What prompted Peter to contact us?
At the age of 58, Peter Blackburn had just been made redundant and he was nervous about being able to find a job with a similar salary and rewards package.
However, after years on the corporate treadmill, Peter really wanted to retire, but he was worried that his existing pensions, savings and investments wouldn’t be enough to provide both him and his wife Amy, with the income they needed.
He contacted us to see if he could retire now.
What did we recommend?
In contrast to Peter, Amy didn’t want to retire and was happy to continue working for another two years.
Peter had a workplace pension pot with his previous employer with a total value of £550,000. However, his State Pension wasn’t due to start paying out for another eight years. Amy’s state pension was due to commence in six years’ time.
Their real passion was a small, online business, run from home and Peter wanted to spend more time developing this.
We spent a considerable amount of time understanding what Peter and Amy really wanted, as well as analysing their existing pensions, savings and investments. This work included completing a detailed cashflow analysis, which concluded that Peter needed to create an income of £2,500, after tax, if he wanted to retire.
Our research showed that his existing workplace pension had penalties of 20% if he took it now. We therefore advised him to defer this pension for two years, until the penalties fell away.
That meant if Peter was to retire immediately, we needed to find alternative ways to provide the income needed.
Peter was entitled to a significant redundancy payment. But he would lose 40% of anything over £30,000 to tax. We therefore recommended:
- Taking £30,000 as a lump sum and using it to provide part of the income he needed for the next two years
- The balance of the redundancy payment should be paid into a separate personal pension, thus avoiding paying the 40% tax
- Immediately withdrawing income from this pension, topping up his £30,000 redundancy payment, to the required £2,500 per month
We agreed that in two years’ time, when income payments from his workplace pension start, Peter will reduce the amount he is taking from his personal pension. This can be cut further when His State Pension starts in eight years’ time.
By taking this approach and making prudent assumptions about inflation and the growth of his pensions, Peter and Amy would be able to provide the income they needed, for the rest of their lives.
Even better, our cashflow forecasts show that they will have money left at the end of their lives to leave to their children.
How did Peter benefit from our advice?
Our advice changed Peter’s life.
By understanding his aims and objectives, we could make the best use of his existing pensions to provide the required amount. This means Peter has:
- Retired early
- Avoided a return to corporate life
- Gained time to concentrate on building his online business
Our advice also saved Peter a significant amount of tax, which he would have otherwise paid on his redundancy settlement.
Finally, the prudent nature of our assumptions mean that Peter and Amy will have sufficient income for the rest of their lives, while being able to leave a lump sum, when they die, to their children.