Case Study: Impending Retirement & Income Planning

Our client was a couple coming up to retirement, and they will both be entitled to the State Pension (£8,500 per year each). The husband was about to retire, and the wife was due to retire in 2 years’ time. They had £50,000 in various deposits and cash ISAs.

The husband had a final salary pension with his current employer, which would provide £18,000 gross per year and £54,000 as tax-free cash. He also had a smaller deferred final salary pension, which would provide £4,000 gross per year and £12,000 as tax-free cash.

Altogether, this would provide the couple with £33,700 net per year until the wife’s State Pension started, and their income would then increase. They advised us that they would be comfortable with an income of £30,000 net per year.

Pension Income Concerns

If the husband passed away before his wife, his State Pension would cease, and the widow’s pensions would fall to £11,000 gross per year. As a result, the widow would be left with an income of £18,100 net per year. However, the couple had calculated that she would need around £22,000 a year to live on.

Our Solution

Our financial planning team gave the following advice and support:

  • We transferred the husband’s smaller, deferred final salary scheme to a personal pension – this had a transfer value of £125,000.
  • We agreed that the husband’s State Pension and main final salary pension would provide sufficient income until the wife’s State Pension starts. However, if additional capital or income was required, this would be taken from the tax-free cash received.
  • In the meantime, we advised the wife to transfer 10% of her income tax personal allowance to her husband. This would allow more of his pension to be paid without tax being deducted.
  • Should the wife die first, the husband would not need to draw on the personal pension, so this could remain as a reserve for ill health or to be passed onto their children.
  • However, if the husband died first, the £2 – £3,000 income shortfall could be met from the personal pension fund.
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