REPORT OF THE BOARD OF EXAMINERS · PDF fileCandidates are encouraged to review past exam papers as part of their preparation for the exam and revision

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REPORT OF THE BOARD OF EXAMINERS ADVANCED DIPLOMA IN RETIREMENT PROVISION APRIL 2014

The Pensions Management Institute © 2014

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THE PENSIONS MANAGEMENT INSTITUTE REPORT OF THE BOARD OF EXAMINERS APRIL 2014 Introduction The purpose of this report is to review candidates’ performances in the ten modules examined in April 2014. Performances for April 2014 were particularly good in modules 204 Defined Contribution (Trust & Contract) Arrangements and 306 Retail Investment Advice and Regulation. The modules with the lowest pass rates were 205 Investment and 305 International 2. In all modules some candidates showed a particularly high standard. When marking, examiners give marks for relevant facts. They also give marks for showing that candidates have understood the subject and, where appropriate, that they can apply it to the question asked. They also give marks for communication. Candidates where requested to answer in a specific format, are encouraged to do so, so that format marks are not missed The emphasis on understanding, application and communication increases further with the later modules. In all modules, the examination questions are designed where possible to cover a wide range of the syllabus. Candidates therefore need to have reviewed all the study material. They should also ensure they study any appendices which form part of each manual. Distance learning courses and revisions courses are recommended. Past examination papers will be useful and are available on the PMI website. Examination questions are also drawn up where possible with an emphasis on the industry today. So extra reading will benefit candidates, particularly on the topics that are concerning the industry generally in the current environment. This is particularly true of the later modules. With difficult questions that may seem a bit daunting under examination conditions, some guidance is often given within the question on what is expected. Candidates may be interested in knowing how the marking process works. The examiners are qualified members of PMI with broad experience in the industry. There is a separate group of examiners for each module. They produce a marking schedule for each question, and then they mark some sample scripts and refine each of their marking schedules. Each script is marked twice completely independently. The examiners for each module recommend a pass mark for their module based on the scripts submitted, above which they feel the candidates have demonstrated a knowledge and understanding of the subject worthy of a pass. All scripts near the pass mark are reviewed again, question by question and mark by mark, at an examiners meeting, to ensure that the candidate receives every mark warranted. A moderator looks at a selection of scripts from all the modules to ensure consistency, and adjustments to the pass mark can be made in a final Board of Examiners meeting, taking account of the moderator’s comments.


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The table below summarises entries and performances across the modules.

Module Entries Absent / Withdrawn

Number of Scripts

% Pass

201 92 11 81 42

202 25 1 24 50

203 60 9 51 55

204 52 7 45 76

205 33 4 29 34

301 109 10 99 53

302 82 8 74 61

304 33 5 28 46

305 25 4 21 33

306 29 8 21 71

Total

Following the April 2014 examinations, 44 candidates completed the Advanced Diploma. 36 candidates completed the Diploma in Employee Benefits and Retirement Savings examination and 6 candidates completed the Diploma in Regulated Retirement Advice. 29 candidates completed the new Diploma in Retirement Provision qualification. The rest of this report looks separately at each module examined in April 2014. It gives a guide as to how the question paper overall and each of the questions were answered by candidates, an indication of what was required in response to the questions, and any common errors or omissions. Please note the April 2014 examinations were based on the 2014 syllabuses and on the law as it existed

at 6 April 2013.

Module 201 – Providing for Retirement This question paper comprised six questions, covering a wide range of topics within the syllabus and, in the majority of cases, candidate’s answers demonstrated evidence of having studied those aspects of the subject which were examined. Question 1 (a) Describe the standard Lifetime Allowance. (10 marks)

(b) Outline the various ways members’ benefits may be protected from the impact of the

standard Lifetime Allowance. (10 marks) This was the best answered question, with nearly all candidates demonstrating a good knowledge of both the standard Lifetime Allowance and the various protections that may be available to members. In part (a) most candidates were able to describe the Lifetime Allowance, illustrate how the amount has changed over the years, explain how benefits are valued when a Benefit Crystallisation Event occurs and show the tax consequences if benefits exceed the Lifetime Allowance. However, a number of candidates were unclear about the rate of tax applicable to benefits in excess of the Lifetime Allowance and many failed to distinguish between benefits paid in lump sum form, where the Lifetime


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Allowance Charge is 55%, and benefits paid as pension, where the Lifetime Allowance Charge is 25% and in addition the pension is subject to PAYE income tax. In part (b) most candidates understood the concepts of Primary and Enhanced Protection, although a few got them the wrong way round. Some candidates failed to explain that these protections were available in respect of pension rights built up in the previous (pre A-Day) regime. For Enhanced Protection most were aware that accrual had to cease but a smaller number knew that a defined benefit pension can still increase in line with salary or in line with RPI up to 5% per year. Fewer candidates mentioned the Fixed Protections brought in when the Lifetime Allowance was lowered in 2012 and again in 2014. The relevant parts of the 2014 study manual were Section 4, Chapter 1.3 and Section 4, Chapter 2.2. Question 2

Occupational pension schemes often provide for pensions to be payable to members’ dependants. Describe the main features of these, including HMRC and contracting-out requirements. (20 marks)

Whilst a few candidates scored highly the majority struggled with this question, despite the fact that it has been asked before. Candidates are encouraged to review past exam papers as part of their preparation for the exam and revision. A large number of candidates spent time describing lump sums that may be payable on death, despite the fact that the question asks about pensions. Candidates are reminded that they must focus on the question that has actually been asked, as marks will not be awarded for information that is beyond the scope of the question. Few candidates recognised that on death after retirement, the dependant’s pension from a DC scheme will depend upon the type of annuity chosen when the member retired. Most candidates noted that a dependant’s pension may be paid to the spouse or civil partner of the member or to a child or children of the member. However, few mentioned

other dependants,

features of dependants’ pensions such as commencement at the date of the member’s death or at the end of a guaranteed period,

the possibility that it might cease on re-marriage, or

the possibility that it might be reduced if the spouse is significantly younger than the member. The question gave candidates a steer to consider HMRC requirements but very few mentioned the definition of ‘dependant’ in the Finance Act, such as financial dependence or inter-dependence or dependency due to physical or mental impairment, or the fact that payment to someone who does not fall within that definition will be an unauthorised payment. The relevant parts of the 2014 study manual were Section 3, Chapter 3.2.6 and Section 3, Chapter 4.2.


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Question 3

Identify the main features of stakeholder pensions. (10 marks) There were very few poor answers to this question. Most candidates referred to the 1.5% charge for the first ten years, reducing to 1% after that, although a number failed to make it clear that these are maximum charges. Also, most referred to the fact that providers can stipulate a minimum contribution so long as it is no higher than £20 but a number thought this was £20 per annum. Most were aware of the need to have a default investment option, a statement of investment principles and a scheme auditor. Fewer candidates stated that stakeholder schemes must accept transfers from other registered pension schemes and very few stated that they cannot make a charge for transfers to other stakeholder schemes. A number of candidates discussed employer access requirements and exemptions, and auto-enrolment, but these are not features of stakeholder pensions as such. The relevant part of the 2014 study manual was Section 2, Chapter 4.1.

