John came to us in June 2018 to ask for some specific advice. He had to make a decision about his defined benefit pension. John had worked for a financial services company for fifteen years but had left them twenty years ago. He was nearing 60 and was now working as a landscape gardener.
John wanted to make sure that he made the right decision about his pension to ensure that he and his wife Helen would have enough money to pay off their mortgage and for their retirement.
The pension company had sent him information about his pension that gave him a number of options. It set out how much he would receive as an annual pension and it gave him a transfer value figure (the amount the pension trustees would pay him now if he gave up his right to his annual pension). He also had the choice of taking an element as a cash lump sum.
One of our Chartered Financial Planners met with John and talked to him about his financial position and goals.
John wanted to get advice on the best option for his circumstances, he wanted to:
- reduce and / or pay off his mortgage as soon as possible
- retain some cash as an emergency fund
- agree a retirement income plan
- keep working, as he enjoyed it
John brought in all the paperwork he had and we sat down with him and talked him through it. We then drafted a report setting out all the different options that John had. We recommended that in John’s case he should take the transfer value and use the fund to purchase an annuity. The annuity we recommended would still give him a guaranteed income for life that met his goals, but with £42,000 extra as an immediate tax-free lump sum, 40% more than the tax-free lump sum his pension company was offering. The lump sum allowed him to pay off two thirds of his mortgage immediately. We used cash-flow planning software to show him that he could continue to work and live off his current salary and use the additional annuity income he would start to receive to repay the remaining mortgage balance over the next 4 years, so that he would be mortgage-free before his retirement.
John decided to go ahead with our recommendation to accept the transfer value and take out an annuity. We then assisted him to implement the pension transfer.
Names and other details that could potentially identify our clients have been changed to protect their privacy