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Retirement planning

On January 31, 1996, Gillian was made redundant by her long-time employer, PSO Paper Industries. Gillian&#39s total remuneration in her last year with the company was £102,000, a figure she has not since matched.

While she has worked as a self-employed consultant since leaving the company, the drop in income that she has suffered means she has built up debts totalling £45,000.

In theory, she could have cleared these long ago by realising some of her investments but she was unwilling to disturb the portfolio that she had inherited from her father.

Gillian has now started to think about retiring in the first half of 2002, by which time she will be 57. She has been prompted to do so by two factors:

l Her ex-husband has just announced he will be retiring in November 2001, setting in train net payments to her under a pensions earmarking order of £10,000 a year.

l A tax-free lump sum from her pension would enable her to clear her debts and make a fresh start.

The trustees of PSO Paper Industries&#39 pension scheme have told Gillian that if she took early retirement in May 2002, she would receive a maximum lump sum of £98,000 plus a pension of £30,000 per year. Alternatively she could receive a transfer value of £690,000, of which £44,000 would be in respect of GMP benefits.

Gillian would like to look at the alternatives to drawing pension from her former employer&#39s scheme. She is anxious to gain access to some cash and also to ensure that there are death benefits to pass to her recently born grandson. Gillian accepts that it would make sense for her pension fund to be invested in real assets.

Advise Gillian on the following:

1: What would her maximum tax-free cash be if she transferred to a personal pension in May 2002, then vested the whole plan immediately? Would the figure be significantly different if instead she retired two months earlier?

2: What are the relative advantages or disadvantages for her of income drawdown and a unit-linked annuity?

3: Why could it make sense for her to take the maximum income draw, even though she will not need all the income?

4: If she does not take the maximum tax-free cash, what are the relative merits of combining phased retirement with income drawdown rather than using only income drawdown to satisfy her income requirements?

5: Assuming Gillian settles for taking £60,000 tax-free cash, what is the course of action you would recommend, with justifications?


Entry criteria and rules

Entries should be no longer than 2000 words.

They must be typed on one side of A4 sheets.

A completed entry form must be attached to each entry.

Entries may be sent to Sofa in hard copy form or by email to with the completed entry form and recommendations for each category entered attached in Word format (.doc) or rich text format (.rtf).

Please send two copies of your entry if submitting hard copy.

Ensure that no reference to your name or your company is made in your recommendations (ie, do not use company headed paper).

Entrants are encouraged to use the 2001/2002 tax tables.

The awards are open to all financial advisers in the UK marketplace who are authorised under the terms of the Financial Services Act 1986 to give investment advice.

Entrants do not have to be members of Sofa.

Entries are limited to one per category. Entrants may, however, enter up to a maximum of three categories.

Entries must be received by 17.00 hours on Friday, 22 June.

Entries must meet all the specified criteria. If they fail to do so, they will be excluded from the judging process.

Entrants are deemed to have accepted that all material entered into the competition becomes the property of Sofa.

Sofa will be entitled to use any entrants&#39 material thereafter in promoting excellence in financial planning and future financial services awards. Full acknowledgement of the entrants and their employers (if applicable) will be given when material is used publicly.

Material presented must be the entrant&#39s own work and a declaration must be made to this effect on the entry form.

entrants who are nominated as finalists will be required to make a presentation of their recommendations to the judges on either 24 or 25 September at a specified time between 08.30 and 17.30. Finalists will be informed by no later than 13 August that they are invited to attend at an allotted time for a presentation. If finalists cannot attend, their entry will be excluded from the final judging for the Sofa Adviser of the Year title.

The judges&#39 decision is final and no correspondence will be entered into.


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