Question 4

The trustees of the XYZ Pension Scheme have invited you to attend their next Board meeting to discuss “effective member communication as an aid to ensuring employees’ engagement”. As their Pensions Adviser, draft an email to the Secretary of the Trustees to

(a) Explain the importance of engaging with employees about saving for retirement (4 marks) (b) Outline key points relating to effective member communication (5 marks) (c) Outline the different types of communication methods available (4 marks) (d) Outline the purpose and principles of the DWP Style Guide to aid member

communications. (5 marks) (20 marks are available for this question, of which 2 are available for format) On the whole, candidates tended to struggle with parts (a) and (d) and picked up most of their marks from parts (b) and (c). In part (a), few explained that a pension scheme is an important part of a benefits package and can be valued highly by members, and relatively few mentioned that engagement and understanding is important, particularly in relation to DC schemes where the size of the eventual retirement benefit will depend on decisions taken by members. Part (b) was generally well answered, with most candidates making relevant points about clarity of the purpose of the communication, agreeing the target audience, the need for communications to be clear, helpful, relevant and timely and the need for effective communication throughout membership, not just at entry and exit. Part (c) was also well answered, with candidates aware of the different types of communication methods including paper-based, electronic, telephone, group presentations, and one-to-one meetings. Answers to part (d) were in general quite disappointing, demonstrating little evidence of candidates having studied the small section in the study manual relating to the DWP Style Guide. Finally, it was pleasing to note that most candidates recognised the need to respond in the form of an email although a few missed that part of the question and failed to gain the available marks.


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The relevant part of the 2014 study manual was Section 1, Chapter 1.3.

Question 5 Describe the possible benefit design features of

(a) Defined Ambition Schemes (b) Collective Defined Contribution Schemes. (15 marks)

A few candidates demonstrated detailed knowledge and therefore scored highly. However, most candidates’ answers were quite poor and lacking in detail, despite this being a highly topical question. In part (a), candidates generally understood the basic concept of Defined Ambition and the reasons why this is being developed, but very few were able to outline the various ways in which a defined ambition strategy can be achieved, as set out in the five bullet points on page 22 of the study manual. In part (b), most candidates recognised that the benefit depends on the funding level in the scheme as a whole, and not necessarily the size of the member’s own ‘pot’, and a reasonable number had an awareness of the possibility of unconnected employers using a Collective Defined Contribution Scheme to achieve economies of scale. However, few candidates were able to provide any further detail. A number mistook a Collective Defined Contribution Scheme for a group personal pension scheme. The relevant part of the 2014 study manual was Section 2, Chapter 2.1.9.

Question 6

Describe the Pensions Advisory Service and how it operates. (15 marks)

Nearly all candidates demonstrated some familiarity with the Pensions Advisory Service, although a few confused TPAS with the Pensions Regulator. Most candidates knew the basics about the role of TPAS in helping with disputes and that it is a free service provided by volunteers. Most were also aware that TPAS has no statutory powers to settle disputes and that if it cannot resolve disputes the matter may be referred to the Pensions Ombudsman. There did, however, appear to be some confusion about when TPAS could become involved and very few identified that TPAS could assist scheme members with the internal dispute resolution process, or that it requires the complainant to have attempted to resolve the dispute in writing. Some candidates spent time discussing the role of the Pensions Ombudsman despite the fact that this was outside the remit of the question. The relevant part of the 2014 study manual was Section 4, Chapter 3.2.


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Module 202 – Legal Issues Related to UK Pension Arrangements Question 1

(a) Explain the main distinctions between a Trust and a Contract. (10 marks)

(b) Outline the methods for varying a trust. (5 marks) Most candidates scored well on both parts of this question. Part (a) of the question was looking for an explanation of the differences in; how a Trust and Contact are set up, how they can be enforced and how terminated. Part (b) was looking for the how the Courts can vary a Trust, powers in the Trust Deed and Rules and statutory overriding powers. The relevant part of the 2014 study manual was Section 1, Chapters 1.7 and 1.9. Question 2

The Chairman of the Trustee Board has asked you to draft a briefing paper to be issued to new Trustees setting out their general powers under the Rules of the Scheme. You should also include the interests of the employer. (20 marks)

The question was looking for how trustees discharge their duties by referring to some of the key powers that will be set out in the Trust Deed and Rules, reference to the balance of powers between Trustees and Employer and the importance of this and the influence of overriding legislation. Most candidates received only low to average marks on this question, with little reference to discharge of duties or balance of powers, but most candidates were able to list a number of the key powers Trustees have. Very few candidates presented the answer as a briefing paper as requested and therefore missed out on the communication marks. The relevant part of the 2014 study manual was Section 1, Chapter 2.9.

Question 3

Outline the requirements on an Employer in terms of Auto-enrolment. (15 marks) Some candidates received good marks on this question but quite a few also only received low or average marks. This was disappointing given how topical the subject is and that candidates should have some knowledge of the subject without reference to the manual. Points required in the answer were, what employers need to make available to meet their auto enrolment obligations in terms of offering NEST or a qualifying work based pension scheme (and detail around these) the requirement to auto enrol employees every 3 year, make minimum contributions and have administration systems in place. The relevant part of the 2014 study manual was Section 2, Chapters 1.2 and 1.8.


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Question 4

Inducement offers are one of the main ways in which employers and trustees can manage risks associated with their pension scheme. Explain what an inducement offer is, including the concerns that have been raised over these and the various guidance issued in response to these concerns. (20 marks)

A number of candidates scored high marks on this question but also some who scored badly. The question was looking for examples of what inducement offers are, e.g. enhanced transfer values or cash lump sums to encourage members to transfer out of the Scheme or to accept reductions in benefits. Then looking at why and how they might be used, the concerns raised about them and the content of various guidance that has been published to address these including the 5 principles set by the Pensions Regulator. Most candidates scored well on this question particularly in terms of types of inducement and the 5 principles various guidance issued. The relevant part of the 2014 study manual was Section 3, Chapter 2.1.

Question 5

ABC has recently completed a corporate transaction and is considering merging its two defined benefit pension schemes:

(a) Explain how Scheme mergers are achieved (15 marks)

(b) Outline the issues trustees need to consider before agreeing a merger. (15 marks)

You do not need to discuss documentation or tax issues. There were a few candidates who scored high marks on this question but also some average and poor papers. Some candidates wrote about Company mergers rather than Scheme mergers and therefore went into detail about section 75 debts, clearance and warranties and indemnities for which no marks could be allocated. Part (a) of the question was looking for the use of an existing or new scheme as the merged scheme, the method of how members would be transferred, either with or without consent and the conditions that have to be satisfied for each method and the communication to members. Part (b) was looking for consideration of the rules, balance of powers, funding considerations Scheme benefits given on transfer and other considerations such as contracting out. The relevant part of the 2014 study manual was Section 4, Chapter 1.9.


