August 3, 2024

Financial Planning case study

Background

Roger and Susan, a couple in their mid-50s, share a common goal: to secure a comfortable and worry-free retirement. Over the years, they accumulated multiple pension pots from various employers, leaving their pensions scattered across different providers. Recognising the complexity of their situation, they sought guidance from a financial adviser at Aetas Wealth to simplify their pensions and optimise their retirement strategy.

Objectives

Roger and Susan aimed to:

  • Consolidate their multiple pension pots into a single, manageable scheme.
  • Optimise the performance of their pensions while reducing fees.
  • Establish a clear and actionable retirement plan.
  • Explore potential tax benefits and avoid unnecessary tax liabilities.

Current Situation

Here’s an overview of Roger and Susan’s existing pension arrangements:

Roger, 56:

  • Defined Contribution (DC) scheme from his current employer: £200,000
  • Two old DC schemes from previous employers: £50,000 and £30,000

Susan, 54:

  • Defined Contribution (DC) scheme from her current employer: £150,000
  • Three old DC schemes from previous employers: £40,000, £35,000, and £25,000

Consultation with a Financial Adviser

Roger and Susan began their journey towards streamlined pension management with a detailed consultation with a certified financial adviser. Together, they developed the following plan:

Assessment of Existing Pensions

  • Reviewed the terms and conditions of each pension pot.
  • Analysed the performance, fees, and any exit penalties.

Pension Consolidation Strategy

  • Consolidated all DC pensions into a single, low-cost provider to simplify management and reduce fees.

Tax Efficiency Planning

  • Assessed the Lifetime Allowance (LTA) implications to avoid exceeding the limit (£1,073,100 for 2023/24).
  • Explored tax-free lump sum withdrawals and phased retirement options.

Investment Strategy

  • Developed an investment strategy tailored to their risk tolerance and retirement goals.
  • Considered a diversified portfolio to balance growth and security as they approach retirement.

Implementation

After a thorough review, the adviser identified that consolidating their DC pensions would reduce overall fees by approximately 0.5% annually. Roger and Susan chose a provider offering a range of investment options and robust online management tools.

Actions Taken:

  • Consolidation: Transferred Roger’s £50,000 and £30,000 pensions and Susan’s £40,000, £35,000, and £25,000 pensions into their respective current employer’s DC schemes, which had lower fees and better performance records.
  • Investment Adjustments: Selected diversified investment portfolios for their consolidated DC schemes with the adviser’s help. They also scheduled regular reviews to adjust the investment strategy as they near retirement.

Outcomes

By consolidating their pensions, Roger and Susan achieved several significant benefits:

  • Simplified Management: Reduced their pension pots from eight to two, making it much easier to manage and monitor their retirement savings.
  • Cost Savings: Saved approximately £2,000 annually in fees due to the lower-cost provider and consolidated management.
  • Improved Clarity: Gained a clearer picture of their retirement savings and future income, providing better planning and peace of mind.
  • Optimised Investments: Positioned their pensions in a diversified, growth-oriented portfolio with regular reviews to ensure alignment with their retirement goals.

Conclusion

Roger and Susan’s experience demonstrates the benefits of pension consolidation and the value of professional financial advice. By taking strategic steps to streamline their pensions, they are now on track for a comfortable and secure retirement. Regular reviews and adjustments will keep them aligned with their goals as they transition into this exciting new phase of their lives.

This case study underscores the importance of proactive financial planning and the peace of mind it can provide. If you’re feeling overwhelmed by scattered pensions, consider consulting a financial adviser to explore your consolidation options. Your future self will thank you!