The CII AF7 September 2024 Exam in Review

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

This article is correct as at 27 December 2024.

You can find the exam guide here. 

In this paper, Section A had 32 marks allocated to it, and Section B had 68 marks.

Section A

Section A consisted of the usual four questions, the second of which was split into two parts. The first question, as always, was an FCA regulatory one and required candidates to outline six factors that the regulator requires advisers to take into account when providing abridged advice. This was a slightly tricky one – as ever, it’s only easy if you know it, and the CII commented that it seemed to catch a number of people out and that most candidates did not perform well on it, albeit some marks could be picked up simply by stating things that would be considered during a standard advice process.

In Question 2, we were introduced to Frank, aged 52, who received a CETV from an underfunded scheme, which had not been reduced due to the strength of the employer covenant. The question asked candidates to explain the meaning of an employer covenant and its significance in respect of the decision not to reduce the CETV. This has been asked on multiple occasions previously, and well-prepared candidates should have been able to pick up good marks.

Question 3 asked us to outline the factors that would be considered when assessing a client’s attitude to transfer risk. The exam guide commented that many candidates did not perform well and mainly as a result of giving factors that would be relevant to the overall advice process as opposed to the specifics of attitude to transfer risk. There were 11 marks available for this question and therefore poor performance could prove costly at the end.

Question 4 was another which has been asked on a regular basis and concerned the actions that must be taken, including the statutory timescales, for a transfer to take place once the CETV had been accepted. Many candidates scored well on this and where they did not, it tended to be due to getting timescales mixed up. Well-prepared candidates, who had reviewed previous papers, should have been capable of scoring close to full marks on this one.

Section B

Case Study 1

In the first case study, we met Martin and Lisa aged 59 and 57, married and in good health with two adult children and three grandchildren. Lisa was about to reduce her hours to part-time ones, as a result of which, they would be left with a shortfall on their expenditure. They wished to repay their mortgage in full when their fixed rate expired in November 2024. They also wished to cover their income shortfall and ensure Lisa was provided for in terms of income in the event that Martin predeceased her. Martin had a defined benefit scheme with a CETV of £812,000 and a workplace pension, whilst Lisa had a personal pension plan.

First up, candidates were asked the standard fact-finding question, to state the additional information they would require regarding their personal and financial circumstances to advise on the suitability of transferring his deferred defined benefit scheme. The CII commented that the question was answered reasonably well, with most candidates gaining at least half marks. Unusually, the CII mentioned the points which were most commonly missed. Those points being split between essential, lifestyle and discretionary needs, pattern of income needs post-retirement and whether any existing life assurance was held.

In Question 6, we had a COBS 19.1e question in which we were asked to explain how Martin and Lisa could meet their immediate income and capital objectives without Martin transferring his safeguarded benefits. This was an interesting variant on the theme of advice recommendations. The CII commented that most candidates performed reasonably well, but quite a lot failed to reference Lisa being able to make taxable withdrawals to utilise her personal allowance. Some candidates also referenced the money purchase annual allowance, which would be flawed rationale given her earnings and their income shortfall.

Question 7 asked candidates to outline the death benefit options that would be available to Lisa were Martin to die before crystallising his pensions and their tax treatment, assuming he did not transfer the scheme. This was a tricky little question in view of the recent changes in this respect, even before the further ones made in the autumn budget. Where candidates went wrong on this one was usually by not considering the lump sum and death benefits allowance. A number also made the rather basic error of only considering one of his schemes as opposed to both. For a six-mark question, though, this should not have had a significant impact.

Case Study 2

Here, we met David, aged 62 and recently widowed, in receipt of a spouse’s pension of £4,000 per annum. He was about to retire, had a son and two grandchildren. David had a deferred defined benefit entitlement with a value of £12,300 and a CETV of £525,000. David required a net income of £20,000 per annum to meet essential and lifestyle expenditure requirements and £9,000 variable to meet discretionary income. He would however, like at least some of his essential and lifestyle income to be guaranteed. He wished for any residual funds to go to his grandchildren on his death.

Interestingly, there were five questions in this case study, which is more than the usual three or four. Question 8 concerned vulnerability and required candidates to explain why they had identified David as vulnerable and how they would adapt the advice process. The answer to the first point would have been obvious to most advisers in terms of his bereavement. However, the CII also awarded a mark for mentioning his imminent retirement which was interesting to see.  The question was only for five marks, but candidates could have scored well with sensible answers such as allowing reflection time and involving his son or other family members.

In Question 9, we were asked another variant on fact-finding, which concerned the information you would require from David to recommend an investment strategy should he transfer the scheme. This was an interesting little curveball, but most candidates scored well on it. The CII commented that some candidates produced answers that were relevant to wider transfer advice, such as views on giving up the security of the safeguarded benefits as opposed to focusing on investment strategy.

Question 10 was a standard one covering advice, though we were informed that the recommendation was to transfer the scheme and asked to justify it rather than being asked to make the recommendation. However, with 12 marks on offer, it should have been possible for well-prepared candidates to score very close to full marks and indeed some did, although there were also plenty who gained very few.

Question 11 was another which has been asked on multiple occasions in a very similar format. It concerned sequencing risk, how it could impact him and four strategies that could be used to mitigate it. Those who had read up on their past papers should have been able to score nicely here, with eight marks available.

Lastly, we had another old favourite, which concerned the benefits of nominating the grandchildren as beneficiaries through an expression of wishes and importance of keeping it up to date. This was money for old rope for the best prepared candidates, but the CII remarked that some fell into the trap of referencing the options for drawing benefits on David’s death and the tax treatment, which did not answer the specific question being asked.

Overall, this was, as always, a challenging paper, as would be expected for a paper with an average pass rate of just over 50%. But there was plenty to get your teeth into for those who had studied the previous exam guides.

As AF7 is a specialist paper we thought it might be useful to see what has been tested over the previous papers starting with the sitting in February 2022.

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!