Case Study: Taking Pension Benefits

Roger works at a local engineering firm and slowly approaching retirement. He lives with his wife Joanne in the house they own with a small interest only mortgage of £30,000 outstanding. Roger and Joanne are risk adverse and would like clear their mortgage and supplement their current income to sustain their lifestyle.

Roger recently received a “retirement pack” from his pension provider showing a fund value of £140,000. The pack refers to two options detailed below:

Option One – Annual Pension of £4,200

Option Two – Annual Pension of £3,150 & Lump Sum of £35,000

In addition, the retirement pack also mentions whole of market options, UFPLS and drawdown, however to access these he will need to find another provider. Roger and Joanne have both received a projected state pension statement, the have reviewed their expenditure and feel the state pension by itself with meet their essential expenditure.

Adviser Notes:

Now there are a few things to pick out from this case study. Firstly the clients objectives, they would like to clear the mortgage and supplement their current income. However it’s also worth pointing out that the client is risk adverse and that their income will be fully met by the state pension. So, as an adviser I would sit down with the client and query further.

  • What is your current mortgage interest rate? It may be worth considering using the pension tax free lump sum to clear this to avoid future interest payments.
  • How much income is needed to supplement their lifestyle now? Does it align with the annuity income quoted in their retirement pack? In any instance its essential to source the most attractive rate that can be secured on the market.
  • Is an annuity the right option? As their expenditure will be met when the state pension kicks in, really we are talking about bridging the gap between now and then as well as accessing a lump sum to clear the mortgage.


Remember, each case is different, any solution will be dictated by circumstances, preference and objectives.

In this instance, as the client would like to clear the mortgage and would like to supplement their current income but feel they would no longer require the income when the state pension begins payment, utilising flexi-access drawdown may achieve all these objectives. Transferring to a flexi-access drawdown plan could allow Roger to access £30,000 from his tax free cash and used the residual fund to provide an additional income. Its important to note that Roger can stipulate the income he wants, when and for how long meaning he could switch it off when he reaches state pension age, it also avoids the pension dictating what he will get and when allowing Roger to plan his tax affairs.

One important factor is that Roger is adverse to risk. Therefore we would have to have a thorough discussion around investment risk. By not opting for an annuity, you continue to adopt the sustainability risk, do you leave the funds in cash and risk the money losing it buying power with inflation? Do you invest the funds, if so how and where and does this align with your attitude towards risk? This is an important discussion when making this decision but also ongoing. As with everything, things change and so could Rogers appetite for risk or capacity for loss.

Other methods of taking benefits:

Above we have discussed taking the pension as annuity or via flexi-access drawdown. One other alternative is Uncrystalised Fund Pension Lump Sum (UFPLS), catchy right… With this roger could stipulate the lump sum he requires. In every instance, whatever the sum he takes, 25% will always be categorised as tax free cash with residual 75% being taxed as income at his marginal rate. In this example, for Roger to access the lump sum he would be taxed excessively (dependant on his current income) requiring him to take a larger sum from the pension.

In addition to all the above, as an adviser we would look at sustainability as well as other methods of clearing the mortgage. We would look at Joanne’s circumstances, is there a more tax efficient method using any benefits in her name.

If you have any questions in relation the above example please do not hesitate to seek financial advice from one of our local advisers.


• Past Performance is not necessarily a guide to future returns,
• Pension charges could change in the future,
• Taxation and legislation could change in the future.

This case study gives an indication of how our advisers have helped clients, however every client and their situation is different and we would always recommend that you seek advice if some of the points made are characteristic of your own circumstances. Sussex Advisers accepts no responsibility for action taken based solely on the content of this case study.

Pension Freedoms – At what cost?

Three years into to new pension freedom legislation, its interesting to see how the market has changed and how consumer take their benefits in retirement.

What is Pension Freedoms

Naturally Pension Freedoms expanded your options on how you take your benefits in retirement. To explain the options generally, excluding final salary/defined benefit arrangements, your path splits in two. You either give up your benefits/pot of money in exchange for an income for life, what we call an annuity. Alternatively you choose to draw on your benefits through retirement as and when necessary. Of course there is a multitude of options in between from building in guarantees and escalation in to your annuity and opting to only take tax free cash from your drawdown plan, a subject that surely warrants seeking pension advice.