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Module 203 – Defined Benefit Schemes This was a relatively straightforward paper drawing from a wide area of the syllabus. On the whole, the paper was reasonably well answered although the marks spanned a wide spectrum with some excellent papers but also some where candidates scored low marks. It was disappointing that, once again, many candidates did not write their answer to question 3 in the format requested. This meant that they did not gain any of the marks available for format. Question 1

Trustees of an occupational pension scheme must open and maintain a trustee bank account. Explain why they are required to have a bank account and what the Trustees’ responsibilities are in relation to that account. (25 marks)

This question asked candidates to explain why Trustees of an occupational pension scheme must open and maintain a trustee bank account. This was detailed in the manual, so those candidates who were adequately prepared achieved good marks but overall this was the lowest scoring question. Many answers contained too much detail regarding the regulatory deadlines for contribution payments. While most candidates mentioned the need to invest excess monies from the trustees’ bank account, few recognised that there may also be a need to disinvest money to ensure the bank account could meet payments. The delegation of the bank account to a Third Party Administrator was often missed. The relevant part of the 2014 study manual was Section 3, Chapter 4.6. Question 2

A deferred member of your contracted out defined benefit scheme has written to advise you that he is permanently moving from the UK to work in Australia, and is keen to transfer his pension there.

He has also asked about the process for paying him his pension in Australia if he doesn’t transfer it.

Describe the issues that need to be addressed before such a transfer could be made to his Australian pension scheme (20 marks)

Outline the issues that may arise if his UK pension is paid to him in Australia (5 marks) The main part of this question asked candidates to describe the issues that need to be addressed to enable a member to transfer his pension to Australia. Candidates were also asked to write about paying him his UK pension. This question was the third best answered The question was quite specific in stating the transfer was to an overseas scheme but some

candidates lost marks by simply giving generic information on transfers.


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Most candidates were able to identify that the receiving scheme must be registered with HMRC as a

QROPS but often wrongly identified what the acronym stood for; many said ‘Registered’ instead of

‘Recognised.

Some answers included unnecessary detail of statutory pensions increases and enhanced protection

and although candidates knew tax was due on transfers in excess of the LTA, many wrongly quoted

the amount of tax due.

Most candidates identified that a double taxation agreement would be in place between Australia and

UK.

The relevant part of the 2014 study manual was Section 2, Chapter 5.3-5.5.

Question 3

You are the pensions manager for a manufacturing company which is planning to close one of the production sites next year. It is in general an older workforce and there are a few workers currently on sick leave.

Write a briefing note for the Human Resources manager outlining the options and procedures relating to early retirement from the final salary scheme. (25 marks)

This question asked candidates to write a briefing note outlining the options and procedures relating to early retirement from a final salary scheme. Overall this question was the second best answered. Many candidates failed to set their answer out as a briefing note or made a non-serious attempt, so

valuable marks for communication and format were missed.

The scripts focussed on ill health retirement and serious ill health retirement but generic details of

early retirement were often omitted.

Few candidates mentioned the options available under triviality.

The relevant part of the 2014 study manual was Section 2, Chapter 3.

Question 4

You are the pensions manager of a large defined benefit pension scheme. The finance director has asked you to look at ways of de-risking the scheme without amending the design of the scheme. Explain the different options available. (25 marks)

This question asked candidates to look at ways of de-risking the scheme without amending the design of the scheme and explain the different options available. This question was the best answered with most candidates scoring good marks and most points being considered. A few candidates wrote about scheme design, which was not relevant for the question. The relevant part of the 2014 study manual was Section 1, Chapter 1.


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Module 204 – Defined Contribution (Trust & Contract) Arrangements The standard of scripts presented in this sitting was noticeably varied. There was a clear differential between those candidates who had studied the whole course reasonably thoroughly and were able to demonstrate a sound understanding of other issues which were of relevance to the questions and those candidates who would have benefited from additional revision. Candidates are encouraged to attempt to complete questions even if they have not studied sufficiently. A number of candidates wasted time by writing out each question before setting out their answer. Handwriting on a few scripts was not particularly legible making them difficult to mark. As the majority of candidates will use computers on a daily basis candidates might like to practice writing for three hours prior to sitting each exam. A number of candidates also appear to rely on their computer’s spell-check function. A number of dis-jointed answers were submitted with, in some papers, parts of answers being pages apart. Unless the additional part answer was clearly indicated there is a danger that part of an answer might be overlooked. Some candidates showed a tendency to stray beyond the confines of the question and this was particularly marked in question 1 (a) where a number of candidates wrote all they knew about transfers and question 2 (b) where a number of candidates described the Annual Allowance test in detail rather focusing on the exemptions from the Annual Allowance test as requested. It was not difficult to identify those who had studied the manual well. It is also important to read the question and it was clear that those who had done so were able to direct their answers appropriately. Question 1

(a) As a Senior Pensions Administrator briefly outline the process which needs to be adopted and the information to be obtained from the transferring scheme when a member of your pension scheme is contemplating a transfer in from a previous scheme.

(15 marks)

(b) Trustees/managers of trust and contract based pensions schemes must disclose certain information to members and beneficiaries.

List the instances in which this information must be provided. (5 marks)

(c) Identify the legislation that contract based pension schemes must adhere to in the disclosure of information and to whom breaches of the legislation must be reported.

(5 marks) Part (a) was reasonably well answered. However, a number of candidates omitted to verify that their pension scheme could accept a transfer in and not many mentioned the need to obtain authority from the member before obtaining information from the transferring scheme. Other omissions were:

that the administrator often deals direct with the previous scheme on the member’s behalf,

the name of the transferring scheme, and

confirmation of whether or not the pensionable service completed under the transferring scheme included any previous transfers in and whether there were any relevant court orders.

As noted earlier some candidates wrote all they knew about transfers without detailing the process to be followed. In Part (b) a number of candidates omitted the circumstances when information must be disclosed automatically and the timescales applicable and detailed instead the information that need only be


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made available on request. A number of candidates wrote in detail on the production of Scheme Accounts. Common omissions were that information must be provided when benefits are transferred from the scheme and options for paying benefits must be given on a member’s death. In Part (c) a number of candidates confused the roles of the FCA and the tPR in relation to contract based pension schemes. Given the significance of the disclosure requirements we were disappointed that very few candidates correctly identified the relevant legislation. A number of candidates instead referred to Data Protection legislation and a few referred to legislation applicable to trust based pension schemes only. The relevant part of the 2014 study manual was Section 3, Chapter 1.4.1 & 1.12. Question 2

(a) As a pensions consultant to the Trustees of the ABC Pension Scheme you have been asked to explain how pension arrangements are monitored and regulated in the UK. Prepare a paper on:

(i) the role of the Pensions Regulator (tPR), (7 marks)

(ii) how tPR gathers information, and (8 marks)

