William – Life Insurance Company
William was age 58 when he decided to investigate his options from a previous pension scheme that he accrued whilst he worked for a large insurance company. He thought he would obtain a transfer value and take a look at some figures. The problem was that when he received all the paperwork he couldn’t fully understand the numbers. The statement showed his pension at date of leaving May 2008 but did not show the amount of pension it had risen to today. The transfer value was quoted December 2016 which was nearly 9 years later. The statement also showed an early retirement pension after penalties; but we didn’t know what the penalties were. Again we couldn’t see the true value of the pension. Typically they are 5% per annum and being 4 years before retirement age this could equate to 20%.
He had heard of the transfer options as colleagues were looking into their options knowing they can take pension freedoms and have more money. The transfer value was about to run out in 4 weeks’ time which was not sufficient time to make a confident decision whether to take the transfer value offered or not.
- William is married with two children, both of whom are adult.
- He would like to maximize his pension benefits and retire earlier than planned if possible
- When he left employment the pension built up was £14,463 per annum
- The scheme normal retirement date was at age 62.
- The scheme was underfunded by 47%.
- William wanted to ensure that his wife would benefit in the event of his death. He also wanted to explore the new pension freedoms; being able to leave his pension pot to his daughters.
What we did
We analysed and interpreted the data….
Staying in the scheme
- We requested a new transfer value. The cost was £250 + VAT. However the increase in transfer value compared to the last one was £11,293.
- The pension built up to May 2017 is £17,967.58 per annum
- The expected pension at age 62 is £19,798 per annum
- If he takes the pension at age 57 it is expected to be c£16,738 per annum
- If he dies before age 65, his wife will get two thirds of the pension, £11,158 per annum
- If the pension scheme goes to the ‘lifeboat’ pension protection fund, William could end up with anything between £9,522 per annum and £17,967 per annum. His wife would get half of this if he died.
Taking alternative choices if he jumped out of the scheme
- The pension at age 57 could be £30,417 per annum
- The pension at age 62 could be £37,007 per annum
- If he died beforehand, his wife would get a lump sum of circa £693,894 today, plus growth over time. Assuming 4% growth on the capital sum to age 62 this is £925,193
- The risks of the capital sum being eroded by volatile markets are reduced by using strategies to ensure the monies are invested in low risk stocks.
- By transferring the pension and responsibility to him, William has taken control of his pension pot. He is not left to the vagaries of the pension lifeboat where his pension could drop from an estimated £30,417 to £9,522 per annum
- He has increased his pension at age 57 from an estimated £16,738 per annum to £30,417 per annum
- He has increased his pension at age 62 from an estimated £13,198 per annum to £37,007 per annum
- He has increased the protection to his family from an estimated £13,198 per annum to £925,193 lump sum – increasing as the capital grows
- The monies have been carefully invested in low risk stocks to protect them from market shocks
- On the death of him and his wife, the balance (after tax) would be inherited by their children – unheard of with a company scheme. This amount could be circa £925,193.
William is now very happy to be in control of his life and family having taken control of his own company and now his future wealth.
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.