The CII J05 February 2022 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 question paper here.
Two hours are given to answer 15 questions for a total of 130 marks; a pass gives students 20 Diploma credits.
As often happens in this exam, Question 1 was a lifetime allowance one and was a fairly big one for ten marks. We were introduced to Sanjay, who commenced capped drawdown in 2005 and is about to turn 75. The object of the exercise was to calculate the lifetime allowance excess tax charge he would pay. This was a calculation question, where it was possible to score very well by setting out each stage of your answer. However, the CII feedback stated that many appeared unfamiliar with how a pre-2006 pension is valued for lifetime allowance purposes.
Whilst the number of such cases we will see is only likely to reduce due to the time which has elapsed since A-day, it is still important that candidates are able to display a knowledge for examination purposes. Look for this one to come up again in the not-too-distant future.
This question was a fairly straightforward one concerning the death benefits payable from a scheme pension and an inherited flexi-access drawdown plan. For 11 marks, this offered a good opportunity to pick low hanging fruit and the CII commented that most answered it well.
This required analysis of the benefits and disadvantages of taking an uncrystallised funds pension lump sum as opposed to a pension commencement lump sum. This is something which have been asked regularly, including in the previous exam sitting. Helpfully, we were not given a specific scenario and therefore generic answers would suffice.
Where marks were lost was through candidates not stating the obvious answers, which is something we have seen on a regular basis. There is no such thing as a silly answer. Remember, the examiner can only mark what is written down, not what is in your head.
This question focused on Hannah, who has a scheme pension and an annuity and required a comparison of the benefits available under the PPF and the FSCS. This is something which has been well tested over the years. The CII stated that it was disappointing that a lot of candidates struggled to gain high marks on either aspect of the question.
A fact-finding question which focused on Bryn, who has been offered a cash equivalent transfer value. The question required candidates to outline the information which would be required from both him and the scheme in order to advise on whether to accept it. Whilst this may appear to be something more out of the AF7 playbook, defined benefit transfer knowledge can be, and is, tested in this exam. However, with only a basic outline needed, those with the knowledge could have scored highly and most did.
This question was slightly out of left field and focused on state pension statements and the information stated on them as opposed to practical advising issues. The feedback was that this was often answered poorly. Interestingly in this one, the really simple answers such as name and national insurance number were not awarded marks – the question was looking for answers which would be considered information to the recipient. But for only five marks, as ever, if you don’t know then guess and move on.
Question 7 was a fairly standard one that concerned the circumstances that must be considered when making a recommendation regarding income withdrawals. This is set out in the FCA’s COBS sourcebook and should be reasonably straightforward knowledge for anyone advising on drawdown regularly. Some candidates demonstrated a good memory of the wrong COBS section, which is unfortunate given the reasonable 8 marks that were available.
This was a risk-profiling question covering the factors you would take into account when assessing a client’s attitude to risk as part of retirement strategy and drawbacks of relying on risk profiling tools. This may seem more of an R02 type of question, however, does form a part of retirement planning advice and the standard of answers varied.
Part A was something of a curveball and focused on the mechanics of the state pension, i.e., how and when the payment was made. Part B was a more straightforward question on how the payment was taxed. The question overall was only five marks and hence no great disadvantage to those who were caught out on part A.
In this question, we met Alina, aged 69, who was retiring and were asked to advise her on the pros and cons of taking phased flexi-access drawdown over an annuity. This kind of comparison question comes up regularly in one guise or another and for ten marks, most candidates were able to score well on it.
Question 11 concerned Parveen, who was coming up to retirement and was considering redirecting her pension contributions into her ISA. Candidates were asked to outline the potential drawbacks. For seven marks, most candidates should have been able to score reasonably given relatively simple answers such as loss of higher rate tax relief and employer contributions.
This question covered cashflow modelling, which again has come up regularly over the years, but in the guise of advantages and disadvantages of the process itself. This may have taken some by surprise as often in CII exams we are simply asked to explain how it works and/or the assumptions used. It ought to have been possible to score reasonably with a little hard thought, however, results were mixed. For ten marks, some may have slipped up here.
This was a basic seven-mark question that covered the eligibility criteria for individual protection 2016. The difficulty on this may have been thinking of enough points to write down. However, some didn’t help themselves by confusing it with fixed protection 2016.
Question 14 covered pension scams and the lengths that scammers would go to and advisers/ administrators should go to in order to protect clients. This is not core knowledge, but is something that is clearly desirable for pensions advisers to be aware of and we are pleased to report that most were.
Another fact-finding question which covered the information an adviser should request in order to advise on a pension switch, with the slight angle that the ceding scheme was an RAC. Again, it ought to have been possible to score highly with a good general knowledge here and most did.
Overall, a very practical paper, with as ever a solid base of core knowledge questions, albeit ones which may require some thinking over, and a small number from less commonly tested areas.
Comparison with the October 2021 Exam Paper
Let’s compare this paper with what was tested in October 2021: That exam guide can be found here.
The topics covered were:
- Lifetime allowance calculation
- Contractual right to early retirement
- Death benefits
- Statutory escalation
- Dependent’s annuities
- Trustees’ obligations/ the PPF
- Flexi-access drawdown/ annuity comparison
- PCLS/UFPLS comparison
- Pension consolidation
- Pension attachment orders
- State pension escalation
- Sustainable withdrawal rates
- Death benefit nominations
- Assessing capacity for loss
- Pension Wise/ Money Advice Service
Lifetime allowance, death benefits, vesting option comparisons and the PPF have all come up in both and regularly on previous occasions. A number of other questions were broadly similar. As ever, practice makes perfect, so get practising.
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