(iii) how tPR provides guidance to trustees. (5 marks)

(b) Write short notes on the exemptions from the Annual Allowance test for members of defined

contribution schemes. (5 marks) On the whole this question was quite well answered but a number of candidates overlooked the request to provide their answers to part (a) in the format of a paper. In Part (a) (i) a number of candidates mentioned pension arrangements that are not regulated. Not many candidates mentioned that a primary function of tPR is that it protects members’ benefits and is designed to promote good standards in the industry. Very few candidates mentioned that tPR enforces employer duties in pension provision and is a body that is designed to ensure compliance with the Auto-enrolment legislation. In Part (a) (ii) not many candidates mentioned that the Exchange is used to share information about work place pension schemes and few recognised that scheme returns are the responsibility of the trustees but that this is usually delegated. Most candidates were, however, cognisant about the function of scheme returns and their contents. Part (a) (iii) was generally well answered with most candidates displaying a good awareness of the Codes of Practice and the function of the tPR toolkit. In Part (b) a number of candidates wrote in depth on Annual Allowances rather than answering the question set. In addition a number of candidates appeared to believe that the various types of Protection are exemptions. On a positive note, a good number of candidates were aware that the annual allowance test does not apply in the tax year in which death occurs and that the revaluation of preserved benefits in deferment is not subject to the test. The relevant part of the 2014 study manual was Section 2, Chapters 1 & 2.


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Question 3 Describe the primary factors that influence the design of a Defined Contribution Scheme. (25 marks) This question was well answered by the majority of candidates. Some scored very high marks indeed with some even achieving 100%. It was evident that this part of the course had been studied thoroughly and candidates demonstrated the ability to think about the wider issues which was impressive

The only real omissions from answers were investment flexibility and the need for employers to consider workforce patterns. The relevant part of the 2014 study manual was Section 1, Chapter 1.

Question 4

(a) Write short notes on Controlling Directors in the context of UK based pension schemes (5 marks)

(b) List (i) the consequences of deregistration for a Small Self Administered Scheme (SSAS)

(5 marks)

(ii) the investments which are permitted within a SSAS (15 marks) Part (a) was not answered as well as it might have been. A number of candidates omitted to include a definition of a “Controlling Director” and not many recognised that HMRC monitors closely contributions paid by and on behalf of controlling directors as they are in a position to abuse tax relief available on these. On a positive note however most candidates were aware that controlling directors were only allowed to join an occupational pension scheme from 6

th April 1973. Although few

candidates made reference to the relevant legislation. A number of candidates overlooked the request to provide their answers to part (b) in the format of a list. Part (b) (i) was generally answered with the majority of candidates noting the 40% deregistration tax charge. However, few candidates mentioned that employees become liable to Schedule E tax on employer and employee contributions. Also, few realised that tax charges apply on investment income and gains within the fund and pensions in payment are taxed as unearned income. The standard shown in part (b) (ii) was mixed; some candidates clearly knew this subject well and scored high marks while others showed a deficiency in their knowledge here. A number of candidates failed to note when restrictions applied to the type of assets permitted. The rules regarding the ownership of unquoted equities by a SSAS were not particularly well understood with several candidates not appreciating that the SSAS members or any connected parties must not be in a position to use the assets for their benefit. Similarly not many realised that no more than five percent of the SSAS assets may be used to buy shares in the sponsoring employer. Furthermore the ability of a SSAS to make loans to third parties provided they are not connected parties was frequently overlooked. Happily the rules regarding loan backs to sponsoring employers were covered off well. The relevant part of the 2014 study manual was Section 5, Chapter 1, 1.1-1.3.4.


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Module 205 – Investment The paper comprised 5 questions, including one short notes question worth 25 marks, two questions worth 15 marks, one worth 20 marks and one question accounting for 25 marks. Almost all candidates attempted all 5 questions. Some papers were of a high standard, although it was plain that some candidates had failed to study the manual in its entirety. A number of papers showed a poor grasp of some of the more basic elements of the syllabus. The paper covered a wide spread of the syllabus allowing candidates to demonstrate a broad understanding of the subject matter. Question 1

Write short notes on:

(a) Swaps (8 marks) (b) Components of a Liability Driven Investment strategy (9 marks) (c) Custody and Title of Assets (8 marks)

Unusually for a short notes question, this was poorly answered. In part (a), candidates were expected to mention that swaps are a contractual arrangement where two parties agree to exchange a series of payments, with the majority involving the swap of fixed payments for floating amounts. Marks were available for mentioning different types of swap, including interest rate, index, currency and credit transfer. Good answers went on to explain that swaps are used for diversification, can be tailor made and are often complex and traded over the counter through private arrangements. In part (b), the examiners were looking for candidates to mention that there are two components, matching and growth. The matching component seeks to replicate the scheme's liability profile while the growth component aims to generate consistent long term return to reduce funding deficits. Candidates should have mentioned that LDI can be relevant for most schemes regardless of funding status. Good answers referred to LDI providing protection against changes to actuarial assumptions. Marks were also available for explaining that the matching component may contain a mix of bonds and interest rate or inflation swaps, that swap overlays allow effective liability matching and that the growth component often uses a diversified range of asset classes, markets and strategies. In part (c), many candidates failed to mention that trustees need to ensure that assets are held securely and this may mean assets are held directly by trustees or, more commonly, by a nominee designated by the trustees. The examiners were also looking for answers to explain that this latter simplifies administration and reduces paperwork, as well as that trustees must ensure the nominee is suitable. Good answers explained that some schemes may appoint a global custodian to manage all assets regardless of manager, and that details would be included in the IMA. Candidates should also have described what tasks a custodian typically undertakes. The relevant part of the 2014 study manual was Section 1, Chapter 3, 3.4.3 (part a), Section 2, Chapter 3.3.4 and Section 3, Chapter 1.7.1 (part b) and Section 1, Chapter 4, 1.1.2 (part c).


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Question 2

You are the advisor to the St Mary's Flyers Pension Scheme. Prepare a briefing paper for the Trustees of the scheme outlining the factors affecting investment strategy decisions.

(25 marks includes 2 for format) Good answers noted that the size of the scheme, its funding level, the strength of the employer covenant, the role of regulation, attitude to risk, cash flow needs and scheme liability profile are relevant factors. In relation to the scheme size, candidates should have mentioned that small schemes tend to invest in insurance contracts as the administrative issues outweigh the advantages of taking investment decisions. beyond a certain size, alternatives are considered and large schemes may have their own in house investment teams with most appointing a third party. If a scheme is in surplus, it may follow a higher risk strategy although there is little point in accruing a large surplus which may be refunded to the employer less a tax charge. However, candidates should have pointed out that a small surplus provides a cushion and may allow provision of discretionary benefits. For schemes in deficit, the examiners were looking for candidates to mention that schemes may follow an asset allocation policy to match liabilities and that a small deficit may be absorbed by an increase in employer contributions. The ability of the employer to pay contributions, particularly if investment return is poor should have been mentioned. Good papers explained that the employer and trustees should quantify the critical funding level of the scheme and that factors included the relative size of the scheme compared to the company and the sponsor's credit rating. Marks were also available for discussion of actions which may be needed if the contributions required exceeded the maximum affordable by the company and that trustees should not take more than a minimal level of risk unless the employer is able and willing to provide financial backing. Candidates should also have mentioned that schemes may need to disinvest in order to pay benefits depending on the age of membership and liability profile. Marks were available for formatting the answer as a briefing paper. The relevant part of the 2014 study manual was Section 3, Chapter 1 - 1.1.

