Case Studies

Mrs A, in her mid-fifties, has two children aged 18 and 20, both living at home with her. We first met her when the couple had agreed to separate, a year before the divorce was finalised. After our initial meetings, in which we got to know each other and gathered the information we needed, Mrs A came back to us when she had received the Pension Income Equalisation Report. We explained in plain English the three ‘sharing’ options that were suggested in the Report and the implications of each one for her.

Choosing the best option

Mrs A’s solicitor was then able to propose the option to her former husband that was most beneficial for her. Fortunately, this also made most sense for her ex-spouse, so the solicitor could highlight the advantages for him, which meant they could secure his agreement without too much delay.

Looking ahead to retirement

We were already discussing Mrs A’s needs and objectives in anticipation of the pension share. Her immediate priority was to understand whether and how the pension could be used to help with the purchase of a new property, along with her share of the proceeds from the sale of the marital home.

As well as this immediate priority, we had to establish what her needs would be in the longer term. We worked out how much she needed to maintain a comfortable standard of living and investigated her State Pension entitlement to work out the additional retirement income she would need to draw from her share of the pension fund.   

Funds for property purchase

We discussed the different ways capital from the pension could be accessed and the taxation implications. We explained that while Mrs A was entitled to cash in as much of the pension fund as she wished, she would pay a substantial amount of tax if she took enough to purchase the kind of house she wanted. We used a cashflow illustration to show how her income in retirement could be affected as a result of taking capital and income from the pension.

She agreed that obtaining a mortgage would be more sensible than making a large pension fund withdrawal, so we referred her to a specialist mortgage adviser who helped her arrange a mortgage in line with what she could afford.

Regular income payments

Once the pension sharing order was implemented, we arranged for the payment of a tax-free lump sum, which was used as a deposit on her new home, and also for regular income to be paid from the fund to help with mortgage repayments.

Long-term investment plan

We discussed investment risk with Mrs A and designed an investment strategy for her pension fund to generate the income she needed with scope for longer-term capital growth, bearing in mind that the fund might need to support her for over thirty years. 

Reviewing and updating

We expect to meet Mrs A annually, when we will update her cash flow plan so that she always understands her financial position, though she knows she can contact us for advice as and when she needs to. We will also review her pension fund investments and adjust them whenever this is necessary.

 

Mrs A is now able to get on with her life without having to worry.