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Pension Advice at Retirement

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The Importance of Taking Independent Financial Advice at Retirement.

Two recent cases illustrate the importance to taking advice at retirement.

In the first case, I was  approached by Mr Smith who wanted some guidance about taking the benefits from his private pension.   Mr Smith is about to receive his state pension and has a modest personal pension valued at £30,000.  He is a smoker and in good health.

Mr Smith had received quotations from his pension provider for various pension options which included a pension for him for life, a dependent’s pension, guarantees and escalation etc.  The options that were not offered included overlap, investment- linked and draw down to name but a few.  In today’s complex financial world there are a myriad of options available to choose from and not all companies offer all alternatives.  In fact some companies have a very restricted product range indeed.

After a comprehensive review of Mr Smith’s personal circumstances we agreed that the best option for him was a level pension, which would continue at the same level to his widow if he predeceased her.  Mr Smith also wished to take the 25% tax free cash available from the plan.  Guarantees and many of the other options available were discounted as they were not appropriate to his personal circumstances.

Having decided on the best way to take the pension benefits, the next step was to shop around to try and find the maximum income possible for Mr Smith.  His existing pension company had offered a tax free lump sum of £7,500 plus an annual pension to him of £470.00  which would reduce by 50% if he died before Mrs Smith.  No consideration was given to health and smoker status.

Having researched the market I came up with an alternative.  By transferring the pension plan to an alternative company, Mr Smith would receive the same amount of tax free cash but an increased income of £,1225 per annum which will continue at the same level to Mrs Smith for the remainder of her lifetime if Mr Smith pre-deceases her.

This annuity arrangement was underwritten having regard to health and lifestyle factors that could affect expectation of life. Smoking is one of many such factors.

My fee for this advice was paid by the new pension company from capital tied up in the pension plan.  Mr Smith could have opted to pay this fee from his tax-free cash which would have increased his pension income further.

My concern for this client was to provide financial security in retirement.  During our discussions it transpired that Mrs Smith’s Will was written to leave the matrimonial home equally to her two children and her husband (this is a second marriage).  In the event of Mrs Smith dying before her husband he will become homeless!  As a result of this meeting they are now to have their Wills re-written in a different format to allow Mr Smith to remain in his home for the remainder of his life and then  Mrs Smith’s children will receive 50% each.  Another win-win solution.  This shows the importance of looking into the broader details of one’s finances instead of concentrating on a small aspect in isolation.

Speaking to Mr and Mrs Smith reminded me of another client who took their pension benefits recently.  Mrs Stone had taken her pension plan through her bank and upon reaching retirement had been offered a pension of £4,100 per annum from her pension fund of £100,000, if she did not take the tax free cash.  She was encouraged by a relative to seek advice and I managed to secure her an annual pension income  of £4,200 after taking a tax free lump sum of £25,000.  Clearly  a better deal than that offered by her bank!


Graham Westhall is a Chartered Financial Planner with SWLaw Investment and Financial Planning Ltd.