Richard – Railways
“It has been a real pleasure to be part of the journey that Nicola and the team are on. From my first meeting I have felt comfortable and informed; indeed the journey for me has been made quite special by the way the team here have made my journey, theirs. The professional advice has always been spot on and has left me feeling excited and looking forward to the next phase of my and my families lives. Long may the business and the people of Trentham Invest prosper and grow.‘’
Richard joined the Railways Pension Scheme in 1975. Now a 55 year old director and married with three children, Richard wanted to know what he should do about his pension as he neared the schemes normal retirement date. He wanted to pay off his £200,000 mortgage, have a net income of £4,000 per month when he was 60 and not incur any Lifetime Allowance tax charges. Richard also wanted to fulfil his dream to own an Aston Martin. To confuse matters, he had also been offered an early retirement option.
While early retirement looked attractive, Richard would be forced to start drawing his pension even if he carried on working. After tax, his monthly income would be £3,523 and while he could use a £77,000 tax free lump sum to reduce his mortgage, his repayments would only reduce from £1,563 to £984 per month. In the event of his death in retirement his wife Jane would receive half of his pension payments and upon her death the children would receive nothing from the pension.
What we did
Richard needed infallible direction, not just choices. Through broad thinking and meticulous analysis of financial data, Trentham Invest were not only able to show Richard and Jane the consequences of each choice but confidently recommend the best course of action.
Key to their new plan was for Richard to transfer out of his Railways pension and invest his newly acquired £1,500,345 pension pot into a personal pension drawdown scheme.
- Richard’s projected annual pension at 60 was £90,453. However, by transferring out he could retire today and still receive £110,275 per annum giving him far more than his £4,000 net per month target.
- If he entered drawdown immediately, he could take a £200,000 tax free lump sum and pay off his mortgage. This would save him £1,563 per month in mortgage payments.
- Now that Richard has transferred out and opted out of his company pension scheme, his employer has increased his salary by 15% – an extra £20,850 per year.
- Saved a 55% Lifetime Allowance tax charge on £250,000 by securing Individual Protection.
- Had he stayed in the company scheme until 60, on death, his wife would have received £45,227 per annum. Transferring out means she would now own the whole of the pension pot and still receive £110,275 per annum.
- Richard and Jane would leave a pension legacy to their children of the whole pension pot, less tax.
- Avoided the risk of Richard’s annual pension benefits falling from £82,312 to £27,034 if the Railways Pension Scheme failed and was accepted by the Pension Protection Fund.
- Flexibility to start, stop, increase or decrease pension income at any time subject to scheme limits.
- With no mortgage and a 15% uplift in salary, Richard would now be able to save £35,676 net per annum. This could be used to purchase his dream Aston Martin.
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.