In world of low interest rates, its surprising to hear just over £8 billion was bought in annuities with 52% of these being with the same provider without seeking pension advice suggesting some may now be shopping around for the most attractive rate. When it comes to securing an annuity (guaranteed annuity rates & GMP aside) you have a wealth of potential options available to you from guaranteed periods, spouse payments to escalation. A good pension tip, shopping around could source a more attractive rate, when you consider that once you agree to an annuity, its set in stone. This really is where you should be investing your time!


Interestingly, only 60% of people in drawdown seek pension advice. This creates its own concern (of course an adviser would say such a thing…). statistics show that 33% of these are invested in cash or cash based assets, but why is cash such a problem? Sustainability! The biggest issue with retirement planning is you don’t know how long you will need an income for. Hearing people live beyond 100 is not uncommon now with medical advances and focus on healthy living. So this means that pension pot needs to sustain yourself on the expectation you may well live beyond 100. Of course cash is not going to be working, eroded by charges resulting in an inventible decline in value. I think you understand where I’m going with this. However, none of this is to say de-risking is inappropriate. As you come to rely on your pension, your capacity for loss is significantly hindered meaning there may be an essential need to de-risk the strategy, but this doesn’t necessarily mean cash. This is where pension  advice can come in and provide a suitable and effective strategy through retirement.

Another concern research shows is the high proportion of people drawing funds from the pension just to move savings elsewhere predominately due to a lack of trust in pensions. However with the pension being a trust, it falls outside of your estate for inheritance tax purposes, not to mention the tax free growth you receive within a pension!

You have in essence been planning for this date your whole life. To not seek pension advice at this point could define how your retirement plays out. Seek an independent view, speak with a financial adviser!

Is Financial Advice worth the cost?

The biggest question you will have before seeking financial advice will be how much does it cost?

Looking back through history, the industry was predominately built on commission which creates a lucrative sales environment. Now post RDR, commission is gone when it comes to pensions and investments resulting in advisers charging for their time. This I believe results in better practice and more focus on the advice and service.

However when it comes to fees, the fee itself will still typically be associated to asset value. The justification relates to the levies from the FCA for rights to give advice and PI to cover financial advice given. As the risks reflect the asset value the cost to advising firm will be based on this.

That’s not to say there’s a variance between firms! Actually recent statistics shows quite a difference. When given financial advice, the adviser would either be restricted (limited on what products he can advise on) or whole of market (independent). Surprisingly restricted advice has come out on average as more expensive despite ones conclusion that you would pay more for an independent view. On average initial fees for restricted advice was between 4-5% whereas independent advice was 3%.

The question is does this represent value? This is where you need to probe your adviser! What will you do? Why? What will this achieve? How will this help me? Only once you’ve understood what the adviser has done can you make an informed decision on whether it’s worth it. I appreciate some work requires you to seek advice for instance certain pension transfers but that’s not to say you can’t seek value in what your adviser is doing!

The other subject is ongoing fees. Seeking financial advice will commonly result in an initial fee to put you into your desired position. The next part is to keep you there. Whether that’s managing the funds, tax liability, utilising allowances or just regular reviews to assist with other matters. This all naturally comes at a cost. Again typically it will be a percentage related to the funds being looked after as this relays to the expense incurred by the firm. Again stats show on average this ranges from 0.5% to 1%.

So should I seek financial advice?

In addition to all the above you also need to account for a few other points. Seeking advice from a regulated financial planner means you are protected under the FOS meaning of ever that advice was deemed unsuitable or not in your best interest you could be entitled to compensation. Most thing you could potentially achieve yourself it’s whether you want the peace of mind it’s being done properly. Your adviser will most likely be able to access providers, funds, strategies and software that isn’t freely open to the public which again may benefit your situation.

So is it worth the cost?

That’s for you to decide but you can only do this by seeking financial advice in the first place! Most advisers will be happy to give you an initial meeting at no cost to understand your objectives and to see if they can even help. At this point they would have a good idea on potential costs.

Do you Trust trusts?

Trusts have become very topical of late. More often than not, clients will have misconception that they have to have substantial assets to utilise a trust or become concerned about the legal confusion and administration that comes with it.

