The CII J05 October 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 October – 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 paper here.
Two hours are given to answer 15 questions for a total of 130 marks; a pass gives students 20 Diploma credits.
As has happened regularly over the years, the exam started with a question on the lifetime allowance. This was a seven-mark question. Whilst it was possible to score well on this one, there were several recurring errors. As the CII stated, these included ‘use of the incorrect LTA in 2013/14, £1.25m instead of £1.5m; missing the calculation of growth in the drawdown fund from when it was crystallised in 2014 to now; and doing a calculation for a 55% tax charge at the end when the only option at age 75 is the 25% tax charge’.
In addition, a slightly more basic one where candidates tended to round to the nearest whole number rather than two decimal places. Candidates should note that the rounding rules are clearly stated on the paper and a lost mark or two for not reading them properly could make the difference between a narrow pass and a narrow fail.
Question 2 was a slightly less common one and concerned a situation where the client, Frances, had a contractual right to take benefits from her occupational scheme from age 50. The question concerned the criteria which needed to be fulfilled for her to exercise that right and required a good level of knowledge for seven marks.
This was a fairly straightforward question requiring a comparison of the death benefits available from a defined benefit scheme and a flexi-access drawdown plan. This is a basic aspect of pensions advice which has been tested well over the years and with twelve marks available, it should have been possible for well-prepared candidates to score well here.
In question 4, we were introduced to Greg, who was about to retire and take benefits from his defined benefit scheme. The question concerned the statutory increases in payment available to him whilst it is in payment. This is a fairly frequently asked question, with the challenge being to provide a sufficient level of detail to achieve the eight marks available. Common failings where marks were lost included ‘not understanding the dates or that inflationary increases are measured by the consumer price index (CPI) not the retail price index (RPI’.
This question concerned a dependants annuity and the conditions which must be fulfilled to be treated as such. The question had ‘mixed responses’ but was basically looking for the definition of a dependant, and the facts that it must cease on the dependant’s death, not include any form of guarantee period or annuity protection and that it cannot be surrendered.
A very topical question concerning the obligations on trustees when a member requests a transfer out of the scheme. This was looking at due diligence, which is very topical at the moment, with enhanced requirements imposed as of November 2021, which are worth reading up on for future candidates. The second part was a more basic one requesting four benefits are four drawbacks of transferring a DB scheme to a PPP. For eight marks, well prepared candidates should have been able to fill their boots here.
This question concerned the benefits and drawbacks of a client continuing in flexi-access drawdown as opposed to purchasing an annuity. This required critical analysis across several areas of the syllabus, but for ten marks again well prepared candidates could have scored well. Based on the feedback, a lot of people did.
This was another comparison question, albeit only for six marks, and required considerations of factors to consider when deciding whether to take a pension lump sum as a PCLS as opposed to an UFPLS.
Question 9 introduced Nico, who was looking at consolidating his numerous existing pension plans into one. It asked the information we would require about his plans to advise on this. For ten marks, there should have been plenty of scope for good scores here. Those who did not score well tended to fall down because they fell into the old trap of stating information they would require about Nico (such as attitude to risk) rather than the schemes themselves. This underlines why it is so important to read the question closely.
Question 10 was one which again has been asked regularly in pensions exams over the years in one way or other and concerned the drawbacks of a pension attachment order for Priti, who had one over her ex-spouse’s benefits. The CII stated that marks were lost due to insufficient detail, i.e., listing features of the order but not fully relating them to the client.
This question concerned the state pension entitlement available to Sabine, who was 63 and coming up to retirement and how this would be increased in payment. State pensions are a relative staple diet of level 4 pensions exams and those familiar with the 2016 calculations and the triple lock could have picked up some good marks here.
This was a nine-mark question related to sustainable withdrawal rates and the factors to consider when assessing them. For candidates who deal with cashflow modelling regularly in their day job, again some good marks were on offer.
Question 13 was a short one relating to Chandra aged 66, who had a flexi-access drawdown plan and asked candidates to outline why it is advisable for her to complete death benefit nominations. Five marks were available for this.
This one also related to a client in drawdown, namely Ricardo and asked candidates to define capacity for loss and outline the factors to consider when assessing his. The first part was answered well, with the CII commenting that some people did not have a sufficiently detailed grasp to obtain full marks.
Finally, this question offered eleven marks for a description of who the Pension Wise guarantee applies to and seven considerations outlined in the Money Advice Service retirement income options tool. This was one slightly less usual and many candidates struggled with the first part, albeit high marks were gained on the second.
Overall, this was a reasonable paper with little out of the ordinary and again, those familiar with the past exam guides should have been able to approach it with confidence.
Comparison with the May 2021 Exam Paper
Let’s compare this paper with what was tested in May 2021: That question paper can be found here.
The topics covered were:
- LTA calculation
- Sustainable withdrawal rates
- DC versus DB death benefits
- Additional information / fact finding
- Fixed protection 16
- Capped-to-capped drawdown transfers
- Annual drawdown reviews
- Risk factors for suitability reports
- DB schemes winding up and statutory order of priority
- State pension gaps
- Bereavement support payment
- Life expectancy considerations
- Annuity versus FAD comparison
- Stress testing
As you can see, there are several areas of the syllabus which have come up in each of the last two sitting and more which are closely related. We cannot emphasis enough the importance of familiarising yourselves with the past exam guides, which provide vital guidance in terms of recurring themes.
Grab the resources you need!
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