Why did Richard need independent financial advice?
Richard was 54 when he approached us wanting to retire in 12 months’ time.
He had spoken to other colleagues at the Co-Op who Charles had advised. Hearing excellent reports, he decided to contact Charles for advice on his Defined Benefit pension.
Learn more about Richard:
Wanting to retire in just 12 months’ time, and a whole decade earlier than most people, Richard knew that he had some tough decisions to make. With a pension worth over £1.5 million, he was also well aware that he needed independent financial advice if he was to make the right choices.
Richard had two main options:
- His first option was to take the tax-free lump sum (also known as Pension Commencement Lump Sum, or PCLS for short) of £180,000 plus an annual index-linked pension of £27,000
- To transfer the Cash Equivalent Transfer Value (CETV) of £1,547,000 to an alternative arrangement and take tax-free cash and / or income as required
What did we recommend?
We analysed Richard’s circumstances and needs for capital and income over the coming years.
After using our cashflow forecasting software we concluded that to retire he needed an income of £20,500 each year; much less than the existing Defined Benefit scheme would provide.
However, when they reached State Pension age Richard and his wife, Joanne, would have full State Pensions which would cover more than half of their required £20,500 income requirement.
Richard therefore needed a flexible income, which would cover the income they required in the years until their State Pension kicked in, at which time it could be reduced.
Given this need for flexibility we recommended that Richard transfer his existing Defined Benefit pension into a Flexi-Access arrangement. The tax-free lump sum wasn’t needed for a specific purpose. This means we could therefore create the £20,500 tax-efficiently; as a combination of income, up to the Personal Allowance, topped up by tax-free cash.
The strategy of only taking the income he needed meant Richard will be able to leave his remaining pension fund to his two children when he dies.
What can we learn from Richard?
On this occasion we learn that by using the new Pension Freedom rules, combined with a transfer from a Defined Benefit pension, it can enable people to retire early.
Our advice has enabled Richard to leave work around 10 years early to pursue the next stage of his life.
If you would like to retire early or need advice on your Defined Benefit or Final Salary Pension, please call us on 07837343833 or complete the enquiry form on this page.