AF7 2022-23 Practice Test 1 (October 2019 EG) PDF

AF7
Advanced Diploma in Financial Planning

Practice Test 1
Unit AF7 – Pension transfers
2022-2023 Revision Aid

Based on October 2019 examination
SPECIAL NOTICES
These revision questions have been put together by an experienced trainer to provide a prompt
for exam practice. However, please ensure that you bear in mind any changes to law, tax and
practice that may have taken place since publication or update.
Practice in answering the questions is highly desirable and should be considered a critical part
of a properly planned programme of examination preparation.
AF7 Practice Test 1 2022-2023 Revision Aid
Contents
Useful tips as you prepare for the AF7 exam 3
Question paper 4
Model answers 11
Tax tables 15
Supplementary Information Pension Paper 25
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Published July 2022
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Email: [email protected]
Copyright © 2022 The Chartered Insurance Institute. All rights reserved.
2
Useful tips as you prepare for the AF7 exam

1. Schedule sufficient revision time to use your notes and learning and support materials to
refresh your learning and consider how what you have learned applies to the case studies.
2. Familiarise yourself with the format and the navigation options navigation of an onscreen
written exam:
Familiarisation Test
Although the familiarisation test is modelled on AF1, the example is relevant for every
candidate preparing to sit on-screen written exams by remote invigilation. Whilst there might
be slight differences in layout, it will make you familiar with navigation and use of the
platform.
Follow these instructions to take the Familiarisation Test.
• Click here to access the Familiarisation Test.

• Once the test is open, click ‘start’.
• Explore the platform to practice navigation and general functionality.
3. Demonstration Test
If you will be taking your exam by remote invigilation you will also have access to a
demonstration test, allowing you to explore the invigilation platform and process (which is
different to MCQ exams such as units R01-5).
We strongly recommend that you schedule and take a demonstration test before the day of
your exam. You will be given the option to take a demonstration test when you receive your
exam login details in an email a week before your exam.
Taking the demonstration test will introduce you to the check-in process including a system
check, a photo ID check, a room scan, taking a user photo, entering your login details and
answering test questions. It can also indicate current system issues with your equipment with
time to resolve these before your exam.
4. The Assessment Information - Before the exam area of the CII website has further practical
information and support.
5. Prepare exam technique using the support of the Exam Guides on the AF7 unit page
https://shop.ciigroup.org/pension-transfers-af7--af7.html which include examiner guidance
and time-saving tips such as abbreviations.
3
AF7
Advanced Diploma in Financial Planning
Practice Test 1
SPECIAL NOTICES
All questions in this paper are based on English law and practice applicable in the tax year
2022/2023, unless stated otherwise and should be answered accordingly.
It should be assumed that all individuals are domiciled and resident in the UK unless
otherwise stated.
4
Instructions to candidates
Read the instructions below before answering any questions

