Case Study 1 – Capital Preservation

John took a transfer from his employer’s final salary scheme in 2000. He had held a senior role with his employer but felt that the annuity pension offered by the pension scheme did not offer him the flexibility that he wanted in retirement. He knew that he and his wife would take expensive holidays in the early years of retirement but were likely to spend less on holidays, as they got older.
 

The transfer value offered was large –  £1.2m -  and John wanted to make sure that this significant asset would not be lost to his family on his death. He was very aware that, as his children were adult, they would get nothing from the scheme on his death. If his wife pre-deceased him then all the pension that he had built up over the years would be lost if he stayed with the scheme. However – his main concern was providing an attractive and sustainable income for himself and his wife.

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So – in 2000 he took a transfer value of £1.2m from his employer’s final salary scheme. He took the maximum tax-free cash available to him (£180,000) and used this to have a special holiday, clear his mortgage and leave some savings available to him. He was therefore left with a pension fund of £1,020,000 available to provide himself (and his wife) with an income.

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John did not have any previous investment experience and came to us for advice. We discussed John’s aims and objectives – his desire to take a relatively high level of income in the early years of retirement, to make sure that the income would last his lifetime - also the desire to preserve some of his fund for his family.

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We matched the level of risk he was willing to take and was able to take to a portfolio of funds from our researched investment panel. Mindful that income was being taken, we selected an appropriate investment strategy. We reviewed it regularly with him and ensured that his income was provided from appropriate assets and long-term growth provided from other assets. This way we could ensure that in times of falling stock markets – the income being taken did not disproportionately erode the fund.

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Currently John takes an income of £76,000 gross per annum from his SIPP.  Since taking the transfer value John has had total income of over £800,000 from the SIPP and his fund value in July 2018 is £990,000.

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John knows that the level of income he is taking is high compared to the level of fund value and this may lead to capital erosion.  However – for the moment he is happy with it.  He knows that we will continue to work with him to ensure a sustainable income for life whilst retaining a fund to pass to his family.
 
He trusts us to advise him on income levels and investment strategy as we have proved to him over a long working relationship that we understand income drawdown and have proven expertise in this area.

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This example shows the power and importance of on-going advice and of having an adviser who specialises in this field.

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The purpose of this case study is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. Any tax treatment depends on the individual circumstances of each client, Tax Planning is not regulated by the FCA. You may not get back the full amount of your investment.

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Please note:

Rates of tax and the legislation that governs them are subject to change, and this information was only accurate at the time of writing.