View more on these topics

Case study: Room for manoeuvre

The problem.

The client is in his early sixties and has decided to retire from his current job. This has triggered a poorly drafted pension-sharing order dating from 1999 which means he no longer has to pay his ex-wife an income of £350 a month but instead must share the maximum tax-free cash and subsequent income from four of his pensions with her.

The fund values amount to about £170,000 combined.

The choice of which vehicle to use for income is left with my client and we had originally thought that drawdown was most appropriate as he has been fully invested in equities, plans to continue to be so and likes to take reasonable risks.

However, when finalising the recommendations, particular attention needs to be paid to his relationship with his former spouse which is difficult and she does not trust him at all.

The solution

We had a number of solutions at our disposal, many of which we are all familiar with, including annuities (level life, flexible, increasing and fixed term) or taking drawdown and leaving the funds invested either through a retirement contract or a Sipp. The client preferred the Sipp option as this gives the him flexibility and the ability to take decisions quickly and total choice should he wish to adjust his investment or income strategy.

One of the pensions relating to the sharing order was a final- salary arrangement, which offered a choice between a reduced pension or a transfer value. The transfer value offered a higher tax-free cash entitlement but the lifetime annuity income would be much less. But the lure of increased tax-free cash for the client and his former spouse was beginning to look attractive against the loss of guarantees.

The final decision came when we discussed the difficult relationship with the former spouse.

Despite the client demonstrating a higher than average risk profile, I recommended the client should consider protecting the investment from stockmarket volatility in order to prevent a downward trend in income in future years and to ensure the solution continued to meet the former spouse’s expectations.

The client, on reflection, agreed and so we began investigating a solution which would allow flexibility, provide the level of exposure commensurate with his risk profile, yet would underpin his income expectations and therefore keep the former spouse happy.

The final recommendation maintained the idea of using a Sipp but elected to invest through a trustee investment plan using the Metlife Income for Life option.

I do not like plugging pension companies but this product fits really well with the client’s needs.

In short, it protects the existing assets and guarantees the value will never fall for the purpose of providing an income, yet remaining invested in the stockmarket, meaning it can still benefit from that big uptick…..when it comes.

Although there are some drawbacks to this type of contract, most notably the higher charges, it is still a credible and the most appropriate solution for my client to ensure compliance with the letter and spirit of the sharing order.

What’s more, the flexibility is still there should a more appropriate vehicle become available, that is, impaired life annuity as a result of a change in his health.

Ian Hudson is principal of Hudson Green & Associates

Recommended

Investec hires strategic partnerships sales director

Martin Currie sales manager Fergus McCarthy is set to leave the firm to join Investec Asset Management in a new role covering strategic partnerships.  McCarthy is set to join Investec Asset Management in mid-July and will be responsible for relationships with fund platforms, ratings agencies, life companies, nationals and networks. He will report to head […]

Vanguard investment chief steps down

Vanguard chief investment officer Gus Sauter is to retire at the end of the year, after a 25-year career at the US asset management giant. Sauter is responsible for managing Vanguard’s global investment management groups that oversee £1 trillion in assets, he will be replaced by managing director Tim Buckley. Bill McNabb, chief executive of […]

1

LV= recruits Mark Laidlaw as chief actuary

LV= has appointed Mark Laidlaw as chief actuary. Laidlaw (pictured) was previously executive vice president for Solvency II at Aegon, leading the provider’s preparations for the regulatory changes. LV= group finance director Philip Moore says: “We wanted to recruit someone with strong leadership experience and a background in heading up projects dealing with the changing […]

Guide

Guide: reporting to the Pensions Regulator — what and when?

Johnson Fleming has published a step-by-step guide demonstrating the importance of record keeping and reporting, and how it can ensure you operate a successful scheme. The guide takes you through some key questions you need to ask and identifies the information you need to obtain. The topics include: why you need to keep records and the benefits of doing this; registering your scheme; what information you need to record to ensure you meet the Pensions Regulator’s requirements; and what items need to be recorded and when.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Richard Jacobs 2nd July 2012 at 1:46 pm

    Unfortunately there is something wrong with this article. I suspect it is a Pension Attachment Order not a Pension Sharing Order that is in place. PSO only applies to petitions issued on or after 1.12.2000. Also the process for dealing with a PSO would not produce the issues raised.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com