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The CII AF7 October 2019 Exam in Review

The CII AF7 October 2019 Exam in Review

We have been reviewing the CII exam papers from the October 2019 sitting and this time, it’s the turn of the AF7 Pension Transfer exam.

AF7 is still a relatively new paper with this being only the 5th paper.  If you haven’t seen October’s paper, it can be found here.

In this sitting, Section A had 32 marks and Section B had 68 marks.

Section A

The first question tested triage services; delegates had to describe how a triage service works, including the benefits for the consumer, and they had to explain what is meant by ‘non-advised’ in this context.

Question 2 was a ‘factors’ question (often used with AF papers); delegates had to outline the factors that would need to be considered when advising a client on whether to transfer an RAC with a guaranteed annuity rate.

Question 3 was another ‘factors’ question – this time, those that would need consideration when assessing the security of scheme benefits from an underfunded DB scheme.

The final part of Section A asked for a description of how the estimated costs of providing the same benefits in a money purchase scheme as to those in a deferred DB scheme, are calculated, stating the assumptions used.

Here's a review of the Oct 19 exam paper for #CII #AF7. Click To Tweet


Section B

The first case study of Section B introduced us to Eve, a single person with no children; she was a deferred member of an underfunded scheme with a recovery plan in place.

The questions included fact-finding for 10 marks – this time, the information needed from the administrator of the scheme.  Another ‘factors’ question came next and asked for those to focus on when assessing Eve’s attitude to transfer risk.  Delegates then had to outline the client-specific factors to be considered when undertaking an APTA, and finally, an explanation was required of the reasons why the recommendation was for Eve to leave her benefits in the scheme.  The total marks for Case Study 1 were 34.

The second case study was about an unmarried couple with one financially independent child.  It was Anupa who had entitlement under a former employer’s DB scheme.  The questions started with delegates having to list the benefits and drawbacks of her transferring her DB scheme to a PP.  The exam continued with a question on why the pre-retirement death benefits, payable under the scheme, don’t meet their objectives should she die before drawing benefits and the actions they could take to help meet their objectives.  The final question was, 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 Anupa on a suitable investment strategy.  This case study carried 34 marks.

All in all, this seemed a fair paper with a good mix of technical knowledge and application.

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

Section A
Case Study 1
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
Case Study 1
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
Case Study 1
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
Case Study 1
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

As you can see, with any AF7 paper, there will be fact-finding and ‘factors’ questions and 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 to a PP scheme, 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 available 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