Mrs S – Credit Cards
“When I joined the company in 1980, I was in a non-contributory final salary pension scheme – and a job for life! The bee’s knees! When I left 29 years later, the pension had a massive deficit and the company was bought by a private equity company. I was very worried about the future of my pension. My other concern was that on my demise my husband would only get 50% of my pension. I felt that he deserves better than that considering all the support he has given me, and the sacrifices he has made throughout my career. I have been considering getting out of the company pension scheme for six years, however, my financial advisor told me to hang tight and wait. A recent evaluation suggested that the waiting period may be over. The private equity company is positioning to re-float on the stock exchange, and the transfer value of my pension is now very attractive. However, if I did accept the offer, it would subject me to the new pension tax rules that come into effect in April 2016 and I could end up with a huge tax bill.
Neil has been my financial advisor for 10 years, and my husband’s for over 30 years. But he was unable to assist in the transfer of my pension. However, he recommended me to his well respected colleague Nicola at Trentham Invest who could assist and work in partnership with him.
Currently I am working abroad on a short contract. I thought that all I needed to do was sign a few forms, scan them and send them back. But Nicola was having none of that. She insisted on an all day, face to face meeting – which I must confess, at the time I thought was excessive! How wrong was I?
I came back to the UK to meet with Nicola. She was more than happy for my FA and my husband to come along – in fact she encouraged it. There was a fee for the assessment and sorting out my life time allowance. If I decided to go no further with the transfer, that was it, nothing further to pay.
The three of us went to Nicola’s office in Dorking. I felt that the whole day was about me – what I need and what would work best for my circumstances. At no point did I feel any pressure to take things further. Nicola took pains to ensure that I really understood everything. She gave us a handout with everything spelled out – all the options and her recommendations. She also allocated “reflection time” – time for my husband and I to mull things over, consult with our FA, think of additional questions and be sure that whatever decision we made, we were totally comfortable with.
Having decided to go ahead with the transfer, Nicola made it clear that she would only work with a company that would allocate a personal contact for the transaction, who would give us regular updates. This is indeed what happened, and Nicola’s team have kept us abreast of the progress to date. We are looking forward to the conclusion of our journey, when I have control over my own pension and worst case, following my demise, my husband has his full entitlement to my pension.
It’s not cheap, but when you are dealing with the tax man and HMRC, you need to ensure you have the best advice possible. I feel confident that between my FA and Nicola, that is exactly what I have.”
54 year old Mrs S is now a project manager and operates through her own company. She left her previous employer in 2008 and at that time became a deferred member of their Final Salary Pension Scheme. She has been married for 33 years. She dreamed of retiring at age 50, but that was blown when the minimum pension age increased to 55, just before she turned 50. She now hopes to retire at 55. She has been building a private pension arrangement since 2008, which is worth £317,000.
In 2009 Mrs S was offered a CETV of £460,000 when her deferred pension was £29,780 per annum. The CETV multiple was 15 x the pension. She decided to reject the offer, despite the worry over the funding of the scheme.
Six years on, August 2015, the CETV offer increased to £1,072,300. This represents a multiple of more than 30 x the pension.
It was now time to get serious once again about the options available and see if she can actually retire next December 2016.
What we did
We asked the scheme many questions, deciphered the information, translated the complexity of her situation and organised the information in a clear way to understand. We measured her pension against the current lists. Then we pointed out boundaries that she would cross between now and 60. These boundaries and limitations are very costly if crossed; 55% tax charge.
We clearly presented the information to show the consequences of staying in the scheme to age 60, taking early retirement at 55, the risks of those decisions both ow and in the future.
We then presented the consequences of taking the CETV on offer and the results of that decision and compared them against staying in the scheme.
We then interplayed those against the wider pension boundaries and legislation. Mrs S could not believe she would be over the pension lifetime limits; I am simply an ordinary person, with ordinary benefits – I’ve never considered myself as someone who would reach the pension maximum limits.
- Mrs S now has a personal lifetime Allowance of £1.25m versus the standard limit of £1.0m approaching next April 2016. This means a tax saving of £137,500 when Mrs S comes to take her benefits.
- An increased tax free lump sum of some £110,603 from December 2016.
- At age 55, pension of £39,600 per annum compared to £23,000 per annum if she stayed in the company scheme.
- On her death, a lump sum of £1,058,300 compared to £16,517 per annum for her husband. A lump sum equivalent to 64 times the annual gross income. Her husband would have to live to age 127 before receiving an equivalent amount of money in return.
- Mrs S has flexibility to access this resource, without penalty, by taking a tax free cash lump sum and a pension if she wishes.
- A legacy worth c£1,000,000.
Note: The events and figures quoted in this case study are from a real Trentham Invest client; however, the names have been changed to protect client confidentiality.