Jonathan was in his mid-50s when he contacted us, having been referred by a friend who is an existing client. Jonathan works for a large pharmaceutical company as a senior consultant. He lives with his long-term partner, Rosemary, who works part time as a self-employed marketing manager. Jonathan has three grown up children from a previous relationship, all of whom are financially independent.
Jonathan approached us as he was looking for advice around his pensions and retirement options. Specifically, to determine when he can stop working while achieving his and Rosemary’s desired lifestyle throughout retirement.
Jonathan had accumulated a substantial pension pot throughout his working life and was also concerned that he may be affected by the Lifetime Allowance (LTA).
Jonathan met with one of our Chartered Financial Planners. This initial meeting allowed our adviser to get a strong understanding of Jonathan and Rosemary’s current situation as well as their goals. It also provided the opportunity for Jonathan to learn more about the process of becoming a client of Mearns & Company. During the meeting it became clear that Jonathan had the following goals:
- To be able to choose his retirement date, by establishing whether it was financially viable for him to retire now, so that he had the freedom to choose when he stopped working
- To have peace of mind over his and Rosemary’s finances by having a suitable cash emergency fund, mitigating tax and having a viable retirement strategy prepared and ready to implement
- To have enough income to meet their expenditure needs throughout retirement so that they can achieve and enjoy their desired lifestyle
Our planner prepared a cashflow forecast plan for Jonathan and Rosemary, which they went through during the initial meeting, and which highlighted the following:
- Jonathan would be able to retire now, while achieving his income in retirement target, so that he had control over when he decided to stop working.
- Jonathan and Rosemary would be able to live their desired lifestyle in retirement, as their income and assets could meet their expenditure needs for the rest of their lives (even in a ‘stress-tested’ scenario).
The points above were important to Jonathan and Rosemary in terms of giving them reassurance and peace of mind over their finances.
We went on to analyse Jonathan’s existing pensions and recommended that he consolidate them by transferring them to a personal pension held on a suitable investment platform. We recommended this for the following reasons:
- To reinvest in a portfolio of funds which is much more diversified (reducing risk) and more suitable for his attitude to risk
- To reinvest in a portfolio of funds which offers potential for better returns
- To secure the final bonus which applied to his existing investment in with-profit pension funds (which was not guaranteed and could be removed)
- To provide a wider range of benefit options when he retires
- To give his beneficiaries a wider range of options when he dies
- To reduce the amount of paperwork received each year and make it more straightforward to apply a consistent retirement and investment strategy
Based on Jonathan’s situation, goals, investment knowledge and experience, and his attitude to risk, we recommended an income drawdown strategy so that he and Rosemary could achieve their goals. In doing so, it allowed them to:
- Take Jonathan’s pension tax-free cash lump sum to top up their emergency fund and planned expenditure fund, improving their financial security, and investing part of the excess to provide a supplementary tax-free income in retirement.
- Access Jonathan’s pension now in a way that best mitigated a supplementary LTA tax charge, to improve the overall sustainability of their assets and allow them to either spend more in retirement or pass more assets on to their family.
- Defer taking an income from Jonathan’s drawdown pension until he had stopped working, to mitigate income tax and, again, improve the sustainability of the overall fund.
- Take a higher income in the earlier years of retirement, while the couple are likely to be spending more time travelling, and reducing this later in retirement possibly when, or after, their state pensions come into payment.
- Generate a tax-efficient income in retirement by taking drawdown pension withdrawals up to their annual tax-free personal allowances, with the remaining income being withdrawn from the couple’s investment portfolio. By taking income in this way, rather than just from his pension, Jonathan would save income tax of £6,302 a year (based on 2019/20 tax rules). This will also help the sustainability of the couple’s overall assets, giving them more options in future.
Jonathan’s pensions have now been transferred and consolidated on to a platform. He has topped up his cash savings, using some of tax-free cash, and reinvested the excess into a tax-efficient investment portfolio on the same platform.
We now provide Jonathan and Rosemary with our annual review service which includes monitoring their goals, reviewing investment performance, reviewing their income and expenditure, making use of their tax-free allowances, as well as general retirement planning.
Jonathan is now in the position of knowing that he can decide when he would like to stop working, safe in the knowledge that a tax-efficient retirement income strategy is ready to be implemented whenever he is ready.
Names and other details that could potentially identify our clients have been changed to protect their privacy.