Squeezing better value out of your pension

Squeeze value

At this time of year, I get lots of annuity enquiries.  That gives me lots of work to do and lots of case studies to blog about.  Today, I’ll tell you about Mr T.

He’s coming up for age 65 in June, so we met in November to do a bit of pre-retirement work and to talk about whether he could afford to get his money now, instead of waiting until June.

Mr T is not in great health and he’s also a widower.  These facts are huge advantages when we’re shopping for annuities and I put them to maximum advantage.

The first thing we talked about was the fact that his pensions are still invested in the stockmarket.  Great, if his fund goes up by 5% before he wants his money.  But what if it goes down by 5% instead?

“Risky.”  I said.  Naturally, we did something about that – straight away.

Here’s what I came up with for the annuity.  An extract from my letter says it most clearly:

“…Your two personal pension policies combined would provide you with a cash lump sum of £3,381.80 plus £605.40 per year.
The best rate I can find will provide £784.44 per year plus the same lump sum.

The buy-out plan from your old employer would pay £10,383.31 plus £1,557 per year which will increase by 2.5/3% each March to keep pace with inflation.
The best rate I can find to replace that would be £9,851 lump sum (slightly lower) plus £2,437.92 per year but itwouldn’t increase to counteract inflation…”

I have removed the pension company names but I can assure you that the names are three very well-knownUK companies so you really should shop around.

How did I do it?  The clues are here: “…not in great health and he’s also a widower…”

I took a full medical history from Mr T and asked 8 annuity companies to give their best rate.  The rate tends to be higher for poorly people.  Now, Mr T is not that ill.  In fact, four of the 8 companies didn’t think he was ill enough to be worth an enhancement above their normal terms!

I also had a long discussion with Mr T about inflation.  Because of his health and – ahem – life expectancy, we agreed to do without inflation protection.  We talked about how damaging a long period of high inflation would be and how pensions lose their buying power when they are not linked to inflation.  But, we also talked about how much lower inflation-linked pensions start out at, compared to level pensions, and we talked about the fact that his old employer plan is not fully inflation-protected anyway.

Finally, we agreed to get rid of the widow’s benefit because Mr T is confident that he won’t re-marry.

In short, I just did my job.  Mr T is happy.  Who do you know could do with some help.  Call me, we can meet up if you’re local, but I can do annuities by post, too.

Here's a little more information about our team:

Q: Qualifications Include

A: My degree in modern languages included a module on economics and personal finance, and that's how I got into financial planning.

Since then, I've become dual qualified as both a Certified Financial Planner and a Chartered Financial Planner, including the specialist qualifications in Tax & Trusts (G10) and Pensions (AF3/G60).

The full list is:

AF3 - Pensions (CII) (I did that to totally update my pension knowledge, as I had done G60 in 1994.)
K10 - Retirement Options (CII)
K20 - Pensions Investment Options (CII)
G20 - Personal Investment Planning (CII)
Chartered Financial Planner (CII)
ER1 - Equity Release (CII)
HR1 - Home Reversion Plans (CII)
G10 - Taxation and Trusts (CII)
CFP - Certified Financial Planner Licence (IFP)
H15 - Supervision and Sales (CII) 

In November 2016 I added the STEP (Society of Trust and Estate Practicioners) Certificate for Financial Services.

Q: Do your clients have anything in common with each other?

A: They are all lovely and there are a few similarities in their aims that I've noticed. 

Many of my clients want to do more than just meet their own needs. They also see themselves as custodians of their money for the next generation or for other beneficiaries. 

In other cases, their aim is to manage their wealth efficiently during their lifetime, with the aim of spending it all… but minimising tax on the way there.

Q: What type of work do you enjoy most?

A: I do get a real sense of satisfaction from the work with those clients who engage me to manage the needs of two generations of the same time. That can be 'just' a long-term and balanced investment strategy or it can be trust planning and estate planning to avoid paying too much Inheritance Tax.

Q: Where would you be right now if you weren't at work?

A: In the Lakes

Q: In the film of your life, who would play you?

A: In my head, it's Uma Thurman, but I expect they would approach 'Nursey' from Blackadder II.

Q: Curry or Hot Pot?

A: Agh, too difficult. Curry.

Q: Sherbert or Chocolate?

A: Chocolate

Q: Lawn or Flowers?

A: Lawn

Q: What are you most likely to do whilst being 'on hold'?

A: Infuriate my colleagues by opening conversations then cutting off their reply when my call is answered.