• Two hours are allowed for this paper which carries a total of 100 marks as follows:
Section A: 32 marks
Section B: 68 marks
• You are strongly advised to attempt all questions to gain maximum possible marks.
The number of marks allocated to each question part is given next to the question and you
should spend your time in accordance with that allocation.
• Read carefully all questions and information provided before starting to answer. Your answer
will be marked strictly in accordance with the question set.
• You may find it helpful in some places to make rough notes in the answer booklet. If you do
this, you should cross through these notes before you hand in the booklet.
• It is important to show all steps in a calculation, even if you have used a calculator.
• If you bring a calculator into the examination room, it must be a silent, battery or
solar-powered, non-programmable calculator. The use of electronic equipment capable of
being programmed to hold alphabetic or numerical data and/or formulae is prohibited.
You may use a financial or scientific calculator, provided it meets these requirements.
• Tax tables are provided at the back of this question paper.
• Additional information relevant to pension planning is also included at the back of this
question paper.
• Answer each question on a new page and leave six lines blank after each question part.
Subject to providing sufficient detail you are advised to be as brief and concise as possible,
using note format and short sentences on separate lines wherever possible.
5
SECTION A
The following questions are compulsory and carry a total of 32 marks
1. The Financial Conduct Authority states that where a firm operates a triage service
as part of their defined benefit transfer advice process, it should be conducted on a
non-advised basis.
(a) Describe how a triage service works, including the benefits for the consumer. (6)
(b) Explain what is meant by ‘non-advised’ in the context of a triage service. (3)
2. Colin, aged 62, has a retirement annuity contract valued at £120,000. The policy
offers a guaranteed annuity rate.
Outline the factors relating to the retirement annuity contract that you would
consider before advising Colin on whether to transfer his pension fund to access his
benefits flexibly. (5)
3. Shaba is a deferred member of a defined benefit pension scheme. She has received
her annual funding statement which shows the scheme is underfunded and she has
some concerns about the security of her benefits.
State the factors that you would consider in assessing the security of Shaba’s
scheme benefits. (8)
4. Cliff, aged 48, is single and has deferred benefits in a previous employer’s defined
benefit pension scheme. The scheme has a normal pension age of 65 and includes
escalation of 5% per annum and a 50% spouse’s pension.
The cash equivalent transfer value (CETV) is £425,000 and he has been given a
transfer value comparator (TVC) that compares his CETV to the estimated costs of
providing the same benefits in a defined contribution environment money purchase
scheme.
Describe how the estimated costs of providing the same benefits in a money
purchase scheme are calculated, and state the assumptions used. (10)
Total marks available for this question: 32
6
SECTION B
All questions in this section are compulsory and carry an overall total of 68 marks
Case study 1
Read carefully all information provided in the case study before attempting the questions.
Your answers should take into account the client’s circumstances as set out in the case study.
Eve, aged 44, is single and has no children. She is in excellent health and there is a history of
longevity in her family. Eve has a cautious attitude to investment risk and all of her savings are
held in cash ISAs and a building society savings account.
Eve started her current job as an IT manager in 2017 and she is a member of the company’s group
personal pension plan (GPP). Her current salary is £48,000 per annum and both Eve and her
employer contribute 6% of her salary into the GPP each year.
Eve also has deferred benefits in her previous employer’s defined benefit pension scheme.
The scheme administrator has provided the following information about Eve’s benefits:
Date of joining scheme 1 March 1999

Date of leaving scheme 1 March 2017
Scheme pension at date of leaving £16,500 per annum gross
Pension commencement lump sum Via commutation
Spouse’s pension 50% of member’s pre-commutation pension
Increases in deferment Statutory minimum
Increases to pension in payment Statutory minimum
Normal pension age 65
Cash equivalent transfer value (CETV) £364,620
The defined benefit scheme is currently underfunded, and a recovery plan is in place. As a result of
the underfunding the CETV figure shown is a reduced figure. Several of Eve’s ex-colleagues have
transferred out and Eve would like some advice about whether she should also transfer.
Eve does not envisage fully retiring until she reaches her State Pension age of 67. However, she
would like to be in a position to reduce her working hours by the time she reaches the age of 55.
Her long-term aim is to be able to work on a freelance basis, so the possibility of being able to
access her pension funds flexibly is attractive to her. Eve feels that she would need a minimum net
income of £24,000 per annum in today’s terms once she fully retires and she would like this income
to increase in line with inflation.
7
Questions
5. List the additional information that you would require from the administrator of
the defined benefit scheme before making a personal recommendation to Eve. (10)
6. Outline the factors you should focus on when assessing Eve’s attitude to transfer
risk. (7)
7. Outline the client specific factors that you should consider when undertaking an
appropriate pension transfer analysis (APTA). (7)
8. You have recommended that Eve should leave her benefits in the defined benefit
scheme. Based on the information provided in the case study:
Explain in detail the reasons why you have made this recommendation. (10)
8
Case study 2
Read carefully all information provided in the case study before attempting the questions.
Your answers should take into account the clients’ circumstances as set out in the case study.
Anupa, aged 59, lives with her partner Tom, aged 60. The couple have one daughter, Jasmine,
aged 34, who is financially independent. Their home is currently valued at £650,000, is mortgage
free and held as tenants-in-common. The couple have mirror Wills that leave their entire estates
to each other in the event of death.
Tom recently retired and is in receipt of a scheme pension of £36,000 per annum gross. In addition
to his pension income, Tom has £25,000 in a savings account and £42,000 in stocks and shares ISAs
in line with his adventurous attitude to risk.
Having obtained State Pension forecasts, they each expect to receive a State Pension income of
just under £9,000 per annum, which together with Tom’s scheme pension is expected to fully meet
their income requirements from their State Pension age of 67.
Anupa intends to retire in June 2023 when she reaches her 60th birthday. In advance of her
pending retirement, Anupa recently requested and received the following information in respect of
her entitlement under a former employer’s defined benefit pension scheme:
Bowforce Retirement Plan

