The CII AF7 September 2023 Exam in Review

We’re looking at the exam guide from the CII’s September 2023 sitting of AF7 – the Pension Transfer exam. 

This article is correct as at 15 December 2023.

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, as usual, consisted of 4 questions and these were for a total of 31 marks. The first one, again as usual, was a regulatory question and was also an outline question. It covered the content required of a personalised charges communication, provided when a firm recommends that a client transfer out of a defined benefit scheme. This basically required an explanation of the factors outlined in COBS 6.1, and well-prepared candidates should have been able to score close to the full 8 marks on it.

In Question 2, we were introduced to Tina, who had a statement of entitlement relating to her scheme membership from 1985-2001. The question required the candidate to outline the information that they would consider in respect of the GMP benefits when considering a potential transfer. This was a tricky little question in that it is quite a specific area and whilst GMP has been covered in past sitting for ten marks, it was perhaps hard to be certain of the kind of points that the CII wished to see.

The third question required the candidate to identify the information that a scheme trustee must provide to a client who has requested a cash equivalent transfer value. This was a basic five-mark question, and similar ones have come up previously. It was a basic knowledge test, and candidates should have been able to score full marks in most instances.

In Question 4 we met Babatunde, whose transfer value kept changing and was keen to understand why. The question required candidates to explain the impact on the CETV of increases in the inflation assumption and the gilt yield assumption. The factors that impact transfer values have been tested regularly in AF7 over the years and, again, it should have been possible for well-prepared candidates who have reviewed the past papers to score the full eight marks for this.

Section B

Case Study 1

The first case study introduced us to Petra and Lars, a married foster couple who were currently caring for two siblings aged 8 and 5 – a placement expected to last for up to 2 years. Following this, they intended to take a break to enjoy travelling in the run-up to their retirement. Petra worked as a solicitor, whilst Lars gave up work to be the main carer for their foster children. He received a foster allowance of £350 per week, whilst her salary was £87,000. Both had defined benefit schemes, and she wished to phase her retirement.

Question 5 required candidates to state the additional information that would be required to advise on whether Lars should transfer his scheme to a personal pension. This was a basic fact-finding question which comes up in every sitting. The key point to bear in mind was the word ‘additional’, i.e. factors covered in the case study would not get the marks. Nonetheless, candidates, particularly those well-versed in the area of fact-finding, should have been able to score well on this ten-marker.

Question 6 was another ten-mark one and required candidates to outline the factors which would support a recommendation that Lars does not transfer out of his scheme. There were several which jumped out immediately including its being his only private pension, lack of clear need, generous 5% fixed escalation, 2/3rds spouse’s pension and ample flexibility already through Petra’s defined benefit scheme. Not to mention a cautious attitude to risk and the £12,300 value of the pension being very close to meeting the objective of maximising personal allowances. Again, factors-to-consider questions come up in every paper, and candidates who have done their homework ought to have been able to score nicely.

In question 7, we were asked to explain the main purpose of a cashflow forecast, including benefits, and five stress tests which could/should be run when producing one. This has, again, been asked regularly in AF7 over the years. Whilst it may have been slightly challenging to provide enough information to cover 7 marks on the first part, the stress tests section should have been simple enough to score the full five.

Case Study 2

The second case study surrounded the affairs of Angus and Kay, aged 63 and 59, childless and planning to retire when Kay turns 60. He worked full time, whilst she had been an unpaid charity worker for the last 15 years. Both had preserved defined benefit entitlements from previous employers. They required a joint income of £2,000 per month net to cover essential and discretionary spending and lump sums to pay off their credit cards.

Question 8 required us to explain why Kay’s pension should be the one transferred rather than that of Angus. This is another one which has come up regularly in the case study section and should hold no fear for those who have done their research. A number of factors were immediately obvious including several of the scheme’s own features – lower spouse’s pension and less beneficial escalation, plus a slightly less value CETV.

A cautious attitude to risk would also mean a higher degree of secured income would be desirable, and their lump sum needs could be met by taking the tax-free cash from Kay’s CETV. Angus’ taking his scheme pension would mean that their essential and discretionary expenditure needs could be met in full through his secured income alone from the age of 66 when he receives his state pension. This would leave the £5,000 per annum holiday spending as all that needed to be met from Kay’s funds. Plus, in the event of Angus’ death, the 67% spouse’s pension and Kay’s state pension could meet her £1,500 per month net expenditure requirement. The challenge here was writing in enough depth to cover the full 12 marks.

Question 9 asked about annuities and the possibility of using part of the transferred funds to purchase an annuity with a rate of 3.8%. This is something we are starting to see a lot more of in the real world with annuity rates having risen significantly recently. It is not something which has been seen regularly in AF7, although the approach has always been feasible in theory, because poor rates meant that until recently, clients were not attracted to annuities. This was another factors-to-consider question for ten marks. Perhaps the biggest challenge was to ensure that the candidates focused on the information in the case study as required by the question.

Next up, we had Question 10, which was a predictable death benefits one. This focused on what would be available from Kay’s flexi-access drawdown pot should she transfer and use tax-free cash to repay their debts. Death benefits are a staple diet of AF7 and for 8 marks, this question was money for old rope for those who had studied past papers.

Finally, we had a 7-mark question on why we would recommend that Kay pay Class 3 National Insurance contributions. Interestingly, this is a broader pensions question, which is not specific to pension transfers and is a bit of a curveball in that respect.

This was a question where the very well-revised candidates may have been able to pick up marks. However, those with more limited revision time would have been justified in focusing it on more mainstream areas. It should have been possible to achieve a passing grade without picking up high marks on this one.

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 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!