Retirement options – business recently sold – the next life stage

We were introduced to a couple who had just sold their business. The clients were looking to take an income from the husband’s two different pension funds. Once we had received all of the information from the two providers we had several meetings with the clients to determine their:

  • level of income needed

  • other assets and investments

  • plans and objectives

  • current health

  • future country of residence

  • family considerations/ inheritance tax planning

One of the pensions had a guaranteed annuity rate, which was available now. In short, these provided a much higher income than what could be achieved within the open market place. It was agreed to take advantage of this guaranteed income for life and underpin part of the future income needs. No tax free lump sum was taken from the fund, as the rate of return was higher with the pension income than that which could currently be achieved with alternative investments. In addition, the pension income had no investment risk.

The other pension fund offered no form of guarantees.

We looked at the two options, after taking the maximum tax free lump sum:

  • annuity purchase – secured income

  • income drawdown – unsecured income

After discussing the advantages and disadvantages of each, the clients did not feel happy purchasing an annuity. They accepted that income drawdown had an investment risk but the advantages of being able to change their income levels (within the revenue limits), better death benefits and the overall tax planning opportunities outweighed the disadvantages. In the future, they could purchase an annuity with all or part of the fund.

The income flexibility of income drawdown, allowed the husband to be a basic rate tax payer.
The proceeds from the business sale were placed in deposit funds in the wife’s name only, using independent taxation, to allow her to use her basic rate income tax band.

At this stage the clients were unsure if they would move abroad in the future.

With the above strategy being implemented it allowed our clients:

  • a guaranteed level of income with one pension fund

  • income flexibility with the other pension fund

  • income tax efficiency by using both income tax basic rate bands

  • time to adjust to their new life and not having to make big decisions at once

  • control over their financial future

The couple did not wish to consider any inheritance tax planning until they had time to adjust to their new lifestyle.

The above case study is for information and illustration only. It is not intended to be individual advice and it should not be taken as such. If you have any questions relating to your own circumstances, please contact us.