Retirement Planning Case Study
Eric is 69 and retiring in June. He has accrued a personal pension of £120,000 which is in a protected fund which locks in growth every year.
Eric has a State Pension of just under £10k and a Works pension of £3,900 per annum. Eric grouped together all his ISAS in a portfolio over four years ago and are worth £95K and performing above benchmark. He stated he wanted to take income of £600 per month net of tax from his personal pension which would be £7,200 gross.
Would you like to avoid the tax I asked? Yes was the obvious answer. He started taking £600 per month from his ISAS so he has the income but doesn’t pay tax on it. The death benefits of the pension have been placed in trust as the couple are over the inheritance tax threshold, this means that should Eric die the pension money is placed in a trust and his wife can borrow the money as she is the beneficiary. On her death when the inheritance tax liability may kick in the money does not form part of her estate as it is a loan from the trust.
By utilising the ISA money Eric is depleting the funds so reducing the Inheritance tax liability. Not only is Eric saving income tax but potentially inheritance tax also. Eric is saving £1200 every year in retirement.
If Eric maintains 6% growth from his ISAS he will maintain his £90,000. In future years he has the option to take 25% of his pension money tax free should he wish.
Charles Rollo, Financial Adviser, FCA number csr00014