The CII J05 February 2021 Exam in Review

In this article, we’re looking at the CII’s Diploma in Financial Planning J05 exam paper that students sat in February – this is the exam on Pension Income Options. This will be useful reading for you if you are preparing to sit this exam in the near future; it will help you to focus your revision on the areas that are likely to be examined.

You can find a copy of the February exam guide here.

Two hours are given to answer 15 questions for a total of 130 marks; a pass gives students 20 Diploma credits.

Question 1

The exam started with a two-part calculation question.  As in October’s paper, it was a calculation of the lifetime allowance.  The client had crystallised a PP to take the PCLS with the balance designated to FAD. She was about to reach NRA of a DB scheme and was due for a scheme pension of £70,000 plus a PCLS of £230,000. Alternatively, she had been offered a CETV of £2.1m. She had not registered for any transitional protection. Candidates had to calculate the LTA charge, assuming any excess was taken as income if she (a) took benefits directly from the scheme (this was for 8 marks) and (b) transferred her CETV into a PP and take maximum PCLS, designating the balance into FAD. This was for 2 marks.  This is a standard question for J05 so should not have caused problems.

Question 2

This question was about deferring State pension. Candidates had to explain why the only deferral option available to the client was an increased State pension and how the increased pension would be calculated following the deferral.  Again another standard question but future students should note that the senior examiner has stated that answering 2016 instead of the full date of 5 April 2016 would not have been enough to get the mark.

Question 3

The exam continued with a question on the criteria that must be met for a lump sum payment from an uncrystallised personal pension to be treated as a small pots payment and how the payment would be taxed. This question was for 7 marks.

Question 4

The next question asked for the potential death benefits payable to a client’s children, including the tax treatment, for an annuity and FAD and this was for a total of 12 marks.

Question 5

Next, we had a question on the PPF; an explanation was needed of the compensation available for a client who was receiving benefits from a DB scheme.  The exam guide stated that candidates gave mixed responses with most understanding that a pension in payment remains at 100% but were missing some of the detail around escalation rates.

Question 6

This question tested why phased FAD is likely to be more suitable than purchasing a lifetime annuity. This was for 6 marks and part (b) asked for the potential drawbacks of choosing phased FAD for another 5 marks.

Question 7

Next candidates had to calculate the net lump sum that a client would receive initially from a UFPLS assuming it was taxed on a ‘month 1’ basis. This was for 9 marks and part (b) asked for the drawbacks of this course of action for a further 5 marks.

Question 8

Next, candidates had to explain the benefits of creating a lifetime cashflow model as well as the limitations of them.

Question 9

Next came our first factors question and this was those that should be considered during the annual review when determining whether a client should continue in capped drawdown, or whether they should annuitise some or all of their drawdown funds.

Question 10

This question was in two parts, in part (a) candidates had to explain what PIE is and why trustees may offer it and in part (b) identify the key factors that should be considered when deciding whether to accept an offer.

Question 11

This was a straightforward question, explaining why you would recommend that funds are taken from a PPP as a PCLS rather than a UFPLS.

Question 12

This was a mini case study introducing us to Roberta who had recently lost her husband.  She was receiving a State Pension and savings income. She also had a dependant’s FAD plan and ISAs. She needed an income of £28,000 pa with her aims for it to be tax-efficient and to maximise inheritance for her children. Candidates had to explain why Roberta could best achieve her objectives by taking the balance of the income needed from her ISA rather than from her dependant’s FAD. This was for 10 marks and should have been a nice question to answer for most well-prepared candidates.

Question 13

In this question, for 6 marks, candidates had to explain why nominating the death benefits to a spousal bypass trust would be suitable in the circumstances as given in another mini case study.

Question 14

This question was a test of recall and candidates had to outline HMRC’s definition of a dependant in respect of a child.

Question 15

The final question in this paper tested a piece of regulation.  Candidates were told that in COBS 19.7 the FCA provides examples of the risk factors that relate to pension decumulation products. Candidates had to then list ten of these example risk factors.

Comparison with the October 2020 Exam Paper

Let’s compare this paper with what was tested in October 2020:

• LTA calculation
• Steps a client must take before a DB scheme will agree a transfer to a PP
• Statutory minimum increases to a pension once it is in payment
• Advantages of using a pension sharing order rather than an earmarking order
• Factors to take into account when considering whether to take a UFPLS or a PCLS
• Factors when considering a CETV and FAD rather than a scheme pension and PCLS
• Death benefits from a DB scheme and an uncrystallised personal pension
• Factors that will influence an annuity rate that a client would receive at age 65
• Circumstances that could have resulted in NIC credits for a client
• Factors to consider on whether to invest into a personal pension or an ISA
• Information that would be included on a State pension benefit statement
• Drawbacks of withdrawing a fund as an UFPLS and purchasing a BTL property
• Circumstances to consider when recommending income withdrawals
• Calculation of the amount of fund to crystallise to provide £15,000 net as a UFPLS
• Factors that should be considered when carrying out a projected cash flow
• Scenarios to discuss when carrying out a stress test of a cash flow analysis

All in all, the February 2021 J05 paper was a fair test of the syllabus and tested similar topics in some recent papers. Future students should ensure they use past exam guides to ensure they are familiar and comfortable with the style of question and the range of model answers and make sure they practice to ensure they are giving the required level of detail to gain the marks on offer.

Grab the resources you need!

If you’re studying for your CII J05 exam, and you want to be fully prepared, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the J05 mock paper taster now!