Date of joining scheme 12 September 1987
Date of leaving scheme 25 June 2016
Normal pension age (NPA) 65
Projected pension at NPA £26,500 per annum
Cash Equivalent Transfer £682,000
Value
Early retirement From age 60 with a 5% per annum reduction
Death benefits pre- Return of contributions with interest currently totalling £42,800;
retirement plus, statutory minimum survivor pensions
Death benefits post- 50% of member’s pension at date of death payable to the
retirement member’s spouse, civil partner or cohabiting financial dependent
Guarantee period 5 years
Contracted-out status Contracted-out to 5 April 2016
Escalation in payment Fixed 5%
Revaluation in deferment Guaranteed minimum (GMP) fixed rate
Non-GMP statutory minimum
In addition to the above pension, Anupa has £26,100 in a workplace pension scheme and modest
cash savings totalling £4,300. She has a moderate attitude to risk.
The couple’s objectives are:

• A joint net income of £50,000 per annum in retirement. This would reduce to around £40,000 in
the event of either death. The income would need to increase with inflation.
• For Jasmine to inherit at least some of Anupa’s pension benefits.
9
Questions
9. List five benefits and five drawbacks for Anupa of transferring her defined benefit
pension scheme to a personal pension plan to access benefits flexibly. (10)
10. Based on the objectives outlined in the case study:
(a) Explain why the pre-retirement death benefits payable under the Bowforce
Retirement Plan do not meet their objectives should Anupa die before
drawing her benefits. (4)
(b) State five actions that could be taken to help meet their objectives. (5)
11. You have advised Anupa to transfer the benefits from her defined benefit pension
scheme to a personal pension so that she can access her benefits flexibly. Based on
the information in the case study:
(a) State the factors you would take into account in assessing the sustainability
of the withdrawals that would be required to meet their income needs. (8)
(b) State the additional information you would require in order to advise Anupa
on a suitable investment strategy for her personal pension plan. (7)
10
NOTE ON MODEL ANSWERS

The model answers given are those which would achieve maximum marks. However, there are
alternative answers to some question parts which would also gain high marks. For the sake of
clarity and brevity not all the alternative answers are shown.
Model answer for Question 1
(a) • Explains the generic features and benefits and drawbacks of defined benefit pension
schemes and flexible benefits along with the transfer process, timescales and costs.
• Helps an individual decide whether to proceed with the pension transfer advice
process and avoids paying adviser charges unnecessarily.
(b) • Information must be generic, not based on an individual’s personal circumstances,

balanced and contain no adviser opinions.
• The Guaranteed Annuity Rate on offer.

• The age at which Guaranteed Annuity rate applies.
• Structure of the annuity benefits on offer.
• Pre-crystallisation death benefits.
• Charges and transfer penalties.
• Extent of the underfunding and strength of the employer covenant.

• Details of recovery plan and timescales for the return to being fully funding.
• Does scheme qualify for Pension Protection Fund if should become necessary.
• Level of Shaba’s benefits in the scheme v. Pension Protection Fund compensation limits.
• Escalation, revaluation and spouse’s pension offered by the scheme.
• Shaba’s length of service and how close she is to scheme normal pension age.
• Revalue benefits pension from date of leaving to the date of calculation in line with the
pension scheme then revalue to normal pension age using Financial Conduct Authority
prescribed assumptions.
• Capitalise using Financial Conduct Authority prescribed annuity rates and scheme benefit
structure with no allowance for personal circumstances.
• Discount back to date of calculation using gilt returns.
• An allowance for product costs of 0.75% per annum is factored in.
• An allowance for annuity purchase charges of 4% is factored in.
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• Extent of scheme underfunding and strength of the employer covenant.

