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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.

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