Case Study: Future Retirement Planning & Pensions

Our client was a couple looking to retire at age 63, although their State Pension Age was 67 and the projected amount of their State Pensions would be £8,500 each per year. They had accrued £130,000 in ISAs (cash, and stocks and shares) and around £90,000 each in pensions. They also had £140,000 in deposit accounts.

Capital Gains Tax Concerns

They needed an income of £24,000 net per year and wanted to know how they could achieve this. They also wanted to keep an emergency reserve, which would be enough to cover any large future outgoings, i.e. a car purchase. They knew the interest rates on their deposit accounts would not provide them with the returns they needed.

Our Solution

Our financial planning team supported this client, as follows:

  • We moved their ISAs into income funds, which would provide them with around £5,000 tax-free income per year.
  • We advised our client to invest £100,000 from their deposits into a portfolio of income producing funds to provide them with an income of £4,000 per year. This was chosen in a way to ensure the mixture of dividends and interest would fall within the tax-free allowances. We also advised them to place the remaining £40,000 on deposit into NSI Premium Bonds as a reserve, as any winnings would be a tax-free bonus.
  • We transferred their pensions into one pot, moving £60,000 each into ‘drawdown’, so they could take the maximum as tax-free cash amounting to £15,000 each. This could also be placed into NSI Premium Bonds, with £5,000 withdrawn each year to top up the income received. We advised them to draw £5,000 each per year from their ‘drawdown’ pension pot – as this amount would fall within the income tax personal allowance, no tax would be payable.
  • Therefore, their annual income will be:
    • ISAs: £5,000
    • Pensions: £10,000
    • Income Portfolio: £4,000
    • Premium Bond Withdrawal: £5,000
    • TOTAL: £24,000

With no income tax payable

  • Once they reach the age of 67, their State Pensions will provide £17,000 per year. Therefore, the withdrawal from the Premium Bonds can be stopped and the income taken from the pensions reduced to £3,500 each. This will enable them to keep all pension income within the income tax personal allowance.
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