Question 3

Describe the four different inflation measures which affect pension scheme liabilities. (15 marks)

This question was answered rather disappointingly. The answer should have identified the four different measures, namely RPI, LPI, CPI and salary inflation and described them briefly. In relation to RPI, the examiners were looking for candidates to explain that this represents a change in the total cost of goods and service in a basket, the contents of which are chosen by the ONS. Good answers stated that there are a number of derivatives and described RPI-X and RPI-Y. Candidates should have explained that LPI represents limited changes to RPI, capped at a particular percentage and have explained the caps introduced by the Pensions Act 1995 (of 5%) and the Pensions Act 2004 (of 2.5%). In terms of CPI, the examiners wanted to see an explanation that this is calculated based on European regulations and was published in the UK until 2003 as the harmonised index. CPI differs from RPI both in terms of the contents included and the method of calculation. Good scripts mentioned that CPI forms the basis of the Bank of England's inflation target. Many candidates did not include details of salary inflation; marks were available for referring to the average earnings index, that large schemes may look the sponsor's own salary inflation data and that


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the scheme actuary will take anticipated salary inflation into account when recommending assumptions. The relevant part of the 2014 study manual was Section 3, Chapter 3, 3.1.1 – 3.1.4.

Question 4

Describe the factors affecting bond values. You are not required to describe the different methods of valuation techniques for equity analysis.

(15 marks) Good answers explained that actual and expected changes in interest rates affect bond values and explained that if rates rise, bonds are less attractive and that prices may be adjusted in order that the yield looks fair. Similarly actual and expected changes in inflation can erode the real value of a bond; if inflation rises, bond values tend to fall. Candidates should also have outlined the impact of economic outlook and that a strong economy leads to higher inflation and interest rates and that with a more favourable outlook for the economy, demand for equities may grow leading to a fall in bond prices. The examiners were also looking for candidates to explain the role of the credit environment on bond values, which corporate bonds may have to pay a higher price to compensate for the risk of default and that process fall if the issuer is less likely to repay. Finally, marks were available for mentioning supply and demand and that a mismatch can lead to price fluctuations; future supply depends on government balances and corporate borrowing needs while demand is affected by pension schemes' needs for long term bonds. The relevant part of the 2014 study manual was Section 1, Chapter 1.

Question 5

Describe what an Investment Management Agreement is and outline the sections that would normally be included in it.

(20 marks) Candidates who had not studied the manual struggled to gain good marks on this question. Some candidates included descriptions of asset allocation strategies which were not required. Good answers noted that the IMA is a contract between the trustees and the investment manager on which trustees would consult their legal and investment advisers, and which sets out specific guidelines, possibly clarifying the scheme's Statement of Investment Principles, for the investment manager. The sections of the IMA which should have been mentioned included details of the authorisation procedures of the client together with any restrictions or limitations such an limiting investment in a particular stock to a particular amount and possibly prohibiting certain types of investment. Candidates should have mentioned stock lending and borrowing and overdrafts, again referring to any restrictions or limitations, delegation and use of agents (explaining that while the fund manager may be permitted to delegate he will remain liable to the trustees), material interests and how any conflicts of interest will be dealt with. The examiners were also looking for candidates to mention provisions relating to voting and corporate actions, fees and expenses, confidentiality and data protection, reporting mechanisms and risk management. Good answers also explained that custody and title of assets could be included although these could equally be in a separate agreement. The relevant part of the 2014 study manual was Section 4, Chapter 1, 1.6 – 1.7.


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Module 301 – Employee Compensation and Benefits This year’s paper provided candidates with a range of challenging questions from across the syllabus.

Questions 1 and 2 were the best answered questions. Questions 3 and 4 were not as well answered. Many candidates failed in basic exam technique, which is disappointing at this stage in their studies. For example, proper planning of answers, starting each question on a fresh sheet of paper and providing material which was not requested in the question.

Formatting seems to be an issue year upon year and candidates should make an effort to set out their answers in the format requested by each question. This year, we had a report and a briefing paper for example. A significant proportion of candidates either made no attempt at the required format or indeed produced poor examples and so marks were lost accordingly. Candidates should make every effort to practice these formats as they are common in this subject. There is no need to repeat the question asked on the answer paper, by doing so valuable time is lost.

While it is appreciated that computers have in lots of instances replaced handwritten material, care needs to be taken by candidates to ensure their handwriting is readable. Some candidates gained additional marks by making notes which were not crossed through and where points made in their notes were omitted from their final answer – any notes not crossed through are marked by the examiners. Candidates should try to leave sufficient time to read through their answers to correct any obvious errors. Question 1

The HR Director requests that you, their Benefit Consultant, prepare a report explaining insured Group Income Protection and Personal Accident schemes in relation to their:

Purpose; (3 marks)

Design features; (21 marks) and

Taxation of benefits and contributions (8 marks).

(There are 3 format marks available for this question)

This question contained the highest number of marks and was reasonably well answered. Group Income Protection (GIP) and Personal Accident (PA) schemes share some similarities, but also significant contrasts and this question was designed to challenge candidates in explaining the salient points. The Income Protection section was better answered than Personal Accident.

In general, most candidates had a good grasp of the design features of GIP, albeit that important elements, such as, conditions that would cause a claim to cease were sometimes omitted. Some candidates got confused with aspects of Private Medical Insurance which was clearly not part of the question.

The PA element of the question was less well answered. Common oversights were that PA can also provide for long term income (up to 2 years), and the more onerous exclusions that apply in comparison to GIP. Lots missed the marks for notable exclusions from PA benefit payouts (military service, self-inflicted, etc). The majority of candidates failed to mention that PA could potentially be extended to ‘family cover’. The taxation elements of both GIP and PA were generally well covered. The tax treatment of each scheme is different and needed to be explained. As an example, candidates generally could identify the tax treatment of any premiums paid by the employer, but there was confusion regarding the tax


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treatment of any benefits paid to the employee through the PAYE system. These payments would not normally be subject to an income tax charge as a benefit in kind, as stated by some candidates. Few candidates produced a good quality report format, including title, contents, executive summary, numbered sections, conclusions and recommendations.

