John and Elizabeth are married with two children and several grandchildren. John is 62 years old and would like to spend more time with his family but is unsure whether he can afford to retire early or whether he will need to continue working until he reaches the State Pension age of 66.
They are relatively wealthy and have several pension contracts, a collection of old investment policies, unit trusts and shares they have accumulated over the years. John used to enjoy choosing investments but has not made any changes for a while and is worried that if something happened to him, Elizabeth would have a problem managing them.
Having read the Sunday papers, they realise that on their death they would have an inheritance tax problem but are not keen to make large outright gifts now as they are concerned about their own financial security and their goal for John to retire early.
Elizabeth would like to purchase a small car as she still drives around in John’s old company car, which she does not like to drive because she finds it too big. She is also concerned that John’s filing cabinet is full of papers that relate to current and old investments, Elizabeth keeps asking John to tidy it up, but he is worried he might throw away an important document they might need later.
We suggested that we hold a get “organised” meeting whereby John and Elizabeth brought in the contents of their filing cabinet. We organised and scanned the paperwork so a copy of the documents could be stored electronically.
We then created a new working file of the policy documents, pensions and share certificates, including recent valuations. We produced letters of authority for John and Elizabeth to sign so we could obtain information about the various polices and investments. This allowed us to contact the companies and ask relevant questions, for example: fund performance, charges relating to the contracts and whether there were any guaranteed annuities available for the pensions.
We asked them to complete a Finametrica attitude to risk questionnaire that formed as a starting point to our discussions about how much risk they would be comfortable taking with their investments. John had formed his own company in the past and was used to taking risks so it was no surprise that he was more tolerant to risk than Elizabeth. However, as he was now approaching retirement he felt that a more cautious approach was required.
We provided them with an expenditure sheet so they could give us an indication of the income they would need on John’s retirement to support their desired lifestyle, this included the cost of a new car for Elizabeth that John was happy with too.
We produced a cashflow forecast to illustrate if John could reduce his hours or retire early, and whether the income that would be generated from their pensions and investments would be sufficient to meet their financial goals.
We analysed their investments using industry-leading software and concluded that they had done okay, however, there was no overall investment strategy and they were taking more risk than they realised. Some of the older contracts were also expensive and did not offer the new pension freedoms that would allow John to start drawing down some of his pension now.
The purpose of this case study is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.