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Preparing for R06

9 June 2020

The 2019 pass rate for RO6 dropped by 10%. Catriona Standingford, MD of Brand Financial Training, looks at the October 2019 exam, what may have affected the pass rate and what future candidates need to consider.

This article was first published in the June issue of Professional Paraplanner.

You might think the R06 exam is an easy pass; after all the case studies are provided two weeks in advance of the exam which reasonably gives plenty of time to consider any questions that might be asked.

The pass rate however doesn’t necessarily reflect this – in 2019 the pass rate was 67%, although in the two previous years it was over 77%.  Does this mean the structure of the exam changed in 2019 catching candidates out? In this article we look at the October 2019 sitting of R06, consider the detail given in the case study and the questions that appeared in the exam.

Case Study 1

The first case study concerned an unmarried couple, John and Emily, both aged 63 with no plans to marry. Emily was a widow and John was a divorcee.

Their first financial aim was to ‘generate an adequate income in retirement’.

In the case study we are told that Emily inherited a pension scheme valued at £600,000. The pension had been crystallised and was held in a flexi-access drawdown arrangement.

John was employed and a member of his workplace pension scheme. This had a value of £320,000 and both he and his employer paid 10% of gross salary as contributions. John also had a personal pension which offered a guaranteed annuity rate of 11.3% at age 65 on a single life level basis with a 5 year guarantee period but no dependants benefits in payment. This was invested in a unitised with-profits fund; current value £56,000 and a transfer value of £65,000.

There were various questions relating to this aim; candidates were asked to:

  • explain why John should consider increasing contributions to his workplace pension
  • state the benefits and drawbacks for John of accepting the GAR at age 65
  • explain the likely reason why the transfer value of his pension is higher than the current value and why it is important to keep the plan under review
  • identify the factors to consider to determine an adequate retirement income
  • explain the factors to consider when deciding whether to use uncrystallised funds pension lump sums to provide pension benefits

Out of the 74 marks available for this first case study, 46 marks were for answering questions on aim 1.

The following two aims had 20 marks in total:

  • ensure that their current investment holdings are suitable and tax-efficient -8 marks
  • ensure that John’s estate can be passed as tax-efficiently as possible to his children – 12 marks

There was one more question on the importance of their wills and death benefit nominations being reviewed and this was for 8 marks. In the case study this was signposted as  ‘neither John nor Emily have updated their Wills since John’s divorce and the death of Emily’s husband’ – which shows the importance of picking up every hint in the case study and considering the questions that could arise based on this.

Case study 2

This case study concerned a married couple Rafa aged 60 and Lara aged 53 with two financially independent children.

Their first financial aim was to ensure that their mortgages are repaid before they retire. There was one clear question on this aim, related to their holiday cottage; candidates had to state the factors to be aware of if they chose to use the sale proceeds of Lara’s business to repay the mortgage on the cottage; this question was for 8 marks.

Also related to the cottage (but not the aim) candidates had to explain how the rental income from a holiday home is taxed and how the sale proceeds may be taxed if they decided to sell.

Their second financial aim was ‘put in place a suitable investment strategy to fund their retirement’.

There were two questions relating to pensions but neither related to investment strategy; one on fact-finding for 8 marks and one on the process that should be followed when advising Rafa regarding his pensions- this was for 9 marks.

There didn’t appear to be a question relating particularly to aim 3 which was to ‘ensure that their investments are held as tax-efficiently as possible’ and other questions which also didn’t relate to their stated financial aims were:

  • Identify the key information needed to assess the suitability of their protection policy. (10 marks)
  • The pros and cons of joining the employer’s group PMI scheme. (10 marks)
  • The benefits and drawbacks of retaining their current ISA and unit trust funds. (6 marks)

The case study did state they might wish to do IHT planning in the future and one question asked candidates to explain how a DGT would operate – this was for 8 marks.

Looking at this one paper from 2019 might give some indication as to why the overall pass rate dropped last year. In case study 1 the questions were very much weighted towards the retirement aim and in the second case study questions were asked that didn’t directly relate to the stated client aims.

It’s clear then that to ensure a pass in R06, candidates need to be thoroughly prepared. The case studies need to be studied in detail and every possible avenue explored. Although the stated aims are important to have covered, it’s clear from this paper that candidates need to think beyond these as well.

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