The CII AF7 September 2021 Exam in Review
We’re looking at the exam paper from the CII’s September 2021 sitting of AF7 – the Pension Transfer exam.
You can find the exam guide here.
In this paper, Section A had 28 marks allocated to it and Section B had 72 marks.
Section A
There were four questions in section A. The first one was an interesting little curveball that required candidates to name the four drivers of vulnerability identified by the FCA and provide an example of each for a total of eight marks. This is something that is not directly or specifically linked to pension transfer advice, however, has been high on the regulator’s agenda for a number of years. This is a classic example of the CII’s ability to throw the unpredictable at us in the AF7 exam. The moral of the story here is: if you happen to know the answer, then great. If not, then don’t get flustered, just move on.
Question 2 was much more standard, asking for a detailed explanation of how changes in the assumptions for inflation and gilt yields would impact a cash equivalent transfer value calculation. Interestingly, this was the only ‘explain’ question in the section, with all of the others simply requiring candidates to state information. Four marks were available for each for a total of eight.
Question 3 was a five marker, which covered a scheme member who had asked for a cash equivalent transfer value, and asked us what information trustees must provide to them.
In Question 4, we were introduced to Frederika, who had been offered a transfer value that was reduced due to underfunding and who had some concerns about the security of her benefits. Candidates were asked, for seven marks, to state the factors which may impact the security of her benefits.
Other than the first question, this section contained nothing too out-of-the-ordinary for a pension transfer exam. The challenge in gaining the top marks would be to ensure that answers covered a sufficient breadth of material.
Here's a review of the Sep 21 exam paper for #CII #AF7. Share on X
Section B
Case Study 1
The first case study centered around James, an unmarried 62-year-old with no dependants, in excellent health with a family history of longevity. James had a scheme pension of £30,000 per annum in payment and had recently received a statement of entitlement for another deferred scheme. James intended to leave his entire estate to his nephew.
The first question required us to outline the factors to consider when recommending an investment strategy for James’ transferred pension, based on the information in the case study. This is where candidates can fall into the trap of losing marks by giving generic answers and NOT relating them sufficiently to the information in the case study. However, the CII’s feedback has remarked that most candidates performed well on the question. Twelve marks were available in total.
Question 2 in this section concerned a £40,000 withdrawal that James intended to take to make a gift to his nephew and the relative merits of taking it as a PCLS or a UFPLS. Some of the relevant considerations the CII wished to see in the answer were prominently outlined in the question and well-prepared candidates should have been able to score highly. Again, there were 12 marks in total for this one.
The third question was again a little bit of a curveball and concerned James paying voluntary Class 3 National Insurance contributions, asking for the reasons why you would recommend this. At first glance, you would not have thought there was eight marks’ worth of answers here, but again the model answers demonstrate the breadth of answer that was required.
Case Study 2
This case study involved Mitesh and Priya, an unmarried couple in their 50s with no children and a variety of pensions, including Mitesh’s two preserved DB schemes with Harris Ltd and Cole Ltd.
The first question was a standard fact-finding one for 12 marks, asking what further information you would require on their circumstances and objectives before advising Mitesh on the suitability of transferring his benefits. This is the sort of thing that has come up regularly in AF7, and before it in AF3, and well-prepared candidates ought to have scored nicely here.
The next question was for ten marks and asked for the factors you would consider as an adviser when recommending whether a transfer should be made from EITHER the Harris Ltd scheme or the Cole Ltd scheme. Again, this is standard stuff, and those who had spent some time studying the past papers should have been well prepared for it.
Question 3 in this section (question 10 overall) covered cashflow modelling and asked candidates to explain, for eight marks, why they would include cashflow forecasts as part of their suitability assessment.
The final question asked for an outline of the death benefits available to Priya from a flexi-access drawdown plan were Mitesh to transfer into one. Again, death benefits come up in almost every AF7 paper and there were plenty of straightforward marks (10 in total) available for candidates who had done their homework.
As is usually the case with AF7 papers, there were a couple of questions out of left field. However, the majority of the content was in areas that have come up numerous times previously and ought to have come as no surprise to prepared candidates.
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 April 2019.
| April 2019 | Member 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 |
| October 2019 | How 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 |
| July 2020 | FCAs rules when two advisers work together to provide advice and the advice on the proposed receiving scheme and its investments How a higher assumed rate of future inflation would impact a CETV Benefits of using a lifetime cashflow model and why it needs to be reviewed regularly Key factors, and their importance, when assessing ATR 33 marks | Factors to consider and their relevance when recommending a potential transfer Death benefit options and their tax treatment on a transfer to a PP Tax implications of using an investment portfolio to provide income / capital requirements as opposed to taking funds from a PP 34 marks | Additional information needed to advise on the suitability or otherwise of transferring a DB pension scheme to a PP Why the results of a TVC will be of limited relevance in determining whether a transfer is suitable or not Benefits and drawbacks of transferring to a PP now rather than when the client approaches age 60 How benefits will be affected if the scheme enters the PPF before age 65 33 marks |
| October 2020 | Independent advice and transfers. Criteria for ill-health pension; PPF compensation and why CETV when in poor health might be good value. Factors when transferring/GMP benefits. Reasons for higher CETV. 33 marks | Factors when transferring pre-97 benefits leaving post 97 benefits in scheme. Death benefits and taxation for post-97 benefits and DC pension following transfer of cash equivalent pre-97 benefits. Factors when designing an investment strategy for a transferred pension fund. 34 marks | Additional information needed before advising on suitability of transferring benefits. Factors to support a recommendation to retain benefits in DB scheme. Why nominations for dependent’s FAD and workplace pension should be made. IHT Planning 33 marks |
| February 2021 | Section 32 policy that included GMP. Employer covenants. Death benefits and tax treatment in the event of death before crystallisation if scheme is retained or a transfer to a PP is made. Abridged advice. 30 marks | Factors to consider when deciding which DB pension to transfer. Benefits and drawbacks of using part of a fund to buy an annuity. Factors to consider when deciding which annuity basis should be recommended for partial annuitisation. Class 3 NICs. 38 marks | Contingent charging Cash flow modelling – FCA requirements when used as part of the APTA and reviews. Risks regarding accepting a CETV, withdrawing the PCLS to repay debt with balance placed on deposit. 32 marks |
| April 2021 | Abridged advice and the process that must be followed where the initial outcome is unclear. Key factors to consider when assessing capacity for loss in respect of a safeguarded benefits transfer. RACs and guaranteed annuity rates Sustainable withdrawal rates 33 marks | Information needed regarding existing scheme when advising to transfer. Factors to consider when making a recommendation. Investment and diversification. Death benefits and nomination forms. 36 marks | Information within the one-page summary. Which pension to transfer and why. PPF compensation. 31 marks |
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.
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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!
