Helping a Client Access Pension Benefits While Protecting Their Retirement Plans

The Challenge

The client wanted to access some of their pension without compromising their retirement plans.

A client in their mid-50s came to us looking for advice on how they could access some of their pension without unnecessarily affecting their plans for retirement.

They were still working full-time, continuing to contribute to their workplace pension and had no plans to retire in the immediate future. However, they had some important expenses coming up. They wanted to carry out essential work on their home and were also planning an overseas trip to visit family.

Having never received regulated financial advice before, the client also wanted to understand their options and make sure they were making a sensible decision for both their immediate needs and their future.

In particular, they wanted to:

• Pay for essential home improvements and repairs.
• Cover the cost of visiting family overseas.
• Understand how their pension worked and what options were available to them.
• Access some of their pension without putting their longer-term retirement plans at unnecessary risk.

Taking a Closer Look

Before considering a withdrawal, we reviewed the wider picture.

Rather than simply looking at how much the client could withdraw, we first looked at the bigger picture.

We reviewed their existing pension arrangements, retirement plans, attitude to investment risk and capacity for loss. We also considered when they expected to retire and what they were likely to need from their pension in the years ahead.

The review highlighted a few important points.

The client was aiming to retire at around age 67 and didn’t need to take a regular income from their pension at this stage. We also found that their existing pension arrangement didn’t offer all the flexibility they were likely to need as they approached retirement.

Their investment strategy wasn’t fully aligned with their agreed attitude to risk and longer-term growth objectives either.

As part of our advice, we therefore recommended transferring the pension to a more flexible arrangement that could better support their retirement plans and give them greater choice over how they accessed their benefits in the future.

The transfer also benefited from an enhancement to the pension’s value through the inclusion of a terminal bonus.

The Recommendation

Pension Transfer

We recommended transferring the existing pension, valued at approximately £171,000, into a modern, flexible pension arrangement.

This gave the client:

• More flexibility over future withdrawals.
• Greater choice when planning for retirement.
• More control over how and when their pension benefits could be accessed.
• Improved options for providing benefits to beneficiaries on death.

Investment Strategy

Once transferred, the pension was invested in a diversified multi-asset fund in line with the client’s adventurous attitude to risk and long-term growth objectives.

The client also made it clear that they preferred a passive investment approach. They valued keeping costs down, having a straightforward investment strategy and taking a long-term view.

Accessing Tax-Free Cash

Once the client reached age 55, we recommended that they use Flexi-Access Drawdown to take £32,000 of tax-free cash from their pension.

The important point was that they didn’t need to take any taxable income alongside it.

This meant:

• No taxable pension income was taken.
• The Money Purchase Annual Allowance was not triggered.
• Most of the pension remained invested for the future.
• The client retained flexibility around taking further tax-free cash and taxable income later on.

Why the Recommendation Worked for the Client

The recommendation was built around the client’s objectives, rather than simply maximising the amount they could withdraw.

It gave them the money they needed for their home improvements and planned travel, while allowing the majority of their pension to remain invested for retirement.

It also meant they could access their pension at the earliest available opportunity without creating an unnecessary income tax liability.

Most importantly, the strategy kept their longer-term retirement plans in view.

We used cashflow modelling to assess the potential impact of taking £32,000 from the pension. Based on the assumptions used, the modelling indicated that taking the required tax-free cash should not materially affect the client’s longer-term retirement plans.

The Outcome

The client was able to access the money they needed while keeping the majority of their pension invested for the future.

The client accessed £32,000 of tax-free cash while keeping the remainder of their pension invested for retirement.

Rather than taking the maximum available, they chose to withdraw only what was required to meet their immediate objectives.

This allowed them to:

• Pay for their immediate home improvement and travel costs.
• Keep the majority of their pension invested.
• Continue to benefit from the tax advantages of pension investing.
• Retain flexibility as their retirement plans develop.

For the client, the key benefit was having a clear plan. They could use some of their pension today without losing sight of what they would need from it in retirement.

Key Takeaway

Pension access should be considered within the context of a person’s wider financial plan.

This case study demonstrates why accessing a pension isn’t simply about deciding how much money can be withdrawn.

The right approach needs to consider a person’s wider financial circumstances, retirement plans, investment strategy, tax position and the amount they genuinely need to access.

In this case, a combination of pension transfer advice, retirement planning, cashflow modelling and careful use of tax-free cash allowed the client to meet an immediate need while keeping their longer-term retirement plans on track.