Case Study

It’s vital to take advice 5 – 10 years before you retire

The problem

Mr Prior approached us as a confused man.

He knew he wanted to retire in a few years, but had no idea whether this was achievable.

During his career Mr Prior was a relatively high earner and paid into a number of different pensions, including a final salary / defined benefit scheme. However, he didn’t know what they were valued at, how they were performing, the charges he was paying, or what income they would provide in retirement.

Even more worryingly, he had not applied for ‘pension protection’; a problem, which if not rectified could lead to a large tax charge, possibly at a rate as high as 55%. Furthermore, Mr Prior was not claiming the higher rate tax-relief on his pension contributions to which he was entitled.

To compound his confusion, Mr Prior was being badgered by another adviser to transfer his final salary pension into a SIPP (Self-Invested Personal Pension).

Our advice

Being a new client to us, we carried out a full review of Mr Prior’s pensions and spent a considerable amount of time discussing his objectives.

In short, we needed to find out what was important to him.

Our analysis showed us which pensions should be consolidated into a lower charges solution and which should be left unchanged. We also concluded that it would be wrong for Mr Prior to transfer his final salary pension, as the benefits it provided were valuable and couldn’t be bettered.

We also undertook a cashflow modelling exercise to determine exactly what income Mr Prior needed in retirement. We identified a small shortfall between the income he needed and what his pensions would provided. Armed with this valuable information, Mr Prior was able to make the decision to save more for a few years, to improve his retirement income.

Finally, we helped Mr Prior apply for the appropriate ‘pension protection’, which meant he no longer had the threat of a nasty tax shock hanging over him.

How did Mr Prior benefit from our advice?

Simple, he now knows exactly where he stands and is confident that he will be able to retire at an age that suits him, with an income which meets his needs.

He is also now receiving the correct amount of tax-relief, not an inconsiderable sum for a higher earner, and the threat of a tax charge on his pension has been removed.

Our regular reviews also mean Mr Prior stays on track to meet his retirement objectives.

What can we learn from Mr Prior

There are two simple lessons here.

Firstly, the benefits of high quality financial planning are immense; without our advice Mr Prior would have needlessly paid thousands of pounds in tax.

Secondly, advice should be taken 5 – 10 years before you retire. Doing so means you will be able to take advantage of many more opportunities, some of which will disappear if you leave it too late.