Don’t get me wrong, trusts are far from simplistic. However, they are a very powerful tool that can greatly help mitigate inheritance tax or “voluntary tax” as Sir Churchill labelled it. Trusts can be expensive and administrative not to mention confusing, but there is a reason they are still used to date. With inheritance tax currently sitting at 40% it doesn’t take much to consider the potential tax savings. When it comes to mitigating inheritance tax, you are limited on options and often forced to compromise on the solution, often limiting or removing control/access to your assets, taking higher levels of risk when investing or paying a premium on the outcome of your death.

Naturally the most simplistic solution is to gift money, after 7 years (unless within the annual gift allowances provided) these assets will fall outside of your estate. Most don’t like to do this as they worry what their children may do with a large windfall of cash, quite rightly so as you know them best!

An alternative could be to invest in Business Property Relief (BPR) qualifying products often EIS/SEIS. After being held for two years, these assets don’t fall outside of your estate but instead come with 100% discount on inheritance or 50% for certain assets. However due to the criteria on qualifying it often results in high risk investments as the companies that qualify are often young, small and less financially stable.

One solution could be to insure your life and place the proceeds in trust (to fall outside of your estate on death). The problem with this is you are unaware on when you will die resulting in the requirement for a Whole of Life policy to cover you for the whole of your life (Self-explanatory…) which comes at a cost as the event is inevitable. This cost as a regular premium could become unaffordable or the single premium solution could negate most of the benefit.

Trusts can help meet in the middle for most of these solutions. They can gift assets but retain control and access. They can remain invested under your discretion and still provide you an income as well as be earmarked for beneficiaries. Tax can be efficiently managed by opting for non-income baring assets to avoid the necessity to submit annual returns. Assets can be passed at your discretion not just on death allowing you to retain full control on when your beneficiaries benefit.

Education is key and clear objectives is essential. If you would like to know more about trusts, contact a local financial adviser!

Did somebody say Breach? – About GDPR

I’m sure by now you have received 92 requests from previous companies you never heard of asking to retain your personal information and bringing their new privacy policy to your attention. Yes, of course I am talking about GDPR!

I am 100% pro for data protection and ensuring how business collate, store and use personal/sensitive information. However, you may be surprised to hear that GDPR doesn’t bring in that many changes. Naturally there is a few changes in terminology and categorisation, however most of the new legislation reinforces the old rules with a few updates to account for changes and development in technology and how we store data.

The fact that you now have to opt in as opposed to the commonly adopted process of opting out historically should hopefully stop those companies tricking you into consent, with excessive level of fines to impose on those that break the rules, I only hope that I can reconnect the landline and not spend the majority of the day answering whether I wish to make a claim for PPI..

In addition to the above, the rules also revolve a lot around how we hold, manage and process data. Naturally in the financial services industry we hold extremely sensitive data, security is essential, and care must be taken.

So Dixons Carphone… it was only a matter of time before a large corporation was scrutinised and failed to comply. Personally, I was looking at Facebook to be first on the list.

It didn’t take long for the market to react with shares dipping 5.5% the moment they announced the breach. Is there an anticipation of penalties to come?

Fortunate for Dixons Carphone, as the data breach pre-dated GDPR, any financial penalty would be imposed under the previous data protection act rules, with a maximum fine of £500,000.

Under the new rules, firms could face a maximum of €20m (£17.6m) or 4% of global turnover, whichever is the greater.

More about GDPR legislation

However, GDPR legislation can only protect your rights, it’s down to you to decide who you should share your information with. In financial services, its essential that everyone does their own due diligence before seeking advice. First and foremost, financial advice is a regulated activity by the Financial Conduct Authority (FCA), check your adviser is authorised to give advice! You can do so by searching for them on the FCA register (It’s the google for financial advisers/firms!). Whilst you’re there do a bit of digging, find out more about them. What are they authorised to advise on, where have the worked previously, any issues in the past?

It’s important that they are regulated as you may not be protected by Financial Ombudsman Service (FOS) if not. Once you have this information dig deeper! Are they independent? A simple question but would want a firm that has no bias and remains strictly independent from the products or someone who works on behalf of a provider? How do you feel this would steer the advice?

This is your life savings, your financial plan and future. Be careful with who you share your sensitive information with!

Find your local adviser to find more about it.

All roads lead away from EU?