• The amount of reduction of the cash equivalent transfer.
• Are partial transfers allowed?
• Commutation factors and amount of pension commencement lump entitlement.
• What are the early retirement factors and the earliest age benefits can be taken?
• Any guarantee period or lump sum death benefits?
• Ill-health benefits.
• Whether a spouse’s pension would be payable in respect of a future spouse?
• Split of the pension scheme benefit elements.
• The risks and benefits of Eve staying in the ceding scheme.

• The risks and benefits of transferring into an arrangement with flexible benefits.
• Eve’s attitude to certainty of income in retirement.
• Whether Eve is likely to access funds in an unplanned way and the likely impact on the
sustainability of Eve’s funds over time.
• Eve’s attitude to and experience of managing investments.
• Eve’s attitude to any restrictions on her ability to access funds in the Defined Benefit
scheme.
• She is not married and has no children.

• She is in excellent health with a history of longevity in her family.
• She would like to reduce her working hours from the age of 55.
• She does not plan to retire fully until State pension age.
• She would like to access funds flexibly once she starts to work on a freelance basis.
• Any impact of the proposed transfer on her tax position or access to State benefits.
• She has a cautious attitude to investment risk.
• She is in excellent health with a family history of longevity and the defined benefit scheme
will provide a guaranteed income for life which is suitable for her cautious attitude to
investment risk.
• The benefits from her defined benefit scheme plus her State Pension will likely provide all
her desired income in retirement.
• The income will be index-linked which meets her objective of inflation proofing.
• Her group personal pension can be used to supplement her income when she reduces her
working hours.
• No specific need to make the decision to transfer now and she could reconsider closer to
retirement.
• The cash equivalent transfer value has been reduced however the recovery plan in place
may return the transfer value to full level in the future.
• Benefits are still protected by the pension protection fund.
• She does not need flexible death benefits as she has no spouse or children.
12
Benefits
• Funds can provide the balance of income required on retirement.
• Can reduce the income when State Pension becomes payable.
• The level of income required is within safe withdrawal rate and unlikely to exhaust the fund
prior to death.
• Can provide Tom with the level of income following Eve’s death.
• Jasmine can potentially inherit any residual funds remaining.
Drawbacks
• Loss of guaranteed income for life.
• Loss of fixed 5% per annum escalation of income.
• It is not in line with her limited capacity for loss.
• Longevity risk as she is in good health and has a family history of longevity.
• Costs, adviser charges and complexity.
(a) • A return of contributions with interest would be payable but it is unlikely to be paid
to Jasmine because she is not financially dependent.
• Tom would not qualify for the statutory minimum survivor pension and would
therefore not have enough income to meet his £40,000 requirement.
(b) • Transfer to an individual pension arrangement.

• Get married.
• Take out life assurance in trust.
• Ensure that Jasmine is nominated to benefit from pensions.
• Use other assets outside of pension funds.
(a) • The level of withdrawal required initially.

• Income requirement will likely stop at State Pension Age but would likely need to
recommence upon either death to provide the income required.
• Income needs to increase with inflation.
• Can use pension commencement lump sum to provide tax-free income.
• Their tax status.
• The expected investment returns from their investment strategy.
• They have limited other assets and a low capacity for loss.
• The level of death benefits payable from Tom’s pension.
(b) • The likely investment timeframe.

