The CII J05 May 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 May – 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 exam guide here.
Two hours are given to answer 15 questions for a total of 130 marks; a pass gives students 20 Diploma credits.
As is usually the case, the exam started with a two-part calculation question on the lifetime allowance (LTA). The client in question was recently widowed, her husband having died at age 61 with various death benefits and no form of transitional protection. Candidates had to explain how the death benefits would be treated for LTA purposes – this was for 6 marks and for another 7 marks, a calculation was required of the LTA tax charge. As this topic appears regularly, any student using old exam guides should have been prepared for this type of question.
This question tested the safe withdrawal rate. Firstly, for five marks, candidates had to explain what it was and in part (b), state the benefits and drawbacks of using this approach as part of an income drawdown strategy. This was for another five marks.
In this question, candidates were informed of a client who had died at the age of 69 whilst in receipt of a DB scheme pension with a 10-year guarantee and a 50% spouse’s pension. The client also had an uncrystallised personal pension. For 9 marks, candidates had to outline the death benefit options available, including the tax treatment for both pensions. Again another standard J05 question which should have caused no difficulties.
Question 4 was a fact-finding question. The client was about to retire due to minor health issues. He was a member of his employer’s DB scheme, and he was entitled to a scheme pension of £24,000 pa or a CETV of £792,000. Candidates had to outline the additional information needed before giving advice on what he should do. This was for a total of 12 marks.
This tested the technicalities of fixed protection 16 (FP16). Firstly, candidates had to explain the conditions that must be met to be eligible for FP16; this was for 3 marks and for another 4 marks, the circumstances in which a transfer of pension benefits could be made without losing FP16.
This question tested the benefits of transferring into a new capped drawdown arrangement rather than converting to FAD. This was for three marks and in part (b), for four marks, candidates had to explain the criteria that must be met to transfer from an existing capped drawdown plan to a new one.
In this question, candidates had to outline the factors that should be taken into account when carrying out an annual review of a FAD arrangement. This was for 10 marks and should have been well answered.
This question was on the COBs rules around suitability reports when making a personal recommendation regarding income withdrawals. For five marks, candidates had to outline the relevant risk factors that must be included.
This question, for five marks, asked for an outline of the statutory priority order that applies to scheme benefits of a DB scheme which is being wound up.
This tested State Pension and firstly asked the possible reasons why someone would have gaps in their NI record; this was for three marks and for another four marks, outline how they could fill those gaps and by what date any action should be taken.
This question tested Bereavement Support Payment – firstly for five marks, the eligibility criteria and for another three marks, the amounts and timeframes.
This question asked for the key considerations in relation to life expectancy that should be taken into account when advising a couple on their immediate and long-term retirement planning needs. This was for six marks.
This question gave details of a client about to retire; candidates had to outline the benefits and drawbacks of recommending that they purchase a lifetime annuity as opposed to using FAD to provide an income. This was for 10 marks and should not have caused problems for most candidates.
Here, we were introduced to Ansur, aged 55. He was self-employed and planning to retire within 5 years. He made a contribution of £15,000 into his personal pension each year and wanted to make a gift of £125,000 to his son. He was considering taking an UFPLS to provide the funds. For 10 marks, candidates had to explain the factors that should be considered before proceeding with this course of action.
Finally, the last question which asked for the six stress tests that should be undertaken as part of an annual review of a cashflow modelling exercise.Read this review of the May 21 exam paper for CII J05 - useful for focusing revision. Click To Tweet
Let’s compare this paper with what was tested in February 2021: That question paper can be found here.
The topics covered were:
- LTA calculation
- Deferring State pension
- Small pots payments
- Death benefits from an annuity and FAD
- Pension Protection Fund
- Phased FAD vs lifetime annuity purchase
- UFPLS taxation
- Lifetime cashflow model
- Factors to consider regarding staying in capped drawdown
- Taking a PCLS from a personal pension rather than UFPLS
- Using ISA or dependant’s FAD
- Spousal bypass trusts
- HMRC’s definition of a dependant in respect of a child
- Risk factors that relate to pension decumulation products
Overall, the J05 paper is quite formulaic with similar subjects being tested each time and often in the same order! This means that using past exam guides to help with revision is crucial to understand the nature of the exam, the types of question being asked and the answers that are expected.
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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!