Defined Benefit and Defined Contribution information video

Case Study 1 – Ian and Jane

About the clients

• Ian, 65, and Jane, 63 are married with no children.
• Ian is a plumber and Jane a Nursery Nurse – total household annual income is £65,000 gross.
• Have a £15,000 mortgage on their home worth £550,000.
• They have £10,000 in cash savings; Ian has a workplace pension worth £125,000 and Jane has a workplace pension worth £15,000.
• Jane also has 30 years’ service within a final salary pension from her time working for a high street bank.
• Both have full state pension from age 66.

Retirement Objectives

• To repay their mortgage and both retire in 12 months with a minimum income of £2,500 per month net.

Their situation

Jane’s Final Salary Pension

At age 65, Jane is projected to receive a pension of £22,000 each year with a lump sum of three times the annual income (i.e. £66,000). Ian will receive 2/3 the annual income if Jane dies first.

Jane has been offered a transfer value of £710,000 if she gives up the annual income of £22,000 each year.

Both Jane and Ian are surprised by this value and feel that the transfer value offered is very generous and want to know whether Jane should accept the transfer value and give up her annual income.

The recommendation

Ian and Jane contacted us to advise her on whether to transfer or retain the pension scheme.

During the initial and follow up meetings all aspects of their current situation were considered, and immediate concerns addressed. We used several scenarios within a cashflow projection to see how best they could meet their objectives in retirement.

The outcome of our work with Ian and Jane was to recommend the pension scheme be retained. The reasons for this were as follows:

• Combined with the state pension, Ian and Jane, will have a guaranteed income for life of circa £40,000 per annum which will increase each year broadly in line with inflation. This is enough to cover their target income of £2,500 per month.
• They were not comfortable taking on investment risk and preferred the certainty of the regular income.
• Jane’s tax-free cash is more than enough to repay their mortgage of £15,000 and leave a sizeable amount to help fund any additional expenditure that may arise early in retirement.
• Ian and Janes existing workplace pension schemes provide additional flexibility that will mean they can take extra pension lump sums if required to help maintain a high standard of living.

Case Study 2 – Nathaniel and Jenny

About the clients

• Nathaniel, 59, and Jenny, 59 are married with two adult children.
• Nathaniel is a Chartered Engineer and Jenny is employed as a senior Marketing Manager. Their total annual household income is £100,000 gross.
• They own their home worth £850,000 and have around £800,000 in savings and investments.
• They enjoy their holidays and want to be able to spend more time abroad in retirement, especially in the early years.
• At age 60, Nathaniel is projected to receive a final salary pension income of £40,000 gross per annum (there is an option to reduce the income and receive a lump sum). He will also receive a second, smaller final salary pension scheme that is projected to provide him an annual income of £2,800 gross per annum.
• Jenny will also be able to commence two final salary pension schemes; these will provide her a gross annual income of £44,000 per annum (there is an option to reduce the income and receive a lump sum).
• They both have the full state pension payable from age 66.

Retirement Objectives

• To retire at 60 and target a retirement income of £7,000 per month net; this will match their current standard of living and allow them to spend more time travelling.
• Leave a legacy to their two children.

Their situation

Nathaniel and Jenny want to keep their final salary pension schemes as they believe the income payable will help to meet their income target. However, Nathaniel has been offered a transfer value of £90,000 for his smaller final salary pension. Both Nathaniel and Jenny feel that this could be used to provide a legacy for their children as they do not feel they need the income.

They have asked for advice on whether to retain or transfer the scheme.

The recommendation

Nathaniel and Jenny contacted us to advise on whether Nathaniel should transfer or retain his pension scheme.

During the initial and follow up meetings all aspects of their current situation were considered, and immediate concerns addressed. We used several scenarios within a cashflow projection to see how best they could meet their retirement objectives

The outcome of our work with Nathaniel and Jenny was to recommend the pension scheme be retained. The reasons for this were as follows:

• The value of Nathaniel’s pensions are such that if he transfers, he is likely to breach the Lifetime Allowance but if he retains the scheme he will not. Nathaniel was not happy with the prospect of additional tax being paid.
• To provide a legacy for their children, Nathaniel was advised to use the surplus income from his pension to purchase a whole of life assurance plan with a benefit that matched the transfer value of £90,000. This policy is held in Trust so that on death it is not included in his estate.
• Their investments of £800,000 can remain invested for capital growth and used to provide a further legacy for their children.

Case Study 3 – Laura and Peter

About the client

• Laura and Peter are both 55, married and have one child.
• Laura is a Chartered Accountant and Peter is a Mechanic; their total household income is around £60,000 gross a year.
• They have a home valued at £500,000 with an outstanding repayment mortgage of £100,000 (due to end in 9 years).
• They have a high surplus income that accumulates on bank accounts and now have £30,000 in savings.
• Laura has a final salary pension scheme from a former employer and a workplace pension scheme with her current employer which is valued at £100,000 and receives contributions in line with current rules.
• Peter has a personal pension of £75,000 – this receives regular contributions in line with auto enrolment rules each month.
• They both have the full state pension payable from age 67.

Retirement Objectives

• To retire at 60.
• Ensure that Peter is looked after in retirement if she pre-deceases him.

Their situation

At age 60, Laura is entitled to a gross annual pension of £20,000. If she dies first, Peter will receive 2/3 of this as a spouses’ pension.

Laura has been offered a transfer value of £450,000 if she gives up her annual pension and believes that the 25% lump sum would help her clear their mortgage at age 55 and still retain significant in the pension to improve Peter’s position if she dies first.

Laura would like advice about whether to retain or transfer the scheme.

