Case Studies

Case study 1

Female client aged 41.
Deferred Final Salary pension from previous employment, of 3k per annum at date of leaving service. Pension increased up until retirement (age 65) by 3% per annum, and provides a 50% spouse's pension. Client divorced last year, and has two children aged 15 & 13. Transfer value offered by her ex employer 50k. Client has a balanced/medium attitude to risk and is not paying into any other pensions at present, although hopes to start pension contributions within the next year. Transfer analysis reveals a critical yield required by a personal pension of between 7 & 8% per annum, in order to match the pension benefits offered by her former employer's scheme. Client decides to transfer to personal pension, the reasons are:
The final salary pension offers a 50% spouse's pension, which is of no use to her as she has no intention of remarrying. Also, she prefers the death benefits offered by a personal pension as she can nominate her children to receive an equal share of the pension fund, free from inheritance tax, in the event of her premature death. She was not comfortable with the idea that her children could only receive a dependents pension from her former employer whilst they were still classed as dependents. Her main reason for transferring is that she feels that a personal pension will allow her the opportunity to receive a higher tax free cash lump sum and taxable income in retirement, although she is aware that this is not guaranteed.

Case study 2

Male client aged 54. Recently left his employer for whom he was a member of their final salary scheme for 21 years. Relocating to Ireland to work on a 5 year project, which he hopes will be his last post before retiring at age 60. He intends to purchase a flat in Ireland in which he will live during the working week, and he will then return home at weekends to his family. He is a higher rate taxpayer with sufficient income to live on, but he doesn’t have the necessary funds with which to purchase the flat and does not wish to borrow a large sum of money. He has therefore asked his former employer what his options are within their pension scheme. They informed him that the maximum tax free cash lump sum available to him was £115k. If he wanted to draw the lump sum now he would also have to draw a taxable income of approx 17k per annum. This was unacceptable to him as he didn’t require any taxable income at the present time. We discussed Unsecured Pension as an alternative, and it was explained to him that the transfer value offered by his former employer was £500k. This meant he was able to transfer to Unsecured Pension , receive a higher tax free cash lump sum of 125k (which was sufficient for a 70% deposit on the flat in Ireland meaning that he was able to service a small mortgage from his income) and defer taking a taxable income until such time when he required it. Client was a balanced investor, and was comfortable with the personal Unsecured Pension plan set up for him, as it contained a capital guarantee on the remaining fund after the tax free lump sum had been paid. His wife was also fully supportive of the decision to transfer out of the final salary pension scheme, as Unsecured Pension gave her the option to receive a lump sum or an income, in the event of her husband's death.

Case Study 3

Female client aged 57 and higher rate taxpayer. The client intended retirement age is 65 and has a company pension scheme with her current employer. The client had a previous final salary scheme with a CETV of £177k. The client after a recent separation needed to consider her options in relation to buying a new property. After a client review, the attitude to risk was measured as cautious to moderate. The transfer analysis of the final salary scheme revealed a critical yield of 4.1% to match the benefits in the final salary scheme. In addition to this, the death benefits within a private pension would be increased by £100k and give the opportunity to nominate her children as the beneficiaries of the pension. As the client was considering a property purchase the client decided to release the tax-free cash as a deposit for the property. No additional life cover was required as the death benefits from the drawdown covered the mortgage. The income from the Unsecured Pension pension is currently being recycled on a yearly basis to age 65 which will essentially recycle over 50% of the fund over the next 8 years and offer more beneficial death benefits.