• Any large capital withdrawals at outset planned.
• Capacity for loss.
• Her past investment experiences.
• Any ethical preferences.
• Her willingness to have frequent reviews and pay for them.
13
The Tax Tables which follow are applicable to the examinations during
September 2022 to August 2023.
14
INCOME TAX
RATES OF TAX 2021/2022 2022/2023
Starting rate for savings* 0% 0%
Basic rate 20% 20%
Higher rate 40% 40%
Additional rate 45% 45%
Starting-rate limit £5,000* £5,000*
Threshold of taxable income above which higher rate applies £37,700 £37,700
Threshold of taxable income above which additional rate applies £150,000 £150,000
Child benefit charge:

1% of benefit per £100 of adjusted net income between £50,000 – £60,000
*Only applicable to savings income that falls within the first £5,000 of income in excess of the personal
allowance
Dividend Allowance £2,000 £2,000

Dividend tax rates
Basic rate 7.5% 8.75%
Higher rate 32.5% 33.75%
Additional rate 38.1% 39.35%
Trusts
Standard rate band £1,000 £1,000
Rate applicable to trusts
- dividends 38.1% 39.35%
- other income 45% 45%
MAIN PERSONAL ALLOWANCES AND RELIEFS
Income limit for Personal Allowance § £100,000 £100,000
Personal Allowance (basic) § £12,570 £12,570
Married/civil partners (minimum) at 10% † £3,530 £3,640

Married/civil partners at 10% † £9,125 £9,415
Marriage Allowance £1,260 £1,260
Income limit for Married Couple’s Allowance† £30,400 £31,400
Rent a Room scheme – tax free income allowance £7,500 £7,500
Blind Person’s Allowance £2,520 £2,600
Enterprise Investment Scheme relief limit on £2,000,000 max** 30% 30%
Seed Enterprise Investment relief limit on £100,000 max 50% 50%
Venture Capital Trust relief limit on £200,000 max 30% 30%
§ the Personal Allowance reduces by £1 for every £2 of income above the income limit irrespective of age
(under the income threshold).
† where at least one spouse/civil partner was born before 6 April 1935.
** Investment above £1,000,000 must be in knowledge-intensive companies.
Child Tax Credit (CTC)

- Child element per child (maximum) £2,845 £2,935
- family element £545 £545
Threshold for tapered withdrawal of CTC £16,480 £17,005
15
NATIONAL INSURANCE CONTRIBUTIONS

Class 1 Employee Weekly
Lower Earnings Limit (LEL) £123

Primary threshold £242*
Upper Earnings Limit (UEL) £967
Total earnings £ per week CLASS 1 EMPLOYEE CONTRIBUTIONS
Up to 242.00** Nil
242.00* – 967.00 13.25%
Above 967.00 3.25%
*£190 per week/£9,880 per annum before 6 July 2022.

**This is the primary threshold below which no NI contributions are payable. However, the lower earnings
limit is £123 per week. This £123 to £242* band is a zero-rate band introduced in order to protect lower
earners’ rights to contributory State benefits e.g. the New State Pension.
Total earnings £ per week CLASS 1 EMPLOYER CONTRIBUTIONS
Below 175.00*** Nil

175.00 – 967.00 15.05%
Excess over 967.00 N/A
*** Secondary earnings threshold.
Class 2 (self-employed) Flat rate per week £3.15 where profits exceed £6,725 per annum.
Class 3 (voluntary) Flat rate per week £15.85.
Class 4 (self-employed) 10.25% on profits between £11,908 – £50,270.
3.25% on profits above £50,270.
16
PENSIONS
TAX YEAR LIFETIME ALLOWANCE
2006/2007 £1,500,000
2007/2008 £1,600,000
2008/2009 £1,650,000
2009/2010 £1,750,000
2010/2011 £1,800,000
2011/2012 £1,800,000
2012/2013 & 2013/2014 £1,500,000
2014/2015 & 2015/2016 £1,250,000
2016/2017 & 2017/2018 £1,000,000
2018/2019 £1,030,000
2019/2020 £1,055,000
2020/2021 – 2022/2023 £1,073,100
LIFETIME ALLOWANCE CHARGE
55% of excess over lifetime allowance if taken as a lump sum.
25% of excess over lifetime allowance if taken in the form of income.
ANNUAL ALLOWANCE
TAX YEAR ANNUAL ALLOWANCE
2014/2015 – 2022/2023 £40,000*
*Reducing by £1 for every £2 of ‘adjusted income’ over £240,000 to a minimum of £4,000 if ‘threshold
income’is also over £200,000.
MONEY PURCHASE ANNUAL ALLOWANCE 2021/2022 2022/2023

