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Best of Both Worlds – Helping Clients Make the Most of Retirement

Please note the content herein in no way constitutes a solicitation of investment or financial advice. It should not be relied upon in making an investment or financial decision and is intended solely as an example for the reader.Readers should seek appropriate guidance from their financial planner.

While Robert, a 63-year-old senior engineer, had fully recovered from a serious illness, he was keen to retire at 65. One of his goals was to maintain his current standard of living.

And we were able to help him do just that.

Robert was concerned about the impact of the Pension Life Time Allowance (LTA) on his retirement finances, plus, he and his partner had sold their property and were moving out in three months’ time. They wanted to buy their next home without increasing their existing £70,000 mortgage.

Robert also wanted to make sure if he died before his partner she had enough money to live the rest of her life without worrying about finances. And when she died, he wanted any unspent funds to be passed to his two children from a previous marriage.

Robert’s finances looked like this —

  • House market value — £220,000
  • Mortgage — £70,000
  • Proposed new house price — £350,000
  • Annual salary — £108,000
  • Deferred final salary pension scheme with full pension of £55,815 per year at 31 December, 2015 or tax free lump sum £257,610 and reduced pension of £38,641
  • Money purchase pension fund — transfer value £60,821
  • Savings — £153,000

Within just a few weeks, still using our established, rigorous processes, we had completed the income and expenditure analysis. Plus, the response from Robert’s employer’s pension trustees quoted £1,352,506 for his final salary scheme. The total, including money purchase scheme, was £1,413,327.

To assess options, we populated our lifetime cashflow model system, designed to output after tax cashflows.

This showed his predicted regular expenditure and taxation was within the potential pension income; however, his liquid savings were insufficient to allow him to move into his new property with a £70,000 mortgage.

We said he could achieve this objective with a flexi access drawdown, and we recommended to reinvest his pension pot in this way into funds designed to provide a regular retirement income.

He agreed to access maximum tax-free cash for the house purchase and to crystallise the fund to minimise lifetime allowance charges. Jennifer and his family were given full access to his pension fund in the event of his death.

The plan also included maximising the tax free lump sums available, crystallising pension benefits in the 2015/16 tax year to minimise the impact of the LTA reducing to £1million from April 2016, using the tax free lump sum to fund the house purchase.

He also agreed to defer drawing taxable pension income until he stopped working and to preserve the value of the pension fund for Jennifer and the children on death. This couldn’t have been achieved by taking the benefits direct from the final salary scheme or purchasing an annuity.

This case study is related our Pensions & Retirement Planning service.