Overview
Sam (age 56) was unfortunately made redundant in June 2020 as a result of the Covid pandemic. He had worked as a senior manager in logistics for a decade or so, but now had to consider retraining for a new career. His wife Tina was older than Sam and was already semi-retired, working part-time in her own business.
Sam had changed employers several times (often as a result of takeovers and mergers) and had eight different pension plans to keep track of!
They still had a small mortgage, with 7 years to go and their youngest child had recently graduated from University and started their own career, so wouldn’t be financially dependent on Sam and Tina for much longer.
Their main concern
Although Sam was happy to retrain if necessary, he was also concerned that if he had to work until State Pension Age (67), Tina would be 74 and he wanted them to be able to enjoy a longer retirement together.
His main question was “Can I afford to retire right now?” He had accumulated around £300,000 in his various pension funds but he wasn’t confident that would be enough to be able to retire immediately. Although Tina earned around £11,000 p.a. from her self-employment and received another £10,000 p.a. from her pensions, their expenditure was still fairly high (almost £40,000 p.a.) due to their mortgage and supporting their youngest child through university.
Tina would start to receive her State Pension in just over two years’ time, but Sam would have to wait another 10 years before receiving his.
Sam also wanted to simplify his pension arrangements, as it was very time consuming to keep track of so many different plans.
Our main advice
- We produced a Financial Planning report for Sam and Tina, using sophisticated cashflow modelling software to analyse their income and expenditure (and how that would change over time), to show what impact Sam retiring immediately would have on the value of his pension assets and how he could use those funds to bridge the shortfall of income versus expenditure until they were both receiving their State Pensions.
- This enabled us to give Sam the good news that he could afford to retire right now!
- After running a second cashflow model, we advised Sam and Tina to take more out of Sam’s pensions immediately, as there was a long-term financial benefit to them of paying off their mortgage straight away.
- To consolidate Sam’s pension funds into a single pension plan, to simplify their financial arrangements. mix of ‘growth’ and defensive’ assets to match their attitudes to investment risk and timescale.
What we did
- Consolidated Sam’s pension funds into a single pension plan, that offered him full flexibility as to how he accessed his funds e.g., he would be able to take regular income and/or lump sums at any time and we advised him how best to achieve this to minimise the tax impact.
- Arranged for him to take some of his tax-free cash entitlement from his new pension, to pay off their mortgage immediately. This reduced their outgoings by £600 per month.
- Arranged for Sam to receive a regular income of £1,000 per month from his new pension (from the ‘taxable’ part of his fund), which would fall within his Personal Allowance for Income Tax (as he now had no other income). This resulted in no tax being deducted from this income and meant he was able to retain some of his tax-free cash entitlement within his pension for future use.
- We researched and recommended a suitable new pension for Sam with all of the features required to give him maximum flexibility for access, transferred his existing funds into the new plan (after a full analysis of those plans to ensure there were no disadvantages to Sam of doing so) and invested his new pension fund in line with our recommended strategy.
- We recommended a diverse portfolio for his new pension funds, to spread the risks and give him the potential for growth necessary to meet their financial objectives.
- We hold an annual review meeting with Sam and Tina, after producing a valuation report for Sam’s pension fund, to look at the performance and recommend any changes we feel are necessary.
- We also revisit and update the cashflow modelling forecasts, which provide them with the reassurance that their Financial Plan is on track. from their existing investment portfolio, to ensure their portfolio is as tax efficient as possible.
What were the benefits
- Sam was able to retire immediately! This met Sam and Tina’s objective of maximising their time together in retirement.
- Peace of mind – Their Financial Plan is reviewed annually, and they know that their finances are benefiting from a structured approach to the investment of Sam’s pension funds, which are invested in line with their financial objectives and timescales and within defined risk parameters.
- Our ongoing advice and reviews mean that any changes to their circumstances or overall objectives are considered and changes to their Financial Plan are made when appropriate.
