Is your pension scheme the most suitable for your requirements? Changes in your circumstances could well mean that transferring to another scheme could be beneficial, but it is essential that this is done in a timely manner. The case study below shows how one couple, with AEON’s advice, managed to adjust their pension to specifically suit their situation to really get the most out of it.

Case Study

The problem:  Maximising the value from your pensions
The benefit:  Increased income in retirement and improved spouse’s benefit
Suitable for:  Anyone approaching retirement

John introduced us to his brother, George, because we had recently helped John with his own retirement plans.

George was almost aged 60 and planned to carry on working until age 65 when he would be entitled to his state pension. His wife, Hilary, had just passed her 65th birthday and was still working but was finding this increasingly difficult. George suffered from very poor health and was keen for his wife to be able to retire now because he was aware that her health was beginning to suffer. They both wanted to have more time together while George could still enjoy travelling.

George’s main pension was a final salary occupational scheme; he was entitled to the benefits from age 65, although he could draw the benefits earlier at the trustees’ discretion. While the income he could access from this scheme would just about meet their expenditure needs, it gave little margin for any increase in the costs of living.

We looked at all the possible ways of drawing an income from this arrangement and found that due to George’s poor health and the age difference between George and Hilary, they would be significantly better off if they were to transfer from the occupational scheme to an individual annuity.

The income he would have received from his occupational scheme would have been £8,412 escalating each year and he would also have received a tax-free lump sum of £56,080. By transferring to an impaired life annuity we managed to increase his lump sum payment to £78,216 and increase his income to £12,704, albeit not increasing. Even more significantly, if George were to die, Hilary would continue to receive the same income, whereas if he remained with the occupational scheme Hilary’s income would fall by a third.

We calculated that the only time that George would be financially worse off would be if he were to live for more than 22 years, taking him to age 82. Although this is not a significant age in today’s world, George’s health issues meant that they were willing to accept this possibility. Even then, George had increased the original lump sum payment he had by £22,136 from the outset.

The key point of the story is the provider that you’ve invested with is unlikely to be the best provider for your income when you retire.  However, it is vital that you take advice no later than 18 months before retirement. In most cases you would not be able to transfer from an occupational scheme to a personal arrangement within 12 months of the scheme retirement age. Another client approached us recently with similar circumstances, but we were unable to consider any other options because he was only three months away from the scheme retirement age.