Defined Benefit (DB) final salary scheme pension and financial planning - case study

Background

John (38) and Hannah (42) they have two children, Amber (14) and Daniel (7). John is an IT developer for a HSBC, and Hannah is a solicitor at a City of London Law firm. Their joint income is over £230,000 per year.They had a final salary pension scheme.

They were searching for a financial adviser to help them understand their finances better. Financial and retirement planning and to simplify their financial affairs where possible.

Pensions: They both have several pensions from previous employer, including a Defined Benefit (DB) final salary pension scheme , a stakeholder pension, and several private personal pensions. John had been auto-enrolled into a new scheme at work. Hannah did not have anything in place.

Investments: They both had cash savings accounts, Stock and Shares ISA’s, premium Bonds and Hannah has a small share portfolio.

Insurance: Peter has some death in service life insurance cover from work, Hannah had been made a partner in the law firm and was now self employed, she had lost all her company benefits.

Other assets: They own their own home which is worth £850,000 with a mortgage of £400,000. They both had not made a will.

Key objectives

  1. Funding for university fees for their children
  2. Moving home when Amber goes to university
  3. Understand their investments, performance and tax implications
  4. Retirement planning
  5. Reduce their tax liabilities

The financial planning review

Research

So we firstly gathered all relevant personal and financial through a face to face fact find. This included  all sources of income and expenditure, assets and liabilities. We researched their existing pension scheme plans. Including a Defined Benefit (DB) final salary scheme pension. This was done obtaining signed letter of authority from John and Hannah. Which allowed us to contact to the providers directly. Our paraplanner team then compiled a report which outlined the management charges, income choice and investment options.

Recommendation presentation meeting

We then arrange a follow up presentation meeting to discuss the objectives, and the suitability of their current policies and policies to achieve their objectives.

We constructed a Cash Flow Model that included assets and liabilities, and income to give a holistic overview of their financial situation over their lifetime.

Recommendations

The Cash Flow Model highlighted the required amount of cash that they would need to save each month from their earnings to achieve all of their objectives.  We then advised on the most tax efficient and suitable investments to invest the money and maximize their returns.

Implementation

We restructured and consolidated most of the old dormant pension schemes. This included a Defined Benefit (DB) final salary pension scheme. So this was done by placing them on to a platform based products it reduced administration costs and significantly improved the investment management of the portfolios. Hannah now pays a regular monthly contribution into the scheme, we advised her to claim the higher rate tax relief from the HMRC.

They each now have clarity as to what their pension benefits are worth and receive quarterly reports on the performance. Jane now funds her new scheme on a monthly basis. Peter uses his new scheme to invest his annual bonus. Because of this we also obtained a tax rebate for Peter. He had not claimed higher rate relief on one of his old Defined Benefit (DB) final salary pension schemes.

Restructuring

By restructuring the existing cash and investments this again reduced admin costs whilst adding an investment strategy. However, to allow for university fees to be available to drawn down at the right time and providing a capital lump sum for their planned house move in six years time.

We advised John and Hannah to take out life insurance and for it to be written into the correct  form of trust for the children. In addition to we added Critical Illness Cover. Because Hannah also wanted income protection for herself. We advised her use a relevant life policy as she would be able to claim it as tax deductible expense through her limited company.

We referred them both to a Solicitor to have to set up their wills and we also advised them to set up a Lasting Power of Attorney (LPA). Which if either of them where incapacitated it would allow the other to make financial and well being decisions on their behalf.

Summary

John and Hannah now have peace of mind that their financial objectives are achievable and so that they are on target. We consolidated their plans and policies which simplified their investments and reduced admin cost.

This also reduces the excessive risk of their investments through investment management using the Old Mutual Investment panel..

We will now have regular  updates on their investments and meet with them once a year to ascertain any changes. In their personal and financial situation, objectives. tax changes and new investment products. We then also reassess, and restructure as required to keep them on target.

What our clients say about us:

Stephen, Kent
Stephen, Kent
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James took the time to make sure he understood my circumstances before giving me some excellent advice on how I could maximize the tax efficiency of my investments and thus my retirement income.
John, London
John, London
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James was incredibly understanding about what goals I wanted to prioritize. The key, for me, was to have it explained in simple terms. This enabled me to take out the right personal protection and pension plan. Trust is probably the most important part of this process. I felt/feel confident that James helped me make the right plans to safeguard my family’s future.
Peter, Tunbridge Wells
Peter, Tunbridge Wells
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James was highly professional and set me up with an investment plan that fit my needs and risk appetite. 5 out of 5 Stars
Joseph, London
Joseph, London
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I had multiple pension pots from previous employers and was looking for advice on whether to consolidate these plans. James undertook an honest and detailed analysis of my policies allowing me to make a fully informed decision on the best way to proceed. Highly recommended.
Matthew, London
Matthew, London
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I was looking to set up a pension plan as I had been given a generous allowance from my company. James advised on product and fund selection tailored to my personal circumstances and attitude to risk. Once the correct product had been identified. He facilitated all areas of setup and continues to manage things moving forward. 5 out of 5 Stars
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