Julian – National Broadcasting Company
“I have been brought up to believe that final salary pension schemes are the ones to stick with so the advice I received from Nicola challenged this notion. However, having seen how meticulous Nicola and her team have been in their investigations and analysis, I feel reassured that we’ve made the best decision possible.
Transferring out was a real ‘no brainer’ because the pension I would have received had I stayed in was comparable to the pension I would receive if I transferred out. Plus, I wouldn’t have any of the risks of the pensions going bump and the money Clare would receive if I died was so much more”.
Now running his own business, 55 year old Julian was previously a highly paid senior executive in the television industry.
He was a member of three final salary pension schemes, each with a different broadcasting company, but had no idea of the value of the pensions or whether he was in a position to retire. Neither did he know which pensions were good and which ones were bad or what provision they made for his wife Clare in the event of his death. Furthermore, his pension statements showed ‘holes in the pots’ which could potentially have a devastating effect on his retirement income.
Julian felt fortunate to have these pensions but was very anxious about their stability and the future of the television industry. The question was straight forward, ‘what should he do’? The trouble was who could he trust to give the him the right answer?
When a colleague explained how Trentham Invest had helped put her in control of her finances Julian arranged a meeting with final salary pension expert Nicola Downs.
What we did
We agreed with Julian to follow three strategies to give him the confidence to make the best possible decisions for his and Clare’s financial future:
- Valuation and analysis of the current pension benefits to include him and his wife.
- Determine which of the schemes were good and which were bad by comparing the risk versus reward for each scheme.
- A plan to identify and utilise the tax advantages of using money from his business account to maximum fund his pension position, i.e. saving income tax, National Insurance and Corporation Tax.
With three final salary pensions to consider, the financial data that needed to be dissected and interpreted was considerable. However, once we had established the best way forward for Julian and Clare we put the plan into plain English and walked them through the options, explaining our recommendations.
- A total of over £1 million was transferred to their family balance sheet.
- If any of the schemes had failed but had been accepted by the Pension Protection Fund he would only receive 90% of the promised pension from the failed scheme. However, due to each of the schemes being underfunded, if the scheme was not accepted and was wound up the outcome would be much worse:
- Pension 1 of £23,932 pa would fall to £14,359 pa
- Pension 2 of £22,800 pa would fall to £11,172 pa
- Pension 3 of £9,671 pa would fall to £5,996 pa
- Total of £56,403 pa would fall to £31,537 pa
By moving them to his personal control, all of these risks were heavily reduced. To replace the total pension expected, Julian only had to take low risk.
- In the event of Julian’s death, Clare would have previously received £31,986 pa. However, under the new arrangements she would receive £1.1 million if before retirement or more than £600,000 after tax if taken as a lump sum in pension drawdown. This could also be passed to their children, and added £600,000 to their legacy after tax.
- £40,000 saved in Corporation Tax by making the maximum possible pension contribution from Julian’s business.
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.