Enhanced Annuity – Case Study

Mr Greenwood was approaching his 65th birthday and selected retirement age.  He had received a pack from his current pension provider informing him of his pension options and offering an income of £1,062.21 per annum in return for his pension pot which had a value of £28,884.88.

He contacted Simpson Millar Financial Services to discuss his retirement options further and receive impartial advice.

During the completion of a detailed health and medical questionnaire Mr Greenwood informed the adviser that he has suffered a stroke approximately 6 months earlier.  After taking down full details of the event and Mr Greenwood’s recovery the adviser submitted this information to all of the enhanced pension annuity providers within the marketplace where Mr Greenwood was individually and comprehensively underwritten.

During the advisers discussions with Mr Greenwood it was also established that he was married and that his wife held no personal pension plans in her own right with only the state pension and Mr Greenwood’s pension income to provide for them in retirement.

The adviser informed Mr Greenwood that when purchasing a pension income via an annuity plan there was the option to include a spouses pension for his wife, at a level determined by him as the client, thereby providing some level of income for Mrs Greenwood in the event that he was to die before her.

After analysing the quotes received from all of the providers it was established that by including Mr Greenwoods health and medical information within the underwriting of the annuity plan an income of £1,278.00 pa was being offered from the most competitive provider, effectively £215.79 or 20.32% higher than the pension income offered from his current provider.

Based on the current life expectancy figures this could amount to £4,704.22 in extra income over Mr Greenwood’s life.  This income also included a 50% spouses pension for his wife, providing her with some level of income protection in the event of his death.

What did the client achieve by receiving  advice from Simpson Millar Financial Services Ltd?

  • Independent and Unbiased advice
  • Comparison of quotes from all enhanced annuity pension providers within the marketplace
  • A 50% spouses pension for his wife providing income protection
  • An income effectively % higher than if he had simply taken the amount offered by his existing provider
  • Peace of mind that he had received the highest level of income available tailored to his income needs

Immediate Care Annuity – Case study

Due to a rapid deterioration in health, Mrs A’s family decided that full time care from a residential care home would be most appropriate.

The care home fees were estimated to be £2,126.12 per month (£25,513.44 per annum) with costs anticipated to increase over future years.  Based on Mrs A’s regular monthly income the family were faced with a shortfall of approximately £1,700 per month to fully cover the cost of providing care and Mrs A being able to remain in the care home of her choice.

The family decided that they would sell Mrs A’s family home in order to generate a lump sum and after discussing the options with James Mann, Independent Financial Adviser, the family now fund the shortfall in care fees via an income from an Immediate Care Plan purchased in August 2010, whilst also ensuring that sufficient monies were held on an instant access basis to provide some income for regular expenditure on personal items and a form of contingency fund.

James Mann, Independent Financial Adviser for Simpson Millar Financial Services comments:

“When discussing the main priorities for providing full time care to a family member the main concern for the family is continuity of care from the care home of their choice – an Immediate Care Plan can provide the family with (a) greater flexibility when choosing a care home as Local Authority Funded Homes need not be the only options and (b) assurance that funds will never run out leaving them to concentrate on enjoying the remaining years with their loved one without the financial burden that many face when considering care home options.”

“With care home fee rising at a rate higher than inflation over the past few years it is important that families receive Independent Financial Advice when considering Immediate Care Plans to fund care fees this ensures that the options are properly addressed and considered and the plan is set up to best meet the individuals needs.”

Discounted Gift Trust – Case Study

Mr A had assets totalling £500,000 which compromised of a family home worth £300,000 and £200,000 held in cash accounts in the tax year 2005/06.

Following a meeting with James Mann, Independent Financial Adviser at Simpson Millar LLP, they established that his estate could potentially have an inheritance tax liability of £90,000 after the use of his £275,000 nil rate threshold (available for the 2005/06 tax year), 40% of £225,000.  Mr A’s wife’s nil rate band had already been used.

He was concerned that his two daughters would not be left with the level of inheritance he had anticipated upon his death and wished to mitigate some of his estate’s liability to inheritance tax whilst also increasing the level of regular monthly income he received.  After discussing various options a discounted gift trust was thought to be the most suitable option to meet Mr A’s needs.

Mr A also needed to keep a contingency fund in a deposit account for short term expenditure, so £150,000 was available for Inheritance Tax Planning at the time.  In December 2005 he placed £150,000 into a Discounted Gift Trust and received a discount of £60,000 which was immediately deemed to be outside his estate from inheritance tax from Day 1, saving £24,000 in Inheritance Tax immediately.  The remaining £60,000 (the gift element) remained within his estate for 7 years.

Monthly withdrawals were set at a level of £625 per month (5% of the initial investment value) and will continue at this level for the rest of his life.

In December 2012 the gift element, having been held for 7 years, was now deemed to be outside of his estate for IHT purposes, thereby reducing the inheritance tax liability by a total of £60,000 (£150,000 x 40%).

AIM Portfolio – Case study

Mrs B had assets totalling £691,000 which included the value of her family home and approximately £450,000 held in various cash accounts and investment plans.

It was established that she potentially had an inheritance tax liability of £366,000 after the use of her £325,000 nil rate threshold for the 2011/12 tax year.

She confirmed that she was in receipt of a sufficient level of regular monthly income to cover regular outgoings and provide some disposable income and that she did not anticipate requiring additional income in the future.

In January 2011 after discussing the options available to Mrs B confirmed that she would like to place £400,000 into an AIM portfolio with the aim of reducing her estate’s liability to inheritance tax within a two year time frame.

Being an experienced investor and having previously held a portfolio of investments she was comfortable subjecting the funds to a high level of investment risk.

In January 2013 the £400,000 plus investment growth qualified for Business Property Relief meaning that the AIM Portfolio would be fully disregarded for Inheritance Purposes, therefore saving Mrs B’s estate £160,000 (40% of £400,000) in Inheritance Tax.


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