Case Studies
Pre Retirement
Our client had built up funds with several different pension companies during the course of his working life, both through company schemes and personal pension plans that he had arranged himself. He was concerned about the amount of paperwork he received from the providers each year and that he had no overall picture of his retirement plans.
We were able to provide him with an analysis of each of his plans and the impact on his benefits should he choose to take action. Whilst some plans were left alone due to the valuable benefits and guarantees they offered, we were able to consolidate a number of his plans into one pension policy. We reviewed his retirement needs and talked to him about the level of risk he was prepared to take with the investment of his pension funds before recommending an investment strategy.
The planning for his retirement is now less complicated and he feels far more in control. He is aware of the risk he is taking with his pension and can easily make changes to his strategy as he approaches retirement. On-line access to the value of his funds and their performance means that he no longer has to worry about receiving, and making a mental note to read in the future, the many annual statements he had been receiving.
Inheritance Tax Planning
Our clients had built up substantial funds over their lifetime and were keen to gift money as part of a plan to reduce the eventual inheritance tax bill on their estate. Their estate included both personal investment funds as well as money built up the husbands pension funds. Their daughter had recently married and they were keen to help her with a deposit on a new home.
Having discussed their need for future capital and income we were able to recommend a combination of solutions designed to reduce their inheritance tax liability and protect their money using a variety of trusts.
Firstly, the death benefits from the husband's pension funds were wrapped in a discretionary bypass trust. This meant that any lump sum death benefits would be paid into the trust rather than directly to his wife and could therefore pass to his daughter free of inheritance tax on his wife death. However, should his wife require all or some of the money during her lifetime then, as a beneficiary of the trust, she could still have access to the funds. Furthermore, we ensured that the trust had the ability to loan money to his wife which would be repayable on her death thus reducing her estate further.
A further trust was set up into which our clients made a loan from their excess capital. All growth on the investments made with the loan would accumulate outside of their estate rather than building up a further inheritance tax liability. The loan is repayable on demand and therefore should our client's circumstances change they still have access to the capital. Alternatively, that can demand regular or ad hoc withdrawals which can be spent or gifted.
Whilst keen to help their newly married daughter they were concerned that any gift could pass to her husband should she get divorced in the future. Once again, we arranged for the gift to be made via a discretionary trust which had the power to loan money to the daughter. As trustees our clients could demand repayment of the loan in the event of their daughter divorcing, for example.
Retirement
Our client was approaching retirement and had built up a modest retirement fund in various personal pension plans. He had heard of the open market option and of the importance of shopping around for the best annuity rate in order to maximise his pension income.
We made him aware of all of the options he had for securing a pension income. He was particularly interested to hear that he did not have to commit to a pension that he could not change in line with his future needs and circumstances. He also wanted the option to be able to pass on any residual fund to his children once he and his wife had died.
He opted to buy a short term annuity for a five year term. By taking the maximum tax free lump sum at outset he was able to use this to provide ‘tax free' income for the term of the annuity and delay drawing a taxable income for five years. By opting not to draw an income he was guaranteed a larger fund at the end of the term of the short term annuity without having to take any investment risk.
At the end of the five years he will be able to use the fund to secure further pension provision tailored to his circumstances at the time. He is concerned about his health and believes he may at that time be eligible for an impaired life annuity. He has included a widow's pension so his wife is provided for in the event of his death during the term of the annuity and, if they were both to die, funds can be passed onto to their children.