£4,000 £4,000
ANNUAL ALLOWANCE CHARGE

20% – 45% determined by the member’s taxable income and the amount of total pension input in
excess of the annual allowance or money purchase annual allowance.
17
CAPITAL GAINS TAX

EXEMPTIONS 2021/2022 2022/2023
Individuals, estates etc £12,300 £12,300

Trusts generally £6,150 £6,150
Chattels proceeds (restricted to five thirds of proceeds exceeding limit) £6,000 £6,000
TAX RATES
Individuals:
Up to basic rate limit 10% 10%
Above basic rate limit 20% 20%
Surcharge for residential property and carried interest 8% 8%
Trustees and Personal Representatives 20% 20%
Business Asset Disposal Relief* – Gains taxed at: 10% 10%

Lifetime limit £1,000,000 £1,000,000
*For trading businesses and companies (minimum 5% employee or director shareholding) if held for at least
two years.
18
INHERITANCE TAX
RATES OF TAX ON TRANSFERS 2021/2022 2022/2023
Transfers made on death
- Up to £325,000 Nil Nil
- Excess over £325,000 40% 40%
Transfers
- Lifetime transfers to and from certain trusts 20% 20%
A lower rate of 36% applies where at least 10% of deceased’s net estate is left to a registered charity.
MAIN EXEMPTION
Transfers to
- UK-domiciled spouse/civil partner No limit No limit
- non-UK-domiciled spouse/civil partner (from UK-domiciled spouse) £325,000 £325,000
- main residence nil rate band* £175,000 £175,000
- UK-registered charities No limit No limit
*Available for estates up to £2,000,000 and then tapered at the rate of £1 for every £2 in excess until
fully extinguished.
Lifetime transfers
- Annual exemption per donor £3,000 £3,000
- Small gifts exemption £250 £250
Wedding/civil partnership gifts by
- parent £5,000 £5,000
- grandparent/bride and/or groom £2,500 £2,500
- other person £1,000 £1,000
100% relief: businesses, unlisted/AIM companies, certain farmland/building

50% relief: certain other business assets
Reduced tax charge on gifts within 7 years of death:

- Years before death 0-3 3-4 4-5 5-6 6-7
- Inheritance Tax payable 100% 80% 60% 40% 20%
Quick succession relief:

- Years since IHT paid 0-1 1-2 2-3 3-4 4-5
- Inheritance Tax relief 100% 80% 60% 40% 20%
19
PRIVATE VEHICLES USED FOR WORK

2021/2022 Rates 2022/2023 Rates
Cars
On the first 10,000 business miles in tax year 45p per mile 45p per mile
Each business mile above 10,000 business miles 25p per mile 25p per mile
Motorcycles 24p per mile 24p per mile
Bicycles 20p per mile 20p per mile
MAIN CAPITAL AND OTHER ALLOWANCES

2021/2022 2022/2023
Plant & machinery (excluding cars) 100% annual investment allowance

(first year) £1,000,000 £1,000,000
Plant & machinery* first year allowance for companies to 31/3/2023: Super-deduction 130%
Special rate 50%
Plant & machinery (reducing balance) per annum 18% 18%

Patent rights & know-how (reducing balance) per annum 25% 25%
Certain long-life assets, integral features of buildings (reducing balance)
per annum 6% 6%
Energy & water-efficient equipment 100% 100%
Zero emission goods vehicles (new) 100% 100%
Electric charging points 100% 100%
Qualifying flat conversions, business premises & renovations 100% 100%
Motor cars: Expenditure on or after 1 April 2016 (Corporation Tax) or 6 April 2016 (Income Tax)
CO2 emissions of g/km: 0* 1-50 Over 50
Capital allowance: 100% 18% 6%
first year reducing balance reducing balance
*If new and unused
20
MAIN SOCIAL SECURITY BENEFITS

