Case study: Taking your tax-free cash and a fixed term income
"I need a guaranteed income, but not for life"
- Is 60 years old
- She plans to fully retire
- Her pension pot is £250,000 after tax-free cash
A retirement solution
Sandra is looking for an income of £10,000 a year, in which £4,000 needs to be guaranteed to meet her essential outgoings and between £5,000-£6,000 a year will be for discretionary spending.
She does not want to commit her pension savings to a lifetime annuity but would rather reassess her options when she reaches 80, as she recognises that her needs may change between now and then.
Sandra decides to invest in a Flexi-Access Drawdown Plan. She invests £167,202 of her pension into the drawdown for growth and any discretionary income.
She invests the remaining £82,798 in a Fixed Term Income Plan (FTIP) for a maximum term of 20 years, providing a guaranteed starting income of £4,000 a year escalating at 3% per year, with the aim of offsetting inflation (although this cannot be guaranteed and inflation may be more or less than 3% each year).
The figures used in this example are for illustrative purposes only.
The FTIP ensures that her minimum income needs are met and her adviser feels that 3% should allow her income to keep pace with inflation, regardless of how her drawdown plan performs. Sandra’s drawdown fund can be focused for growth with high yielding assets to provide income for her discretionary needs and ad hoc purchases.
Sandra also benefits from the peace of mind of knowing that were she to die within the term of the FTIP, her beneficiaries would receive the original purchase monies less any adviser charge and income already taken. This could be taken as a lump sum or transferred into a beneficiary’s drawdown.
- Sandra could set the term for five years and review her situation at that point, in case her income needs change or interest rates improve.
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.