The relevant part of the 2014 study manual was Section 2, Chapter 1 (1.3.2 and 1.4) and Chapter 2 (2.7.1- 2.7.4). Question 2

Following a strategic review of the company’s business, you are advised by the Managing Director that the company proposes to cease manufacturing operations in the UK, which will result in staff redundancies. As Benefits Manager, you are requested to provide a summary of current legislative provisions concerning:

Redundancy Pay; (8 marks)

Taxation of payments on Termination of Employment; (8 marks) and

Outplacement services provided to staff affected by the proposed redundancies. (3

marks)

(There is 1 format mark available for this question)

This question drew on several areas of the manual and was reasonably well answered. In general the section on Outplacement was not particularly well covered and a number of points were omitted e.g. few quoted the relevant legislation (ITEPA 2003). In answering the Redundancy Pay element the majority of candidates overlooked that employees would receive normal pay during their notice period provided they met certain criteria. Most candidates were able to provide details of the rules governing redundancy pay, i.e. the maximum length of service, maximum statutory redundancy payment period, the maximum amount of week’s pay, etc. Most did not state that HMRC needed to be provided with details of benefits that exceed £30k, or that employees should be sent this too. The most difficult section for candidates seemed to be the taxation of payments. Most got the basics but lacked sufficient detail to get good marks for this section. Some details of the taxation treatment on termination of employment were missed. Some candidates answered the question in an essay form, rather than a summary. The summary should ideally have contained a suitable heading, introduction, bulleted points and appropriate closing remarks.

The relevant part of the 2014 study manual was Section 1, Chapter 1 (1.2.9) and Chapter 2 (2.6.9 - 2.6.10 and 2.7.1- 2.7.4).


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Question 3

Your company is considering incorporating their pension schemes into a flexible benefits package. As Head of Pensions write a briefing paper for the Trustees of the pension schemes setting out the reasons why the Company is considering this. Your report should cover the company’s Defined Benefit Scheme which is closed to new entrants but open to future accrual, and the Defined Contribution Scheme which is open to new entrants - and how the approach may vary between the schemes. You should also include the options the company has in relation to auto enrolment and how flexible benefit packages can be used. (25 marks)

This question was generally not well answered and candidates failed to address many of the points required by the question. Candidates tended to cover unnecessary information about flexible benefits packages, including the launch of a new arrangement, the various benefits including life assurance benefits which could be included, detail about salary sacrifice inclusion, and reference to acquisitions and mergers. Instead answers should have concentrated on the incorporation of pension schemes into a flexible benefits package. In the DB schemes section, few mentioned that the cost was age-related, age discrimination legislation or the potential increase in administration and cost. Almost all mentioned that the scheme rules may need to be changed, but extra marks were available for extending this to the potential consultation exercise and communications with employees. The section on auto enrolment was generally not well answered and much basic detail was omitted. There was also a failure to frame the answer in the format requested e.g. only a few candidates mentioned October 2012 as the effective date for the introduction of auto enrolment. Marks were lost in respect of poor formatting of the answer. Here, a briefing paper (a more informal type of report) was requested.

The relevant part of the 2014 study manual was Section 3, Chapter 2 (2.5, 2.5.1, 2.5.2, 2.5.3).

Question 4

The Compensation and Benefits Manager at one of your clients is thinking about including dental cover and voluntary benefits schemes in the company’s employee benefit package. You have been asked as Employee Benefit Consultant to capture in an email the features of both of these benefits.

(20 marks) Overall, this question was poorly answered.

Most were familiar with the difference between dental insurance and capitation plans, and scored highly on this area. Section on Dental Cover was generally well answered although in some cases candidates failed to give the names of the two plans, i.e. capitation plans and dental insurance. Much of the detail concerning Voluntary Benefits Schemes was omitted. Many candidates gave information that was not required by the question e.g. reference to share option plans, executive share option schemes, how childcare vouchers work and flexible benefits. Some candidates answered the voluntary benefits section too broadly – trying to cover the mechanics of every type of voluntary benefits.


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The question required the answer to be put in the format of an email. Many candidates made no attempt or little attempt to provide the email format and so did not gain the format marks. The relevant part of the 2014 study manual was Section 3, Chapter 4 (4.2.1, 4.2.2). Module 302 – Management, Risk & Governance The examination paper was in the same format as previous years, requiring candidates to answer a compulsory question, drawn from the theory part of the syllabus, together with a case study. As in previous years, the case study was intended to test how candidates apply theory to a practical example. Part One of the paper (the compulsory question) was fairly well answered in fact a couple of candidates managed to score maximum marks for this section of the paper. Where candidates scored less well it was generally because they failed to provide enough detail in their response to pick up marks. Compared with previous years, the quality of answers for the case study which comprised Part Two of the paper was slightly higher than in recent years. There were a number of very good high scoring responses. As with Part One where candidates failed to pick up enough marks to pass it was generally because they did not include a sufficient level of detail in their answers. Although we encourage candidates not to pad out answers with irrelevant information it is worth bearing in mind that a case study response that only runs to three or four pages is unlikely to include sufficient detail to pick up enough technical marks to pass the subject. As in previous years a number of candidates also missed out on marks by failing to answer the question in the format requested. Candidates should remember that of the 65 marks available for the case study 15 are for communication. In general, the quality of answers could have been improved by candidates:

giving more thought to the role of the person who has been tasked with writing the paper/report and really trying to put themselves into that person’s shoes;

thinking about the audience for the report/paper;

making and stating sensible assumptions based on the background information provided in the question;

including an appropriate level of detail;

making sure that options are discussed in full and that any recommendations follow logically from that discussion;

answering the question in the format requested; and

spending more time planning the structure and layout of the answer.


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PART ONE

Individuals may react to the prospect of change in a variety of ways.

i. Outline how different types of people may react to change. ii. Explain the factors that may influence an individual’s response and the potential impact

of those factors. (35 marks)

The information the examiners were expecting candidates to include in their answers was clearly set out in the manual. The four ‘types’ of people we expected candidates to identify were:

Initiators of change

Acceptors of change

People who are indifferent to change

Resistors to change The factors that may influence an individual’s response to change were:

Capacity to cope with change

Cultural values and beliefs

Organisations own value systems

Relationship with organisation / leader

Peer group pressure

Past experience

Economic

New technology

Inconvenience

Freedom

Security The relevant part of the 2014 study manual was Section 3, Chapter 3, Pages 91 & 92. PART TWO

Question 1 You are the Pensions Manager for a large facilities company with a history of acquisition. As a result you have the following schemes:

6 defined benefit schemes which are closed to new entrants but open to future accrual

4 defined contribution schemes all open to new entrants.

These Schemes vary in size from 1,500 to 45,000 members spanning active, deferred and pensioner members. Two of the Schemes are administered internally by teams reporting into you and the remaining eight are all administered externally by separate third party pensions administrators.

Your HR Director is concerned that there are no consistent measures in place which can be used to assess the performance of the administrators of each of the Schemes (including the internal team). She has asked you to prepare a report setting out details of the options for measuring the performance of each of the administrators. This should include an analysis of the advantages and disadvantages of the following:

- quantative and qualitative measures - reporting


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- quality management systems - benchmarking - quality marks

Your report should also include a clear recommendation of the measures that should be introduced with supporting rationale.

