Why did Clare need independent financial advice?
Charles had previously worked with Clare so when she was looking to retire she only wanted to speak with him.
Claire was 55, married and keen to retire early.
Learn more about Clare:
Clare’s husband, Brian, had already retired. He had taken the pension offered to him by his Defined Benefit scheme. That provided a guaranteed, index-linked income, part of which would continue to Clare should Brian die before she did.
Claire knew from Brian’s experiences when he retired that she was facing a tricky decision and needed some expert help.
Her choices included:
- Taking a tax-free lump sum (also known as Pension Commencement Lump Sum or PCLS) of £143,319 and an income, increasing in line with the Retail Price Index each year, of £21,442
- Moving the Cash Equivalent Transfer Value (CETV) of just over £960,000 from her Defined Benefit pension into an alternative arrangement such as Flexi-Access Drawdown
Clare had a mortgage of just over £100,000 that she needed to clear if early retirement was going to be affordable. Therefore, the tax-free lump sum was important.
What did we recommend?
On this occasion we recommended that Clare transfer her Defined Benefit pension into a Flexi-Access Drawdown arrangement.
This advice significantly increased the tax-free lump sum available. This enabled the mortgage to be repaid with the balance providing a tax-efficient income.
Taking into account Brian’s guaranteed pension, Clare only actually needed an income of £15,000 per year to retire. We created this tax efficiently by withdrawing an amount equal to the Personal Allowance from the Flexi-Access Drawdown arrangement and topping up with tax-free cash.
This strategy means that Clare will have the income she needs and, assuming the income tax rules don’t change significantly, will remain a non-taxpayer for years to come.
The fact that she doesn’t need to take a significant income from her pension means Clare will be able to leave a lump sum to her children when she dies. Something which was important for her to do.
What can we learn from Clare?
While remaining in your Defined Benefit or Final Salary pension is usually the right thing to do, there are occasions when a transfer makes sense.
Clare was one of those occasions.
The fact she could take a significantly larger tax-free lump sum, needed a relatively modest income, wanted to leave a legacy to her children and the household had a guaranteed income source already made a transfer the right option.
However, we only reached this conclusion after a thorough analysis of Clare’s circumstances and future requirements. We also completed a detailed cashflow forecast to ensure that our advice was correct in the short, medium and long-term.
If you would like advice on your Defined Benefit or Final Salary Pension, please call us on 07837343833 or complete the enquiry form on this page.