CASE STUDY - HOW OUR ADVICE SAVED 25% OF A CLIENT’S PENSION FUND

Our client, Mr E was approaching retirement and asked us for advice on his four separate pension funds all arranged by himself directly with his Pearl Assurance Agent.

Some pension funds have valuable guaranteed annuity rates. Such an annuity guarantee is a promise that the fund will buy a minimum amount of pension income.

Mr E has annuity guarantees on two of the pensions. Broadly, this meant that after taking the tax free cash from these, he would receive the equivalent of 8% annually, e.g. a fund of £100,000 would give a pension of £8,000 a year.

Mr E had an option on all four pensions to transfer the funds away from Pearl if a better rate could be obtained elsewhere.

The “going market rate” for annuities for Mr E was around 4%.

As he had a health problem, we managed to obtain a higher annuity rate of about 6%.

Our advice therefore was to transfer the two pension plans without guarantees to an alternative provider to obtain a greater pension income and take the benefits from the Pearl on the two plans with guarantees, as 8% was a very good rate.

Mr E had been keeping an eye on his pension fund values for some time and had applied to Pearl for fund values and estimated benefits several times in the months preceding his retirement date. He had received three or four separate quotations, all very similar to each other.

He duly completed the forms to claim the pension benefits.

Imagine his surprise to find that the actual pension Pearl was going to pay was 25% lower that they had quoted. The reason given was that the bonuses had been reduced and the fund was 25% lower than quoted.

It was pointed out that Mr E had been given a pension claim form pack with the amount of pension he was entitled to. Pearl argued that the quotation was only an estimate and final figures were always recalculated.

We did not accept this argument and found it highly convenient (for Pearl) that the reduction in the value of the fund was effectively neutralising the value of the annuity guarantee. So on behalf of Mr E Regent argued with Pearl for several days and eventually they relented, reinstated the bonuses and honoured the original quotation.

We certainly feel that Mr E would have had to accept the reduction in his pension had we not been involved to argue his case. The point of this example is to emphasise how important it is to seek independent advice when pension benefits are due, even if the options seem straightforward.

ANOTHER CASE STUDY

Our client was married and about to retire at age 60. He held a number of personal pension funds totalling £500,000. He had been diagnosed as suffering from the early onset of prostate cancer. He wanted to know how best to use the fund to supplement other pensions in retirement. He was aware annuity rates were low and did not want to commit the entire fund to annuity purchase. He also did not want to risk the entire pension fund suffering from any stock market down turn.

Our Financial Surgery helped this client to extract £125,000 tax-free from the total fund. This was then invested in low risk vehicles to supplement income whilst keeping access to the £125,000 as needed. A quarter of the remaining pension fund was used to buy an annuity but not on a standard basis. We obtained an impaired life annuity that bumped up the annual annuity payment by almost 10%. Given all the forgoing was low risk, the remaining 50% of the pension fund was placed in a pension drawdown arrangement. Here a deliberately low income was taken in favour of aiming for growth, within medium to higher risk funds, with an eye to further annuity purchase in 10 years time.