Political news swinging the balance in the financial sector is hardly a uncommon scenario. Italy’s recent poll reflected the 5-Star party and far-right league winning more than half of the votes. With both parties being heavily critical of the EU and its single currency economy, conclusions were jumped on the 1st actions the moment either party won. A coalition was attempted to avoid a stale government but with no prevail. We are now looking to July for another vote.


Naturally with the recent outcome, the polls are leaning towards 5-Star or the Far-right league taking favour with a referendum to follow to satisfy the peoples views.


What if they chose to leave?

When we look at Italy and its formation within the EU, it arguably is one of the foundations for the single currency economy. In comparison to the UK whilst we contributed to the union, our economy retained its native currency reducing the impact on our coming departure. Italy on the other hand then has to address their stance on currency, do they/can they revert to the Lira? Could they/would they retain the Euro to avoid a currency breakdown for the EU? Or would they support an entirely new currency?


In addition to this, Italy has less internal laws on an exit which could see them leave the EU before us! Would they opt to play nicely as the UK has done and look to retain relationships and support for the EU or have a hard exit?


In addition to this you begin to see a ripple effects with talk of the federal reserve holding back on the well overdue rate rise. Lets not forget that Federal hike would greatly support our own rate rise would is essential to boosting our economy on the final(potential) exit in March next year.


All in all it’s certainly a watch this space. In the UK we are used to waiting, it’s what we do best! I can’t foresee Italy taking their time if the people are calling for a referendum. With a party in power that has less than nice things to say about the EU, one worries of the bias that could steer that vote.

Rate Rises & Trade Wars

This past few months has seen significant volatility. With the US and UK becoming more involved in the Syrian war and the two largest economies battling it out on trade deals with a tit for tat attitude you what does it mean for the markets and ultimately your investments?

First and foremost the economy wants to see progression and growth but struggles when there are so many unanswered or set decisions. The US and China coming to head on trade deals has caused a great deal of concern, however they both wish to do what’s in the best interest of their economy and once they overcome the ego I feel confident some lucrative and long lasting deals will be made.

Becoming involved in a war rarely reflects positively on the markets. However what it does show is that whilst we are stuck in limbo with BREXIT, we are still as a country willing to step up and become an organised and strong voice in world politics, albeit if you have to come back and apologise for making decisions without full consent!

What can we expect going forward? I doubt it will come as any surprise that we will continue to hear shock stories about Trump, for all we know we could be sat here next week referring to the “United States of the World” because Mr Trump felt a name change was in order.. However what we do know is his bark is worst then hit bite and behind all the ego and childish foreplay is a businessman willing to do what it takes to get the job done.

What about the UK? Well whilst we continue to hear very little about our plans for BREXIT or any action to be taken to implement it (of course other than the change in colour of the passport!), what we do know is May wants to see a progressive economy leaving the EU. With a rate rise expected in May and another potentially in November, its essential we look strong and forward as we make our exit.

With this approach we could finally have some level of pride on our decision?

“Time in the markets” or “Timing the markets”

History shows the potential dangers of allowing emotions to influence investment decisions.

This year has so far proved a challenging one for investors. Market indices in the US and UK have hit all-time highs, yet 2016 has also been marked by bouts of volatility and some sharp falls. Markets recovered from fears over commodity prices and Chinese growth at the start of the year, but were then buffeted by the Brexit vote in the summer. Yet markets bounced back once again. The US presidential election result may provide their next big test.

Of course, that is the nature of equity investing, but it is understandable that investors might be concerned about such short-term fluctuations. What’s also true is that the sharpest falls and largest gains are often concentrated into short periods of time. Investors who try to time the market to avoid the falls, or who lose faith and sell out at the bottom, are highly likely to miss the gains.

The chart below is a sobering reminder of the potential costs of trying to time the market. Even missing a small number of days in the market can have a devastating effect on an investor’s total returns. When it comes to investing, doing nothing is often best.

Cumulative returns on a £10,000 investment over 20 years – FTSE All Share Index

Speak with your local financial adviser to address your concerns with the markets. Don’t have one? Feel free to contact me via

Source: FactSet, FTSE, J.P. Morgan Asset Management. Data to 31 December 2015. For illustrative purposes only. Assumes all income is reinvested. Returns calculated daily over the time period assuming no return on each of the specified number of best days. Please be aware that past performance is not indicative of future performance. Equities do not include the security of capital characteristic of a deposit with a bank or building society.