Case Study of Mr Doe

This is a real case that was completed in 2021 by Mr Ryan Caisley DipFA, the name has been changed for confidentiality. This outlines the value that professional financial advice can add to your life and how an adviser can utilise your current portfolio to meet your objectives in an efficient manner. This advice piece involves restructuring and withdrawal of assets which utilise tax allowances whilst demonstrating how the income will be met for the remainder of the client’s life.

Mr Doe. decided to retire ahead of starting a course of Chemotherapy, at this point he felt the need to contact a Financial Adviser to take a tax-free lump sum and arrange an annuity using his pension savings. Mr Doe wasn’t fully aware of the planning opportunities available to him and felt that this would be the most straightforward way to start drawing down from his pension savings. However, Mr. Doe wanted professional advice and was prepared to consider any alternative financial planning strategies.

Ryan spent time with Mr Doe, establishing his current circumstances and getting to understanding what Mr Doe wanted to achieve, what values he held dearly, what lifestyle he wanted to lead in retirement and, if there were any other concerns that him going forward.

Ryan identified that:

• Mr Doe was happy with his current lifestyle, which only required a nominal amount of income to cover his pre-retirement lifestyle, in fact, once he is in receipt of the State Pension this alone will meet his income need,
• Mr Doe had no desire for any large pension tax-free cash lump sums and he only wanted to do this as he felt that it was the right thing to do,
• There was a large amount of capital in cash-based savings, which were returning 0.01%interest per annum,
• There were a couple of pensions across different providers which offered different retirement options and investment choices,
• The main concern was around the legacy he would be leaving for his children, Mr Doe wanted his Children to be ‘looked after’ but did not want them to have to sort through numerous portfolios upon his passing and wished to simplify his portfolio.

Due to Mr Doe's desire to leave a legacy to his children, his health status, appetite for investment risk, and low income need Ryan quickly identified that it was unlikely that Mr Doe’s original plan of purchasing an annuity would be the best solution to meet the outlined objectives.

Therefore, Ryan proceeded to research an efficient strategy that could both utilise Mr Doe’s cash savings efficiently, meet the income need for the duration of his life, and leave a legacy for his children. Ryan used Cashflow Planning software as well as other research tools when making his recommendation.

Ryan’s advice was to consolidate Mr Doe's pensions into a single low-cost pension plan that gave access to pension income flexibility for both the client and, upon death, his intended beneficiaries. The underlying investment strategy was of a cautious nature in line with Mr Doe's appetite for risk but still provided opportunity for some capital growth in attempt to keep his assets in pace with inflation.

Ryan also recommended that Mr Doe did not draw his pensions first and that he lived off his savings whilst also maximising pension contributions using his savings. The benefit of this is that:

• Mr Doe would receive tax relief from the Government in the form of ‘grossed up pension contributions’ meaning for every £100 paid into the pension by Mr Doe, the Government would contribute £25. Therefore, the return on invested capital was already beating the 0.01% interest on offer in the savings account and the underlying investment strategy would also provide opportunity for growth above 0.01%.
• In Mr Doe’s case he could contribute £10,135 towards his pension this year, which only cost £8,108 resulting in £2,027 tax relief and every subsequent year we will contribute £3,600 gross (£2,880 net which is £720 tax relief each year).
• As Mr Doe’s income need is below the Personal Allowance for income tax, the contributions paid in would not be taxed when withdrawn if Mr Doe’s income need remains less than the Personal Allowance each year.
• This option also retains Mr Doe’s 25% tax free cash entitlement, should he require any ad-hoc lump sums in the future. Whilst Mr Doe does not need a lump sum, his capital can stay invested in an attempt to receive some capital growth in the form of investment performance.
• Mr Doe’s children will only have one pension plan to sort out upon his death and the pension plan offers them flexibility on how they take their inheritance based on their circumstances at the time.
• Also, by not purchasing an annuity, leaving the pensions in Drawdown and living off savings to begin whilst making further pension contributions, our Cashflow plan demonstrates that if Mr Doe lived to age 90, the legacy to his Children would have nearly doubled when comparing this to his original plans.

In summary, Ryan was able to utilise Mr Doe’s assets in such way that his income need will be met comfortably throughout his lifetime, he should begin to witness better returns then 0.01% on some of his cash savings, and the children will receive a greater legacy upon Mr Doe’s death.

If you can see or would like to explore ways of how you may benefit from professional financial advice, please contact Ryan using the following details: Ryan@fswales.co.uk or 01554 770022.