2021/2022 2022/2023
£ £
Child Benefit First child 21.15 21.80
Subsequent children 14.00 14.45
Guardian’s allowance 18.00 18.55
Employment and Support Assessment Phase

Allowance
Age 16 - 24 Up to 59.20 Up to £61.05
Aged 25 or over Up to 74.70 Up to £77.00
Main Phase
Work Related Activity Group Up to 104.40 Up to 107.60
Support Group Up to 114.10 Up to 117.60
Attendance Allowance Lower rate 60.00 61.85

Higher rate 89.60 92.40
Basic State Pension Single 137.60 141.85

Married 275.20 283.70
New State Pension Single 179.60 185.15
Pension Credit Single person standard minimum

guarantee 177.10 182.60
Married couple standard minimum
guarantee 270.30 278.70
Maximum savings ignored in
calculating income 10,000.00 10,000.00
Bereavement Support Payment Higher rate – First payment 3,500.00 3,500.00

Higher rate – monthly payment 350.00 350.00
Lower rate – First payment 2,500.00 2,500.00
Lower rate – monthly payment 100.00 100.00
Jobseeker’s Allowance Age 18 - 24 59.20 61.05

Age 25 or over 74.70 77.00
Statutory Maternity, Paternity

and Adoption Pay 151.97 156.66
21
CORPORATION TAX
2021/2022 2022/2023
Standard rate 19% 19%
VALUE ADDED TAX

2021/2022 2022/2023
Standard rate 20% 20%

Annual registration threshold £85,000 £85,000
Deregistration threshold £83,000 £83,000
STAMP DUTY LAND TAX

Residential
Value up to £125,000 0%
£125,001 - £250,000 2%
£250,001 - £925,000 5%
£925,001 - £1,500,000 10%
£1,500,001 and over 12%
Additional SDLT rules still apply as below:
Stamp Duty Land Tax (SDLT) is payable in England and Northern Ireland only. Land Transaction Tax
(LTT) is payable in Wales and Land and Buildings Transaction Tax (LBTT) is payable in Scotland. The
rates for LTT and LBTT are different to the rates shown above.
Additional SDLT of 3% may apply to the purchase of additional residential properties purchased for
£40,000 or greater.
SDLT may be charged at 15% on interests in residential dwellings costing more than £500,000
purchased by certain corporate bodies or non-natural persons.
First-time buyers benefit from SDLT relief on purchases up to £500,000 when purchasing their main
residence. On purchases up to £300,000, no SDLT is payable. On purchases between £300,000 and
£500,000, a flat rate of 5% is charged on the balance above £300,000.
Non residential
Value up to £150,000 0%
£150,001 and £250,000 2%
£250,001 and over 5%
22
The additional information for the pension paper can be found on pages 24 – 25
23
SUPPLEMENTARY INFORMATION PENSION PAPERS – AF7 2022/2023

REVALUATION
Guaranteed Minimum Pension – Fixed rate
Date of leaving service Fixed rate of revaluation

Before 6 April 1988 8.5%
Between 6 April 1988 and 5 April 1993 7.5%
After 5 April 2022 3.25%
Non GMP benefits – statutory minimum rates
Date of leaving service Statutory rate of revaluation

Before 1 January 1986 No requirement to revalue benefits
Between 1 January 1986 and CPI capped at 5% in respect of non GMP benefits accrued
31 December 1990 from 1 January 1985
Between 1 January 1991 and CPI capped at 5% in respect of all non GMP benefits
5 April 2009
After 5 April 2009 CPI capped at 5% in respect of all non GMP benefits accrued
before 6 April 2009
CPI capped at 2.5% in respect of all benefits accrued after 5
April 2009
NOTE: Statutory revaluation is based on RPI for revaluation prior to 2011
ESCALATION
Statutory rates of escalation: Member reached State Pension age before 6 April 2016
Accrual Statutory rate of escalation

