Case Studies

The case studies shown below are not real but are representative of the types of situation we meet and solutions we offer. They are for illustrative purposes only and do not constitute advice.

Example One

Jack, aged 64, married with children and a higher rate tax payer. He did not need additional income from his pension, wanted to continue working and purchase a property for a member of his family.

Jack approached us shortly after pension freedoms in 2015. He was approaching 65, the normal retirement age for his deferred final salary scheme. He was obliged to take his pension at the age of 65 with his scheme but was not keen to do so as he intended to continue working for four more years and did not need the additional income to his salary, where he was a higher rate tax payer. He was also keen to release the maximum tax free cash to purchase a property for a member of his family.

His pension scheme offered him £26,000 per annum or tax free cash of £127,000 plus a reduced pension of 21,000, both of these pensions being indexed. The pension transfer value on offer was £820,000 which meant giving up the guaranteed benefits. We recommended a transfer which gave him tax free cash of £205,000 and he moved the remaining fund into drawdown.

He took no income as this would have made his income tax a liability and it wasn’t required. Additionally his wife was not in good health and his family did not have a history of longevity so he was very keen that his pension fund could be passed on to his two adult children and their families rather than finish when he and his wife died.

Jack still works for his existing company and has not drawn any income from his pension. The pension fund continues to accumulate in an inheritance tax free environment. His company agreed to continue paying contributions to his current personal scheme (defined contribution pension scheme).

We recommended a pension transfer for Jack because his capacity for loss was high and he understood clearly the investment risk of giving up the guarantees. He also avoided increasing his income to over the £100k maximum to retain his personal allowance so was effectively saving tax (at a rate of 60p) by not taking pension benefits at 65 years.

Example Two

Janet, aged 55. Divorced. Wanted to pay off outstanding loans and retire earlier than planned.

Janet has always worked in financial services and is a member of a deferred final salary pension which her company stopped four years ago and since then, now pays into a money purchase (defined contribution) scheme for her. She was approaching 55 years of age and her key objective was to pay off outstanding loans of £170,000 on her three buy to let properties aquired over the last ten years. Her final salary scheme had a normal retirement age of 60 and was projecting a pension of £21,000 per annum and tax free cash of £127,000, the transfer value on offer was £765,000.

We recommended a transfer as Janet had a high capacity for loss (she had sufficient income from her properties for her needs) to allow her to pay off her interest only mortgages and fully retire 5 years earlier than originally planned. Janet also wanted to retain flexibility of income to avoid higher rates of tax. She had substantial investment experience and her property investments provided sufficient income for her needs into retirement.

Example 3

Anne & Graham, both in their 60’s, married with children and grand children. Their objective was to reduce their inheritance tax bill.

Anne and Graham have a sizeable estate held through a commercial property, ISAs and their home. Their property and ISAs provided sufficient income for their lifestyle and they passed on regular gifts to their children and grand children.

Anne had a deferred occupational pension from a large national company whom she had worked with for 24 years and she was approaching the normal retirement age for this scheme (62 years). The scheme was offering her a pension of £27,000 per year plus tax free cash of £140,000 or a transfer value of over £900,000.

The couple approached us with the main objective of passing on as much as possible of their assets to their families when they died by reducing their IHT bill, as much as they could. As well as this, they knew that any extra income would attract higher rates of tax so potentially the additional income from the occupational pension was not ideal.

We recommended Anne accept the transfer value and place it in a SIPP where it could be used to purchase their commercial property. This allowed the property to be protected from IHT within the SIPP wrapper. It also allowed them to release capital to gift to their children now, after allowing for capital gains liability on the property sale.

By 2020, Anne and Graham will have reduced their potential IHT bill on their estate from £900,000 to £400,000, using the Residence Nil Rate Band which they couldn’t initially claim for as the value of their estate had put them over the limit.

This example gave substantial inheritance tax savings (on the basis that they survived for 7 years) as well as giving them the ability to take income as and when required from their pensions.

Example 4

Simon, married, age 64. He had been made redundant two years earlier and had a transfer value of £860,000.

Simon had moved to Scotland from England as he and his partner were hill walkers. They were expecting state pensions and had quite a lot of money in cash ISAs. Simon came to us wanting to transfer out of his defined benefit scheme rather than take a £28,000 pension. He was keen to make use of the potential death benefits for their two adult children and grand children, as the £28,000 index linked pension was more than sufficient for their needs.

In this situation we did not recommend a pension transfer. We recommended they retained their occupational pension and took out joint life second death whole of life policy, which would pay their sons £500k on top of their other savings on their death. Whilst their capacity for loss was high, their attitude to risk was low and therefore they were much more comfortable keeping the guarantees that came with Simon’s defined benefit pension.

The value of pensions and the income they produce can fall as well as rise, you may get back less than you invested.
Transferring out of a final salary pension is unlikely to be in the best interests of most people.

Tax treatment varies according to individual circumstances and is subject to change.

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    *Any work you ask us to carry out as a result of this meeting will be fee based.


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