Case Studies
Why taking pension advice helped a spouse become financially secure and significantly reduce her tax liabilities.
David Penney was recommended by another financial planner to a successful individual in the insurance industry. He was very sadly terminally ill when he came to see us and wanted to get his finances in order for his long term partner, particularly his pensions.
As an unmarried individual with final salary pensions, he was aware that his pension benefits might not be passed onto his partner on his death. He also faced a significant Inheritance Tax liability and had no Will. We suggested drafting a Will as a matter of urgency, and the client was already planning on getting married as soon as possible.
The first meeting took place in November 2017, but we then found out that the client only had weeks to live in January 2018. He then married his partner, drafted a Will and a few weeks later, PR&W had managed to achieve the following:
- Serious Ill Health Lump Sum of over £1 million – we requested one of the final salary schemes consider paying a lump sum to the client during his lifetime, a pension taxation rule which we see used very infrequently. As a result of us successfully applying for this option, having obtained a letter from the doctor in an extraordinarily tight timescale, the client received a tax-free lump sum into his bank account of just over £1 million, plus his wife benefited from a spouse’s pension of over £18,000 per annum. Had no action been taken, there would have been no lump sum at all. At best, there would have been a spouse’s pension only.
- Transfer value of £417,000 secured – in a very short timescale, we transferred a pension benefit of £14,000 per annum in exchange for a lump sum of £417,000, which was then passed on as a pension fund to his wife. She can now draw down on this fund completely free of tax. Had the transfer not been completed, at best there would have been a spouse’s pension of approximately £7,000 per annum.
- Lifetime allowance saving – we saved the clients approximately £117,000 in tax charges by retrospectively applying for protection against the lifetime allowance.
In terms of pensions alone, as a result of our advice alone an additional £1 million of tax-free capital was paid in addition to a spouse’s pension for life. A further spouse’s pension of £7,000 per annum was converted into a tax-free pension fund of £417,000 and £117,000 in pension taxation was saved. Rather than having to worry about money, our client is now completely financially secure.
It was an extraordinary case, with which David became very emotionally involved. In order to complete this process in such a short timescale, with the help of the client’s friends and contacts in the insurance industry, we had senior executives of global companies helping to push things through.
We could not have achieved the eventual outcome without the help and support of a fabulous family friend, who dropped everything to help. We now look after the finances of the client’s spouse and look forward to a long term relationship and honouring her late husband’s wishes.
Keeping it in the family – the importance of inter-generational wealth planning.
Longstanding clients of ours in their 70s wanted to start the process of helping out their family and reducing their Inheritance Tax liability. We previously had no relationship with the rest of the family.
Following a full analysis of cashflow requirements, in 2015 we advised a gift of £1 million to be split between the adult son and daughter. The daughter has three children of her own, the son does not have any children.
Our advice regarding the gift to their daughter was as follows:
- £500,000 into Trust for the grandchildren. The Trust is used to pay the grandchildren’s school fees.
- After 7 years, the gift will fall outside of the estate for Inheritance Tax purposes, potentially saving £200,000.
- All growth within the Trust is tax-free.
- Withdrawals from the Trust in the grandchildren’s names are likely to be tax-free, as we can use their tax-free personal allowance each year.
- Our clients were able to gift a large sum of money, knowing that it can only be used for the purpose they had in mind – education.
- The growth in the fund has more than covered the fees, meaning that the gift is not only tax efficient, but makes a meaningful difference to the lives of their grandchildren.
Our advice regarding the son was as follows:
- £500,000 invested into pensions and investments.
- Lump sum pension contributions to benefit from 40% tax relief.
- Plan in place to enable him to reach financial independence at an earlier age then he had previously hoped for.
We then became the adviser to the daughter and her husband, who we were able to help as follows:
- Cashflow planning – we were able to answer the following questions:
- When will we achieve financial independence – the point at which we no longer need to work?
- Can we buy a larger and more expensive property?
- How much more money do we need to set aside to achieve our aims?
- What would happen if we sell the business, versus continuing to take an income?
- How can we fund a significant tax bill next year?
- They wanted to simplify their investment strategy and reduce discretionary investment management costs, based on the positive experience of their parents over a long period of time.
- Significantly reduced ongoing costs on their portfolio – we took an overcomplicated and underperforming portfolio from a discretionary investment manager, saving £15,000 per annum in unnecessary investment costs.
We have provided a financial plan to work towards, made their financial affairs significantly simpler and made an extremely meaningful reduction in their costs, which will help them achieve their aims.
Turn multiple pensions and investments into a retirement income strategy.
A retired HR executive at one of the world’s largest technology companies approached us through her accountant. Although a very knowledgeable and intelligent individual, she had accumulated a large number of pension plans and investments during her career and wanted to understand how to work through the minefield of UK financial services and turn these pensions and investments into a retirement income strategy.
Over the years, she had accumulated approximately 40 different ISAs, investment plans and pension schemes. Our remit was to rationalise her financial affairs, put together an investment portfolio that met her objectives and deliver an income of £3,000 per month.
Her situation is now vastly improved. She receives a sustainable income from her investments to supplement her defined benefit pensions, and her other pensions remain invested as a means of passing wealth to her beneficiaries.
From a tax perspective, we recommended the following:
- Fixed Protection 2016 – saves tax on her pensions if they exceed the lifetime allowance.
- Complex advice on taking defined benefit pensions – we were able to extract an entire fund tax-free as part of the tax-free lump sum under the defined benefit scheme.
- Tax-free income – the withdrawals of £3,000 per month are all capital withdrawals, and her income uses up a range of different tax-free allowances.
- Simple investment process, with most of her assets in one place.
- Advice to put Lasting Powers of Attorney in place.
This was a good example of meeting someone who had previously not used a financial adviser, and significantly improving their retirement by providing her with an income and a strategy for her retirement, whilst significantly simplifying her financial situation.