mowatt financial Planning

mowatt financial planning

Case Studies

Retirement Income Case Study: The Easingwolds

James and Aliccddfson Easingwold live in North Yorkshire and are just approaching retirement. James has worked up in Teeside in the chemical industry and is looking at his retirement options.

They own their own house and have paid off the mortgage and have benefited from the reduced outgoings since the mortgage repayments stopped a few years ago.

They have estimated that their monthly outgoings are around £1,500 per month.

Alison is currently receiving a state pension of £243 per month.

James will receive a basic state pension of £413 per month.

James has a fixed pension from an earlier employment which is £500 per month.

He has a fund available from a personal pension of £100,000 to buy an annuity after taking a pension commencement lump sum.

He wants to look at his options for buying an annuity to provide ongoing income for himself and Alison.

James has had an information pack form his pension provider who has provided an illustration of the benefits James could get if he is to take a single life annuity which is guaranteed to be paid for at least 5 years. This shows that he could get an income of £477 per month. However, note that this is an annuity which will ease to be paid when James dies.

James is aware that it’s possible to get a better annuity by shopping around. He arranges a meeting with his local financial adviser who outlines the different choices that James has available. They agree that an unsecured pensions is not appropriate but as James would like the annuity to provide income for both himself and Alison, they agree that the annuity should be a joint life annuity which will pay 2/3rds of the income to Alison if James were to die.

In the discussion with his adviser James is asked about his health and reveals he is a regular smoker (smoking around 10 cigarettes per day). This will be taken into account when getting the annuity as some annuity providers will offer better terms for smokers.

James’ adviser carries out research across all the annuity providers.

The best levels of annuity income for James are £576 per month if he has a level annuity or £307 per month if he has an annuity that increases in line with the Retail Prices Index. The annuity providers that gave the best income levels are LV= (Liverpool Victoria Friendly Society) and Just Retirement respectively. These income levels are both 39% higher than James would have been able to get from his current provider.

After discussing his options with his financial adviser, James decides that he will take the level annuity which will give him £576 per month. He is aware that this will not keep pace with inflation but he is happy that they have other assets which will allow him to support his income needs as a result of inflation.

Points to Note:
  1. This is a hypothetical case based on actual market information.
  2. Although the level of income will be lower if the annuity continues to be paid to the widow/widower, it is important that the annuity chosen fits the circumstances of the individuals.
  3. If James was a non-smoker, the increases would have been 26% and 12% respectively.
  4. If you have a personal pension or a member of defined contribution scheme you have the right to use an open market option which allows you to get the best value from your pension fund.
  5. Your health is an important factor as you can get a higher level of income if you have a shorter than average life expectancy.
  6. For many people retiring now, they will have the issue of their fund values having fallen over the last 12 months. Converting to an annuity now will mean that they will crystallise this loss. It is possible to phase the conversion to an annuity to hedge your bets on the amount of income that can be obtained from your pension fund.
Key Messages
  • Take advice on your options at retirement as these are important decisions that will affect you for the rest of your life •
  • If you are buying an annuity with your pension fund make sure you shop around.

May I take the opportunity to thank you for the advice you gave myself and my wife in April this year... A.J. Somerset  More

Mowatt Financial Planning Limited is authorised and regulated by the Financial Services Authority.
Registered in England and Wales No: 6909105. Registered office: Old Coach House, Kay's Bank, Husthwaite, North Yorkshire YO61 4PB
The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK