Richard Porter, IFA St Albans – Generating tax efficient retirement income

Monday 12 June, 2017

Richard Porter, IFA St Albans – Generating Tax Efficient Retirement Income

Richard Porter, independent financial adviser St Albans – Key Life Turning Points 
This case study ‘Key Life Turning Points' is part of our ‘The value of an independent financial adviser’ series. Read Simon Hawker, independent financial adviser St Albans – The value of an independent financial adviser.

Richard Porter is an independent financial adviser in St Albans, Hertfordshire. Richard is a member of our St Albans financial planning team.

Current Situation

Richard Porter, independent financial adviser, St Albans, has provided financial planning advice to Mr C, aged fifty five, for nine years.  When Mr C took early retirement from full-time employment he wanted a financial plan for the future.

Mr C has a final salary pension scheme worth £24,800 per annum and a state pension worth £7,000 per annum, and has modelled his future expenditure using cash-flow modelling.  Mr C’s Lifetime Financial Plan recommends he needs £43,000per annum to fund his desired lifestyle in retirement.  

How Richard Porter added value with his independent financial advice

1. Educated Mr C about the long-term implications of holding cash 
When Richard Porter first met Mr C nine years ago all his savings were in cash.  Richard spent their first meeting educating the client about the risk/return implications of holding cash and not investing in equities over the long term.  

2. Recommended a ‘low risk’ investment portfolio
Richard Porter assessed Mr C’s attitude to risk by speaking to him and asking him to complete a risk assessment questionnaire.  By using the results of the research, Richard Porter recommended a ‘low-risk’ investment portfolio across a wide range of carefully researched investments to manage investment volatility and achieve a relatively consistent investment return over the nine year period.  

3. Recommended tax-efficient investing at every annual review
At each review meeting Mr C was encouraged to invest in Individual Savings Accounts (ISA’S) and invest the maximum in his pension scheme to take advantage of tax benefits. He also opened an investment bond as some investment gains could be withdrawn tax free. 

4. Generated retirement income tax efficiently
In the 2016/17 tax year, income over £43,000 is taxed at 40%. Assuming Mr C received his pensions he could use cash savings to generate the additional £11,200 he required, and pay tax at the lower rate.   
However, as he had invested the maximum in equity ISAs and an investment bond, he is able to generate tax-deferred additional income from these investments and only needs to withdraw £11,200 per annum.

Key considerations for an individual looking to generate retirement income tax efficiently

•    Invest the maximum in tax- efficient investments each year pre-retirement
•    Consider investing in equities rather than cash if you are a long way from retirement
•    In retirement, supplement pension income with tax-efficient savings
•    Minimise the amount you withdraw from your pension for efficient inheritance tax planning as it is not normally included in your estate when you die

Summary

Mr C is grateful for Richard Porter’s independent financial advice.  He invested in a ‘low risk’ investment portfolio knowing that he had at least nine years until he took early retirement and could manage equity market volatility.  Meeting Richard Porter annually and reviewing his Lifetime Financial Plan gives Mr C the confidence that he can generate enough income in retirement to supplement his pension income.

Other case studies in 'The value of an independent financial adviser' series:

Mark Bowen, independent financial adviser, St Albans - Reviewing your defined benefit pension scheme,
Deb Nolan, independent financial adviser, Leeds / Bradford – Understanding your financial entitlements. 
Simon Prestcote, IFA, Barnet, North London – Generating an income following a property sale.  
Neil Homer, independent financial adviser Stafford - Modelling different financial planning scenarios.
Simon Armstrong, independent financial adviser St Albans - Investing the proceeds of a business sale

Please note the value of investments may go down as well as up.  The Financial Conduct Authority does not regulate tax or estate planning.  If you are considering a defined benefit transfer you will be giving up a guaranteed income for life.

 

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