Client Situation

£45,000
  • No spouse or children
  • Age 60
  • Has forces pension of £18,000 (inflation proofed) in payment
  • Has a mortgage of £35,000
  • Outgoing of £20,000 per annum
  • Part-time self employed with variable income around £10,000

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A client approached me with a small Defined Benefit scheme he had forgotten about. He already had enough other secured pension income through his forced pension and didn’t feel the £2,500 being offered through the scheme Defined Benefit scheme at age 65 would be any use to him.

He wanted to clear his mortgage which would in tern free up more disposable income. He would also receive a full state pension.

The benefit being offered under the DB scheme didn’t fit his situation. The usual advantage of having a spouse pension which paid a 50% inflation proofed income his wife, didn’t apply as he was single.

He would benefit more now by taking the benefits and clearing his mortgage.

If he took the full fund as cash however, he would fall into the higher rate tax band and therefore full encashment wasn’t an option.

The Solution

I put together a cash based drawdown option. This released 25% of the fund immediately and left the remaining fund in a drawdown plan, but uninvested.

Drawdown is usually used for investment in funds, however due to the timescale he wanted to withdraw the fund (2 to 3 years), this wasn’t a suitable timeframe for investing.

I therefore found him a drawdown provider which allowed him to hold the funds in cash but only charge him a minimal fee to hold the money. The interest on the cash would pay for the plan and allow him full access to his funds.

Monitoring his own tax situation with his self employed income, he could then withdraw the rest of the fund from drawdown but stay below the higher rate tax threshold.

The process for this advice took 4 weeks to obtain the clients scheme details and consult on the best options and a further 4 weeks for his scheme to transfer the funds to the drawdown provider.

CategoryCase Study