GMP: Accrual prior to 6 April 1988 Scheme: No requirement to provide any increases in
payment
State: Fully in line with CPI
GMP: Accrual between 6 April 1988 and Scheme: CPI capped at 3%
5 April 1997 State: Any increases in CPI in excess of 3%
Non GMP: Accrual prior to 6 April 1997 Scheme: No requirement to increase in payment
Non GMP: Accrual between 6 April 1997 Scheme: CPI capped at 5% (LPI)
and 5 April 2005
Non GMP: Accrual from 6 April 2005 Scheme: CPI capped at 2.5%
NOTE: Statutory escalation was based on RPI prior to 2011
24
Statutory rates of escalation: Member reaches State Pension age on or after 6 April 2016
Accrual Statutory rate of escalation

GMP: Accrual prior to 6 April 1988 Scheme: No requirement to provide any increases in payment
GMP: Accrual between Scheme: CPI capped at 3%
6 April 1988 and 5 April 1997
Non GMP: Accrual prior to Scheme: No requirement to increase in payment
6 April 1997
Non GMP: Accrual between Scheme: CPI capped at 5% (LPI)
6 April 1997 and 5 April 2005
Non GMP: Accrual from Scheme: CPI capped at 2.5%
6 April 2005
NOTE: No increase to GMP is made by the State (via the State Pension) for individuals who reach
State Pension age on or after 6 April 2016
PENSION PROTECTION FUND
Compensation cap no longer applies following a Court of Appeal ruling in July 2021 that it was
unlawful on the grounds of age discrimination.
Revaluation of deferred benefits within PPF
Service Rate of revaluation

All service before 6 April 2009 CPI capped at 5%
All service after 5 April 2009 CPI capped at 2.5%
Escalation of benefits in payment from PPF
Service Rate of revaluation

All service before 6 April 1997 No increases
All service after 5 April 1997 CPI capped at 2.5%
25

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AF7

Advanced Diploma in Financial Planning

Unit AF7 – Pension transfers

2022-2023 Revision Aid

Unit AF7 – Pension transfers

Published July 2022

Telephone: 020 8989 8464

Copyright © 2022 The Chartered Insurance Institute. All rights reserved.

Useful tips as you prepare for the AF7 exam

Follow these instructions to take the Familiarisation Test.

• Click here to access the Familiarisation Test.

Unit AF7 – Pension transfers

Unit AF7 – Pension transfers

Read the instructions below before answering any questions

• Tax tables are provided at the back of this question paper.

The following questions are compulsory and carry a total of 32 marks

Total marks available for this question: 32

Date of joining scheme 1 March 1999

Total marks available for this question: 34

Bowforce Retirement Plan

The couple’s objectives are:

10. Based on the objectives outlined in the case study:

Total marks available for this question: 34

NOTE ON MODEL ANSWERS

Model answer for Question 1

(b) • Information must be generic, not based on an individual’s personal circumstances,

Model answer for Question 2

• The Guaranteed Annuity Rate on offer.

Model answer for Question 3

• Extent of the underfunding and strength of the employer covenant.

Model answer for Question 4

Model answer for Question 5

• Extent of scheme underfunding and strength of the employer covenant.

Model answer for Question 6

• The risks and benefits of Eve staying in the ceding scheme.

Model answer for Question 7

• She is not married and has no children.

Model answer for Question 8

Model answer for Question 9

Model answer for Question 10

(b) • Transfer to an individual pension arrangement.

Model answer for Question 11

(a) • The level of withdrawal required initially.

(b) • The likely investment timeframe.

Child benefit charge:

Dividend Allowance £2,000 £2,000

Married/civil partners (minimum) at 10% † £3,530 £3,640

Child Tax Credit (CTC)

NATIONAL INSURANCE CONTRIBUTIONS

Lower Earnings Limit (LEL) £123

Total earnings £ per week CLASS 1 EMPLOYEE CONTRIBUTIONS

*£190 per week/£9,880 per annum before 6 July 2022.

Total earnings £ per week CLASS 1 EMPLOYER CONTRIBUTIONS

Below 175.00*** Nil

*** Secondary earnings threshold.

MONEY PURCHASE ANNUAL ALLOWANCE 2021/2022 2022/2023

ANNUAL ALLOWANCE CHARGE

CAPITAL GAINS TAX

Individuals, estates etc £12,300 £12,300