(65 marks)

The question required candidates to prepare a report setting out the options for measuring the performance of a number of administrators and the approach they would recommend the Company should take. The information examiners expected candidates to cover in their answers is set out below. Quantitative and qualitative measures

Service level agreements: uses and examples

Examples of other appropriate quantitative measures and pro’s and con’s of using them

Examples of qualitative measures and pro’s and con’s of using them Reporting

Comments on usefulness / limitations

Content

Timing Quality management systems

Description

Some are a prerequisite for doing business

Examples and comments on applicability to pensions Benchmarking

Description of different types

Pro’s and con’s in relation to current exercise Quality marks

Brief description

Comment on why not really applicable to this exercise The relevant part of the 2014 study manual was Section 2, Chapter 2. Question 2

You have recently been appointed as Head of Pensions Administration at XYZ Ltd. A period of rapid business growth has led to the recruitment of a number of new, less experienced administrators that have yet to be fully integrated into the department. The Operations Director‘s main aims are to ensure that the pensions administration team works well together to achieve its objectives and that the knowledge and skills of the administrators are developed. The Operations Director has asked you to prepare a report on the approach that you plan to take, to include:

- An explanation of the areas that influence team cohesiveness; - The purpose and benefits of training; and - The elements you need to consider in planning your approach to training.

(65 marks)


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In order to score well candidates needed to apply the theory about team cohesiveness and training to the situation outlined in the question. The examiners expected candidates to cover the following points in their answers: Areas that influence team cohesiveness

Membership o Size of team o Team member compatibility o Permanence

Work environment o Nature of task o Physical setting o Communication o Technology

Organisational o Management and leadership o Personnel policies o Success o External threat

Purpose and benefits of training

Purpose o Improve knowledge and skills o Change attitudes

Potential benefits o Increased confidence, motivation and commitment of staff o Recognition, enhanced responsibility o Possibility of increased pay and promotion o Personal satisfaction and achievement o Broaden opportunities for career progression o Improvement in availability and quality of staff

Elements to consider in planning approach

Clear commitment

Objective assessment of training needs

Clear objectives and defined policy

Appropriate methods of training

Review and evaluation The relevant part of the 2014 study manual were Section 3, Chapter 2, 2.2.1 to 2.2.3 and 2.6. Module 304 – Explaining Pension and Benefit Matters The examination subject area of DC Governance was published in Autumn 2013 to enable students to focus on the method and content of their answers. This is a highly topical area which the examiners expect candidates to have received exposure to within their professional lives. There was an expectation that reasonable technical scores were achievable by most candidates. Marks for this exam were split between technical content (50%) and communications (50%). There is no requirement that candidates score a minimum level across each, but achieving a pass is unlikely if a reasonable contribution cannot be made across both. Candidates needed to demonstrate more than a superficial knowledge of the subject matter and clear professional communication skills to score well.


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Overall the standard of answers this year was lower than expected. Surprisingly there were a number of very low marks which indicated that students did not take heed of the pre published information. Although there were one or two high marks, the majority of candidates who passed, tended to be clustered just above the required pass level. The question this year was:

You are the Pensions Manager for ABC Ltd, who has recently closed its final salary pension scheme to new entrants. A defined contribution scheme (DC) has been created for new employees. The Trustees of the new DC scheme are the six most experienced trustees of the existing final salary scheme.

Whilst the Trustees have a clear understanding of basic trustee governance requirements, they are keen to know what the Pension Regulator expects from trustees of DC schemes. You have been asked to draft a paper for the DC Trustees explaining the Regulator’s six DC Principles and their associated quality features.

Your paper will be used by the DC Trustees to create a governance framework for the new DC scheme, so you should make clear recommendations for each of the six Principles.

The question was clear on the requirement for a paper format and the details necessary for a full answer. Students often did not frame their answers in the format required and when they did, their papers did not include a number of the key format components. Many students who presented answers with good opening structure had little in the way of conclusion and guidance on next steps. Unfortunately this meant candidates lost many marks in both the technical and communication areas. These omissions were often the difference between pass and fail for a number of students, which is a shame. As in previous years, students let themselves down by lack of true planning and preparation. Planning is not simply a list. Students who planned their answers created a framework within which to write their answers. Planning assists time management, avoids repetition and aids the flow of an answer. Lack of planning meant that a number of scripts did not flow and more importantly, did not have clear conclusions which picked up the recommendations in the practical way that a case study demands. Students should remember that the timelines and processes in a recommendation are equally important. Many students were let down by their technical marks. A number of students did not have a clear grasp of DC governance. They either simply listed broad the governance requirements of both DB and DC schemes, or they gave very little detail on how the DC trustee board could implement the recommendations. Case studies require some life to be given to exam answers in a way that essays do not and many students lost sight of their audience very early on. Few students could distinguish the six DC principles from the six core areas of the 31 quality features. These were easy marks to gain. It should be noted the quality features are not new requirements and so students should have been able to identify the governance areas the quality features cover prior to TPR’s issuance of them.


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Module 305 – International 2 In many of the scripts there were examples of poor handwriting. Candidates should aim to set out clear printed headings to help clarify the point they are making

Headings and introduction are generally set out by most candidates but marks were also available for structured content, summary and next steps which were not picked up by all candidates.

Question 1

(a) You have been asked to advise the newly appointed finance director of a multinational company that is required to account for its defined benefit plans under International Financial Reporting Standards (IFRS). Draft a note to explain the concepts “net asset “(or “net liability”) and “pension cost” and describe how they are valued and reported. (16 Marks) (b) Outline how multinational pooling of risk benefits functions in practice

(9 Marks)

This question was generally well answered.

In part (a) many candidates could have increased their marks if they had clearly stated the definitions of “net asset “(or “net liability”) and “pension cost”. In part (b) candidates generally provided good clear understanding of the components of profit and loss in the pooling accounting process and most candidates achieved good marks on this section. The relevant part of the 2014 study manual was Section 3, Chapter 1.5.3 for part (a) and Section 4, Chapter 1.1.2 for part (b). Question 2

You are the global HR manager for a UK based pharmaceutical company with operations based in both Switzerland and the USA. You are responsible for all international assignments within the business.

Describe briefly the key challenges faced by your employees who are transferred on international assignments

(13 marks) You have employees due to take up long term assignments in both overseas operations. Draft an email to these employees outlining what the key eligibility and taxation aspects of their occupational retirement benefits will be in: (i) Switzerland (ii) USA. Your email should include details of the rules that would apply to their occupational retirement benefit if they were to transfer it to the UK at the end of their assignment.

(12 marks)


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In part (a) candidates provided clear understanding of the points to consider regarding medical insurance, taxation and cultural aspects of transferring employees from one country to another but were not so clear on matters relating to retirement benefit provision and social security. Some candidates were unclear regarding the terms "totalisation" and "double taxation".

