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Pensions – Life after Death? – To protect and serve

The Situation

Charles is 65 and the financial controller of a company which forms part of a larger plc group. Given the nature of his profession, Charles was very financially aware and had decided he wanted to take advantage of the new pension freedoms.

His idea was to draw down on his retirement benefits flexibly, enabling him to pay as little tax possible, especially in the early years of retirement, whilst meeting his income needs required for living expenses.

He is married to a Jennifer who is 13 years his senior and they have 5 children to whom they wanted to leave as large a financial legacy as possible.

Jennifer, unfortunately, has health issues and has care 3 times a day. This is currently being funded by the local authority as she has very little State Pension income, and with no assets in her name to other than owning jointly half of the marital home.

Charles had 4 pension plans, one of which was a final salary scheme, totalling £400,000, with the final salary scheme providing a guaranteed income in excess of what they required to add to his State Pension to meet day-to-day living expenses.

Charles’s income during retirement will be a combination of State Pension Benefits and whatever he chooses to draw from his accrued pension funds to meet his expenditure needs, which stood at £1,100pm.

Our Approach

We explained that our retirement service is designed to help meet our clients’ retirement objectives. Charles’s objectives were:

• adequate income to live on throughout retirement

• Pay as little tax as possible during retirement

• leave as much of a financial legacy to children as possible

We asked Charles to confirm the level of income needed each year to meet day to day living expenses and what other plans he had for retirement. In the course of these discussions we discovered that buying a new boat that the couple could enjoy was the real priority. Also having a worry-free secured lifetime income to meet day-to-day living expenses was of primary importance.

In order to secure a better income than was available from Charles’s final salary benefits, our advice was to transfer some of the fund to a medially underwritten lifetime annuity. This saw Charles use some of his transfer value to secure their required day-to-day expenditure with the remainder of the fund available for transfer to a personal pension. A personal pension ensured that the pot was available for use during Charles & Jennifer’s lifetime and for passing onto their children on death.

The remainder of the pensions funds were consolidated with the other personal pension plans to enable Charles to draw benefits flexibly, which in turn met all of his financial and lifestyle income objectives. 25% of the overall fund value remains available to be taken as a tax-free cash lump-sum with Charles nominating that the remaining pension funds were to be passed to their children on death.

The Results

Using current pensions freedoms legislation, Charles was able to secure the income he needed to maintain his family’s lifestyle both now and in the future, whilst providing protection for his wife and the ability to pass unused pension funds to his children after death.

Charles was able to access the funds needed to enhance his and Jennifer’s lifestyle and the whole family are enjoying weekends away on their new boat, aptly named “Carpe Diem” – Latin for “Seize the Day!”

Live now!

At Cowens Financial Services we understand that our clients may have accumulated all different shapes and sizes of pension funds. New pensions legislation means that there are now many more options available at retirement than ever before. However, with more choice comes more complexity. We believe clients should always seek professional advice before making any decision about retirement to ensure they achieve the best outcomes.

If you would like to find out more about how the recent pensions changes could affect you, please get in touch and we can tell you more about the choices available.