The CII J05 September 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 September – 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.  

This article is correct as at 25 November 2022.

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.  

Question 1 

In Question 1, we met Nigel, aged 74, who was recently widowed following the death of his wife, Bella, at the age of 74. As usual, the first question was a lifetime allowance one and concerned how his benefits would be valued for lifetime allowance benefits when he turned 75 and how hers would be valued following her death. Nothing too scary here, but there was a slight curveball in the form of Bella having a death-in-service scheme written under personal pension scheme rules.

Question 2 

Question 2 was a regulatory one, and we were introduced to Asha aged 62. She was a deferred member of two defined benefit (DB) pension schemes and wished to transfer these schemes to a personal pension plan (PPP), in order to access them flexibly. The question was a basic process one concerning the steps she needed to take before the trustees would agree to a transfer. This has been asked before, and well-prepared candidates should have been able to score close to the full six marks.

Question 3 

Surprisingly, Question 3 was another lifetime allowance one and concerned Nora, aged 54, who had a SIPP valued at £1.4m. The question asked us to explain to her the benefits of applying for both Fixed Protection and Individual Protection 2016 and the circumstances in which each form of protection could be lost. This is not something that is likely to occur too often in the real world these days, and therefore, knowledge may be slipping, but it still comes up occasionally in exam sittings and for 9 marks, it is worth it for candidates to ensure they are familiar with the workings of these types of protection.

Question 4 

This question concerned Jonah, aged 62, who was in excellent health, and his flexi-access drawdown SIPP. We were asked two parts to this question. The first was relatively straightforward and concerned why longevity risk was an important factor to consider. The second was a new one and asked why his life expectancy probability should be used when assessing longevity risk, rather than his average life expectancy. This is not something that has been seen before, and candidates should take note of it. Unsurprisingly, the CII did not consider it to have been universally answered well.

Question 5 

This was a basic advice question in which we were introduced to Magda. It concerned the factors that we should consider as an adviser when advising her on whether to crystallise her scheme benefits or transfer to a defined contribution alternative. The question offered up 12 marks, for which most should have been obtained by candidates with a reasonable knowledge of advice considerations.

Question 6 

This was a tax question in which we were asked to assess Frank, who deferred his state pension (basic and additional) in 2015 and elected to receive them as a lump sum in December 2022. We were asked to explain (potentially using calculations) how this would impact his income tax position for the year 2022/23. This was something of a curveball given the relatively precise nature of the answers required and the subject matter which does not tend to come up too often in J05. The CII commented in particular that few candidates appreciate that a deferred state pension lump sum would not incur a higher rate tax liability as this is all taxed at the pensioner’s marginal rate.

Question 7 

Question 7, which was also for 7 marks, concerned the criteria required for a payment to be treated as a small pots lump sum and the taxation of this type of product. This was generally answered well and should have been by those with strong all-round pensions knowledge.

The CII J05 September 2022 Exam in Review Share on X  

Question 8 

In Question 8, we met Rani, who had a scheme pension of £14,000 gross. She wanted to take an additional net payment of £34,000 from her pension funds via phased capped drawdown, crystallising as little of her pension as possible. Quite unusually, this was a pure calculation question, which required us to ascertain the amount of funds needed to be crystallised to obtain the net payment which she wanted. Results were mixed, with the CII commenting that where the full workings were shown, candidates gained high marks. However, some candidates failed to gain marks where there was no attempt to calculate the capped drawdown income available and its impact on the end result.

Question 9 

Question 9 was one that has been seen on many previous occasions and basically required us to consider the pros and cons of taking a PCLS versus an uncrystallised funds pension lump sum. This is a regular occurrence and on the whole, candidates scored well on it.

Question 10 

In Question 10, we met Robert and Judge, married and both with independent children from previous marriages. We were asked to explain why a spousal bypass trust may be an appropriate solution for them. Whilst spousal bypass trusts have reduced in frequency and effectiveness since the pension freedoms, they still have their uses in situations such as this where the intention is to make the benefits available to the spouse without allowing them the discretion to decide the recipients on their own death. It appears there may be a bit of knowledge fade in this area, since the CII commented that the question was not answered well overall, with insufficient detail to get the high marks.

Question 11 

This was a basic financial planning question concerning the benefits of cashflow modelling and appropriate stress tests to be used. Eleven marks were available and for something which has come up regularly in CII exams of many descriptions, the majority ought to have been available to well-prepared candidates.

Question 12 

Question 12 introduced us to Helina, who was a member of a defined benefit pension scheme and was also making a contribution to her defined contribution scheme. This was a tax-related question that required us to assess how each would be treated when working out her pension input amount for the 2022/23 tax year. This was something of an unusual question, but good marks ought to have been available to those who understand pension input calculations.

Question 13 

This was a basic death benefits question including an annuity and a flexi-access drawdown plan. Death benefits are a staple diet of CII pension exams, and this question ought to have been a lucky 13 marks for those who have a good understanding of the subject matter. An interesting observation in the feedback was that candidates are reminded to understand the difference between nominees, dependents, and successors.

Question 14 

This was another comparison question, this time concerning whether Tabitha should purchase a lifetime annuity or utilise flexi-access drawdown with her defined contribution pension fund. We were asked for five benefits and five disadvantages of taking the lifetime annuity approach. Again, this is a standard question that any competent pension adviser ought to have been able to pick up a high proportion of the available ten marks. The CII commented that it was well answered on the whole.

Question 15 

Finally, we had a regulatory question that outlined the relevant risk factors which the FCA required to be included in a suitability report when recommending income withdrawals (basically a drawdown report). This was essentially a memory test and those who write drawdown reports regularly should have been able to pick up at least some marks here.

Overall, the usual suspects formed a significant chunk of the paper with death benefits, annual and lifetime allowance, vesting options and their pros and cons all getting an outing. It should have been possible for the well-prepared to achieve the pass mark fairly comfortably.

Comparison with the February 2022 Exam Paper 

Let’s compare this paper with what was tested in February 2022: That exam guide can be found here. 

The topics covered were:  

• Lifetime allowance
• Death benefits
• UFPLS versus PCLS
• PPF versus annuity protection
• Fact-finding/additional information
• State pension benefit statements
• Factors to consider when making income withdrawal recommendations
• Assessment of ATR and risk profiling tools
• State pension timing and tax treatment
• Benefits of drawdown versus annuity
• Pension versus ISA contributions
• Pros and cons of cashflow modelling
• IP16 eligibility criteria
• Pension scams and customer protection
• Fact-finding from the scheme

A number of regular themes come through even in this limited selection. State pensions, lifetime allowance, protections, risk profiling, and death benefits are all regulars and you will, at some point be expected to analyse and recommend on various options.

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!