In part (b) those candidates who had clearly studied the learning materials scored high marks. The relevant part of the 2014 study manual was Section 6, Chapter 1.1.4 for part (a) and Section 6, Chapter 1.8.8-1.8.10 for part (b).

Question 3

Global Development Advisory is an international organisation that advises governments and regulators on occupational retirement benefit systems. As a consultant working for Global Development Advisory, you have been asked by a client to write a paper on the key features that should be considered by governments when developing and changing regulatory funding frameworks for non-insured retirement benefit schemes. The client has asked for the paper to contain examples of how funding frameworks vary by country with references to recent developments. You should include your own views on the most important aspects to consider.

Prepare your paper on behalf of Global Development Advisory. (25 marks; including marks for communication/format) There were some very good scripts submitted for this question and a few candidates presented good, well-supported opinions and scored high marks. Marks were easily available for illustrating points with country examples, which some candidates did not pick up marks for. Some candidates focussed on defined contribution plans (this was not

required).

Limited number of countries were cited to support points and opinions. France, Japan, EU, Nordic Region are all included in learning materials but generally were not referred to in candidates scripts. The relevant part of the 2014 study manual was Section 3, Objectives of funding and risk management and Section 8, Future trends (page 98).


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Question 4

You work for a large international IT company which is forming a joint venture with an international telecommunications company. You are currently a regional benefits manager in the IT company, and you have been asked to join the team that is preparing the commercial agreements that will establish the joint venture.

(a) What considerations should be given to employee benefits when setting up the joint venture

(8 marks)

(b) What are the key points relating to employees and their benefits that should be covered in the joint venture agreement (8 marks)

(c) You have been offered the role of Global Benefits Manager for the joint venture. Your first task is to develop a global benefits framework for the joint venture. List the areas that you will want to include in the framework. (9 marks)

Candidates responses were poorly constructed, with answers often set out in the wrong part of the question, however marks were awarded and candidates were not penalised for this Most candidates picked up some marks by stating general M&A-related points but failed to draw out specific points relating to JVs and consequently did not pick up many of the available marks. The relevant part of the 2014 study manual was Section 7, Mergers and Acquisitions (pages 90-93) and Section 2, Objectives of a Multinational (pages 7-17). Module 306 – Retail Investment Advice and Regulation April 2014 saw a large drop in the number of candidates applying for the examination, with over half the number of entries being received. Whilst the number of entries was of a similar level to the April 2013 sitting, there was a significant number of absences (nearly 30%). We have not been informed of any particular reason, therefore it is hard to determine whether these absences were for genuine reasons or whether candidates felt ill prepared and as a result decided not to sit the exam. A number of candidates have informed us of discrepancies’ in the manual, we have provided relevant feedback to the candidates and have taken these into account with the manual rewrite. We endeavour that our manuals are of the highest standards, so if you do come across any errors or inconsistencies please let us know so we can make the necessary adjustments and if required take these into account when marking the examinations. In relation to the April 2014 examination, it was felt that the standard was easier to that of previous sittings, again with a clear line that could be drawn between those papers that passed and those that failed. There was a good spread of questions which provided the candidates with the opportunity to demonstrate an understanding of the syllabus. Again candidates are reminded to write clearly and neatly to enable the examiners to give the appropriate credit to answers.


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Question 1

Briefly describe the two main types of property ownership in England and Wales. (10 marks)

The majority of candidates obtained full marks for this question, with them correctly identifying that Freehold and Leasehold were the two main types of property ownership. A number of candidates highlighted common-hold however this was not incorrect, no marks were awarded for this as it was not required under the scope of the question. The relevant part of the 2014 study manual was Section 4, Chapter 1.5. Question 2

You are an investment consultant with XYZ Fund Managers Ltd. A prospective new client has requested you provide details of your ongoing service package. Draft an example report of a typical portfolio review that the client could expect to receive. The report should highlight the following to the client:

Client reporting – contract notes, valuations and holdings

Rebalancing

The report should also explain why portfolio reviews are an important part of your service package. (30 marks)

A number of candidates failed to provide the answer in a report. Candidates are reminded that where a question requests the answer to be in a particular format, marks are awarded appropriately. The answer to this question followed the format of the manual. Whilst the majority of candidates referred to a client’s objectives and how this would affect a portfolio review and rebalancing, often insufficient detail was provided. Despite the question signposting what was required in the answer, again insufficient detail was provided as to what would be provided in client reporting (purchase, sales, summary valuations, cash statements, frequency and general commentary). Contract Notes and Valuations were often well covered, but again a number of candidates failed to fully document details of the holdings that would be included in the client reporting (description, book/acquisition cost, market price and value, income/dividends). In general marks were average for this question, with the candidates who had read the manual scoring well. The relevant part of the 2014 study manual was Section 3, Chapter 1.2.4.

Question 3

List ten things that a firm should consider when researching which investment platform it wishes to adopt. (10 marks) This question was generally well answered. Candidates were aware of the key considerations, however some omitted the factors that needed to be taken into account at firm level, for example their remuneration model, the target market, business model and existing systems/procedures. Despite this full marks were easily achievable. The relevant part of the 2014 study manual was Section 3, Chapter 1.2.5.


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Question 4

(a) List four areas of the financial services industry that are regulated by the Financial Services and Markets Act 2000 (4 marks)

(b) Apart from MiFID, list four other EU Directives that aim to create a single market in

financial services for EU/EEA countries (4 marks) (c) Briefly explain “Markets in Financial Instruments Directive” (MiFID), providing two

examples of firms that are subject to MiFID. (7 marks)

Overall this question was the worse answered by candidates – whilst part (a) and part (b) tended to obtain good marks, candidates tended to concentrate on passporting. The Insurance Services Directive (SD) had already introduced passporting, MiFid just extended to coverage of it and introduced new and extensive requirements to the internal organisation of the businesses. Again the majority of candidates were able to provide two examples. The relevant part of the 2014 study manual was Section 1, Chapter 1.1.7.

Question 5

Describe the Financial Conduct Authority’s principles and their other considerations for approved persons. (20 marks)

Again this question was well answered. Occasionally if Candidates hadn’t fully learnt the manual, treating customers fairly and requirements for internal controls (such as conflicts of interest) were mentioned in the answers. Those that stuck to the APER conditions scored highly on this question. The relevant part of the 2014 study manual was Section 2, Chapter 1.1.3.

Question 6

Explain what pension liberation is, describing the signs associated with liberation. (15 marks)

Another question where candidates obtained good marks, with the understanding of pension liberation being high. Marks were also provided for those who mentioned the changes in the budget which will effectively remove this problem, however these were discretionary additional marks to provide credit to candidates who evidenced their wider reading. The relevant part of the 2014 study manual was Section 5, Chapter 1.9.

REPORT OF THE BOARD OF EXAMINERS · PDF fileCandidates are encouraged to review past exam papers as part of their preparation for the exam and revision

Documents