The recommendation

Laura contacted us to advise on whether she should transfer or retain her pension scheme.

During the initial and follow up meetings all aspects of their current situation were considered, and immediate concerns addressed. We used several scenarios within a cashflow projection to see how best they could meet their retirement objectives.

The outcome of our work with Laura was to recommend the pension scheme be retained. The reasons for this were as follows:

• Combined with the state pension, Laura and Peter, will have a guaranteed income for life of about £38,000 per annum which will increase each year broadly in line with inflation; a large proportion of this is Laura’s final salary pension scheme. If this was transferred, they would lose a secure source of income that plays an important role in providing them a comfortable lifestyle in retirement.
• Their high disposable income can be used to help fund additional pension contributions for Peter along with a whole of life policy with a sum assured to match the transfer value offered. This will pay out when Laura dies and provide additional funds to Peter to use alongside the spousal pension to maintain their standard of life.
• Laura is only 55, so does not want to access her pension for another 5 years; if stock markets were to fall significantly prior to retirement she may have less to draw on at retirement to fund their lifestyle.

Case Study 1 – Andy and Lisa

About the clients

• Andy, 61, and Lisa, 60 are married with two adult children.
• Andy is a business development manager for a large insurance company and Lisa did not return to work after her children were born.
• Lisa is in good health but Andy suffers with some health conditions that will affect his life expectancy and does not expect to live past age 75.
• They own their own home worth £750,000 free of mortgage.
• They have combined savings and investments totalling £300,000; Andy has £300,000 in his existing workplace pension and Lisa has £100,000 in a personal pension.
• Andy previously worked for a company that offered a final salary pension scheme; this is projected to provide an income at age 63 of £12,000 per annum.
• Andy and Lisa both have the full state pension payable from age 66.

Retirement Objectives

• Retire in two years with a joint net income of £2,500 per month.
• For the first 10 years they intend to enjoy retirement by travelling more and want to be able to take more from their pensions earlier to fund this.
• After 10 years, they expect to be less active and therefore do not require as high a level of income.
• They want to make sure Lisa is financially secure should Andy pre-decease her.
• Maximise the legacy left to their children while minimising any potential inheritance tax liability.

Their situation

Andy has been offered a transfer value of £510,000 instead of the £12,000 per year income that would be payable from the pension scheme.

Andy and Lisa believe the offer represents good value as they have calculated that Andy would need to live for 42 years before the pension scheme income would match the lump sum available (i.e. £510,000/£12,000). They feel that this is a generous offer and like the idea that their children could inherit the pension when they die.

Andy wants to understand whether he should retain or transfer the scheme.

Case Study 2 – Tom

About the client

• Aged 60, single and with no children, Tom has worked for his current company for 30 years and he wishes to retire at 65.
• In retirement, Tom would like to achieve an annual income of £35,000 net.
• Tom has £20,000 in savings, a house valued at £400,000 and an outstanding repayment mortgage of £55,000.
• Tom has two final salary pension schemes:
  1. His current employer offers a final salary pension of £40,000 per annum from age 65.
  2. He also has a second smaller final salary pension from a previous employer which will provide a gross annual income of £3,000 from age 65. The trustees of the scheme have offered Tom a transfer value of £80,000.
  3. Tom will receive his full state pension from age 67.

Retirement Objectives

• To retire at 65.
• Achieve a net income of £35,000 net a year.
• Pay off his remaining mortgage now.

His situation

Tom would like to keep his current employer final salary pension scheme but wants to assess if he should retain his smaller scheme from his ex-employer.

The recommendation

Tom contacted us for advice as to whether he should transfer his smaller final salary pension scheme.

During the initial and follow up meetings all aspects of his current situation were considered, and immediate concerns addressed. We used several scenarios within a cashflow projection to see how best his objectives can be met.

The outcome of our work was that Tom should accept the £80,000 transfer value offered by the final salary pension scheme.

The reasons for this were as follows:

• Tom’s current final salary pension and state pension will provide him with a guaranteed income for life of £49,000 per annum which will increase each year in line with inflation. This income will cover his target net income of £35,000 net per annum.
• He can draw on the transferred pension to pay off his mortgage.
• Tom can access the remaining pension fund, flexibly as and when he needs it.

Case Study 3 – Simon

About the client

• Simon, 58, lives with his partner and has one son.
• He owns his own business, has sizeable assets and no liabilities.
• Simon has a final salary pension scheme from a former employer that is projected to pay him £10,000 gross annual income from age 65.
• Simon views his other assets as his retirement pot.
• Simon will receive his full state pension from age 67.

Retirement Objectives

• To have the flexibility to draw from his pension as and when needed.
• To provide for his long-term partner in retirement should he pre-decease her.

His situation

Simon feels the final salary pension scheme is not suitable as it will not pay to his partner (who is not deemed to be a dependent). The pension will therefore stop when he dies.

The pension scheme has offered a transfer value of £400,000 instead of the £10,000 per annum gross income.

Simon does not feel that he needs his income given his sizeable assets and would like advice about whether to retain or transfer the scheme.

The recommendation

Simon contacted us for advice as to whether he should transfer his final salary pension scheme.

During the initial and follow up meetings all aspects of his current situation were considered, and immediate concerns addressed. We used several scenarios within a cashflow projection to see how best he could meet his retirement objectives.

The outcome of our work was that Simon should accept the £400,000 transfer value offered by the final salary pension scheme.

The reasons for this were as follows:

• Simon has sizeable assets (including his business value) to provide him with the retirement he wants.
• Simon’s partner will not benefit from any income or lump sum on his death (if he dies first).
• Should Simon need access to this money, he will be able to draw it flexibly and in line with he pension freedom rules.