities
• How an increase in inflation assumptions impact a cash flow model and the suitability of a transfer
• Key documentation an adviser should retain on file for compliance purposes
• Death benefits, including their tax treatment from a DB scheme and FAD
• Critical yield
• Reasons for an increase in CETV
• Factors that need to be considered regarding a transfer
• Why transferred funds should be held in cash
• Fact finding
• The Pension Protection Fund
• An explanation of why benefits should not be transferred

We feel the questions are clear with this exam; the paper is written to test a mixture of the technical knowledge needed, as well as the practical application knowledge.  It is still an advanced paper, covering a very important subject, and delegates should be aware that they will need to give detailed and accurate answers to gain the marks necessary to pass.

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!