Case study: Taking your tax-free cash and benefiting from guaranteed growth
"My key priority is a guaranteed lump sum at the end of the term"
- 65 years old
- Plans to retire shortly
- His pension fund after tax-free cash is £300,000
A retirement solution
Bob plans to fully retire. He wants to take all of his tax-free cash and move his money into a Flexi–Access Drawdown. He has concerns, however, that his drawdown fund may be too low to sustain an adequate income in his later years.
He is not looking to secure a lifetime annuity and would rather reassess his options at a later stage in his retirement. He says “My priority is a guaranteed lump sum at the end of the term”.
Bob decides to put £200,000 from his pension into a drawdown plan intended to invest for growth and provide an income. He also invests £100,000 in a fixed term income plan (FTIP), which will provide a guaranteed maturity value (GMV) of £172,696 in 20 years’ time, which is the term he and his adviser agree on. Importantly, Bob does not want any income from this plan prior to its maturity.
With his arrangements now in place, Bob can continue with his drawdown to provide his income and also has the certainty that in 20 years’ time, the FTIP will pay out a GMV of £172,696. It brings peace of mind for Bob knowing exactly what the amount will be when the FTIP matures in 20 years’ time. In 20 years, Bob can then transfer this into his Flexi Access drawdown plan, essentially topping up his fund.
If Bob did not want to use the GMV to top up his drawdown, he could:
- Have it paid as a taxable lump sum
- Purchase a lifetime or enhanced lifetime annuity
- Purchase a new FTIP
Should Bob die within the 20 year term his beneficiaries will receive the original purchase monies less any adviser charge taken. This could be taken either as a lump sum or transfer into a beneficiary’s drawdown.
- Bob may choose a shorter term plan, perhaps five years, and review his situation earlier while retaining the same options
The FTIP does not pay an income for life and where a Guaranteed Maturity Value (GMV) is paid at the end of the term this may not be enough to provide you with the same level of income had you bought a lifetime annuity at outset rather than investing in the FTIP. The FTIP cannot accept partial transfers from crystallised funds.
Who is it suitable for?
- Aged 55 or over
- Have a minimum of £10,000 to invest (after tax-free cash)
- Want guaranteed income and/or growth for a fixed term
- Those looking for a level or escalating income (0.1%-10%)
- Want access to their tax-free cash at outset
- Want a death benefit for their beneficiary(ies)
You should speak to a professional adviser to ensure that the FTIP is suitable for you.