MICHAEL


Pension Freedoms

Michael was looking to release funds from his pension in order to renovate his home.

As a keen buy to let property investor, Michael viewed his property portfolio as the mainstay of his retirement income plans, and saw his pension fund as a perfect way to provide capital as and when required.

The Challenges

As well as renovating his home, Michael was keen to add a new property to his investment portfolio. He knew that the funds within his pension could help with the costs required to buy another property but also to fund the renovations of his existing home.

After briefly reading about the new pension rules Michael wanted clarification on how he could best utilise the new rules to access his full pension. He was wary of the tax implications of withdrawing a large sum in the current tax year and wanted to know fully the implications on his Income Tax bill.

What We Did

During the initial meeting we discussed thoroughly the options available under the new rules.

The tax position under the new pension freedoms, whether the client withdraws their entire fund or a large chunk under Flexi Access Drawdown or through Uncrystallised Funds Pension Lump Sum (UFPLS), means that he could be hit by a hefty tax bill.

We explained that although these new rules were brought in, not all pension providers were making provisions to adapt to the new changes, as they were under no obligation to offer pension plans that offered the new options. We therefore carried out an initial investigation to see if Michael’s provider offered the options he required and if so at what cost.

We quickly found out that his provider did in fact offer a plan where he could access his fund in one go, through Flexi Access Drawdown or through UFPLS and at no extra cost to him.

We explained that in any instance the first 25% of Michael’s fund could be paid tax free. This immediately meant that he could make the renovations that he and his wife were planning for their home.

We then discussed leaving the fund invested in a Flexi Access Drawdown contract which would be fully accessible to Michael as and when required. Whether this be in 12 months, 24 months or the next 5 years.

Michael liked the idea of Flexi Access Drawdown and was happy to set up a flexible contract that would pay out a lump sum, tax free and anything thereafter to what suited his needs, taxed at his marginal rate.

We reviewed Michael’s attitude to risk and established that he was a cautious investor, we therefore researched the appropriate investment funds for Michael’s plan. We eventually found 3 funds that offered moderate growth and low volatility.

We proceeded to set up the plan on Michael’s behalf and notified him of when to expect his tax free cash to drop into his bank account. From the outset we agreed how we would be paid for providing and implementing this financial plan and strategy. In this instance we received an initial fee which was a percentage of the value being invested and then we receive an ongoing fee of 0.8% based on the value of the funds invested per annum.

For receiving this ongoing fee you would receive an ongoing advisory service.

The Results

Setting up the plan meant that Michael didn’t have to withdraw his pension in full and leave money in the bank whilst he waited to find another property to add to his portfolio. If Michael were to leave the cash in the bank, it could see the fund eroded by inflation.

Investing the fund enables Michael to combat the effects of inflation and beat low interest rates currently offered by banks.

At the same time Michael has easy access to a capital lump sum or an income when he requires. His wife is also protected should he die before age 75 as the entire value of the fund is returned to her completely free of taxes.

Get in Touch