The CII J05 September 2023 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 15 December 2023.
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.
The first question, as has become commonplace in this exam, was lifetime allowance related, although what it specifically asked about was entitlement to tax-free cash. We were introduced to Kofi, aged 64, who is about to receive a scheme pension and separate pension commencement lump sum. We were asked to calculate the maximum PCLS which would then be available from his personal pension plan.
Interestingly, in a first, this question gave two model answers. The first was based on pre- 6 April 2023 rules, with the second based on the intended position from 6 April 2024. The CII accepted that the position was still somewhat up in the air. It noted, however, that a full answer would have been a combination of the two.
Question 2 concerned Parvati, a security officer for a privately owned company. The question covered 2028 protected, which is intended to protect people whose pension schemes have an unqualified right to retire earlier than 57, which will be the minimum retirement age as of this date.
The CII noted that ‘Candidates found this question challenging and struggled to articulate the transitional protections that would apply to Parvati’s pensions. It is important that candidates familiarise themselves with these rules due to the changes which will take effect within the next five years, and which should already be a part of adviser retirement planning and at retirement conversations’. This one also came up in the previous sitting and was answered equally poorly. All of which means that it is a fair bet for a repeat outing at some point in the future.
This question was in two parts, the first covering a comparison of lifetime annuities and scheme pensions. The second was a slight curveball defined benefit question, which covered the pros and cons of pension increase exchange. The first was only four marks, however, the CII commented that it was not answered well, with basic points such as ability to leave death benefits to any nominee and tax-free death benefits pre-75 not covered regularly. Interestingly, the second question, which is a specific pension transfer one, was answered more convincingly.
Question 4 concerned the pros and cons of retirement cashflow modelling. This type of question is a staple diet of pensions exams and is relatively straightforward. The CII commented that it was largely well answered and for ten marks there should have been an opportunity to pick up a solid score here.
This question covered sequencing risk and asked us to explain what it was and four strategies that can be used to reduce its impact. The CII stated that ‘Some candidates struggled with this question (both part (a) and (b)), with some failing to have a grasp of the basic concept of sequencing risk.’ The question has come up previously and again based on feedback is a fair bet for a further outing sometime in the not-too-distant future.
Here, we were introduced to Rajesh, aged 63, who was considering taking an uncrystallised funds pension lump sum from his £130,000 pension in order to lend his daughter £60,000 to use as a house deposit. We were asked for factors to consider regarding this course of action. The general benefits of UFPLS versus PCLS and/or flexi-access drawdown have come up regularly in this exam over the years.
The CII acknowledged as much, stating ‘This was a typical question on withdrawal via uncrystallised funds pension lump sum (UFPLS). Candidates did quite well overall but given this concept is a key part of the J05 syllabus, we would expect candidates to have achieved more of the marks available’. The question offered a solid 12 marks and candidates may have struggled to make enough points in enough depth to achieve the truly high marks.
Question 7 was a general one about eligibility for the recipient of pension death benefits to be treated as a dependent, nominee, or successor. The CII commented that some candidates did not appear to be able to distinguish. On this 8-mark question, half of the battle may have been determining the type of answer that the CII was actually looking for.
This question covered tax treatment of death benefits from an uncrystallised pension. This was a staple diet question and the full five marks ought to have been comfortably achievable. Part 2 was a curveball and asked for three scenarios where pension death benefits may be subject to IHT. The CII stated as much in its feedback, stating that part 1 was answered well, however, candidates displayed a lack of knowledge in part 2.
The first part of this question was one which has come up regularly over the years and concerned the protection offered by the PPF to members of defined benefit schemes. The second part concerned the protection offered by the FSCS to annuity and drawdown holders. Feedback stated that candidates did well overall, but would have been expected to perform better in part a). The question ought to have held no real fear for those who had studied their past papers.
Question 10 was a two-part one for five marks each. The first part concerned the information provided on a state pension statement and has been asked a few times previously. The second one was a bit more off-piste and concerned eligibility for guarantee credit. Part 1 should have been possible to score well on for prepared candidates. Part 2 was more a case of ‘if you know it, you know it’. However, candidates with limited revision time may understandably have chosen to focus that time on more mainstream areas.
This was a pension consolidation question in which we were asked to provide the information that we would require from the administrator of Franco’s numerous pension schemes before advising him on consolidating them. Again, this has come up plenty of times previously and encouragingly, the CII stated that candidates overall did very well. For 12 marks, there was some low-hanging fruit to be picked here for the well-prepared.
Next up, we had 7 marks on phased drawdown using a combination of PCL and taxable income as an alternative to PCLS or UFPLS. This was a further variant on a regular theme of the J05 exam and again, the CII stated encouragingly that it was generally answered well.
In this question, we met Katrina and were asked about the factors that should be taken into account when carrying out an annual review of her flexi-access drawdown arrangement. This was a basic ‘outline’ question and for 11 marks, it should have been possible to score very nicely. However, feedback stated that ‘Candidates did quite well overall. However, we would have expected a larger proportion of the marks to have been obtained, given this topic is a core element of the J05 syllabus’.
Question 14 came in two parts. Firstly, we were asked to give dictionary definitions of attitude to risk and capacity for loss. Secondly, to give four factors that influence attitude to risk with specific reference to the client’s pension. The latter part was an interesting twist on a question which has been asked on numerous occasions. Interestingly, however, the model answers did not appear to make any specific distinction from general attitude to risk considerations. The CII commented that the second part could have been answered better given its importance to the advice process.
Last but not least, we met Jenna, aged 54, who owns a plant hire business and considers that to be her pension, relying on future sale proceeds for her retirement plan. We were asked to give five drawbacks of this approach. This was an interesting new concept. However, for five marks, the obvious points such as all eggs in one basket, difficulty valuing, illiquidity, no guarantee of a buyer and tax considerations should have been sufficient to gain most. The CII again commented that this was answered well.
Overall, the paper should have held no particular fear for those who had done their homework on past sittings. There was, however, certainly enough variety to keep things interesting.
Comparison with the March 2023 Exam Paper
Let’s compare this paper with what was tested in March 2023: That exam guide can be found here.
The topics covered were:
- Lifetime allowance
- Tax treatment of UFPLS
- Considerations for accepting a CETV
- Death benefits
- PCLS v UFPLS
- Pension sharing v earmarking
- National insurance gaps
- Lifetime cashflow modelling
- Annuity considerations
- Ill health early retirement
- 2028 protection
- Death benefit nominations
- Pension scams
- Capped-to-flexi-access drawdown
- Considerations when recommending drawdown
Interestingly, 2028 protection has come up both times and, as mentioned above, is a fair bet for another outing relatively shortly. Lifetime allowance, PCLS v UFPLS, death benefits and cashflow modelling are all regulars in this exam as are tax questions.
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