Case study 1 - John and Susan Robinson
John Robinson is a wealthy client who has sources of income other than his pension. His wife Susan is significantly younger than him and he wants to ensure he maximises benefits to her.
John decides to transfer an old company pension with a value of £560,000 and 3 personal pensions totalling £140,000 into a Hornbuckle Mitchell FIPP (Flexible Income Pension Plan).
He does not need to take any benefits before age 75. At age 75, he decides to take his full tax free cash entitlement and move into ASP so that he can keep control of his fund.
When John is 79, he dies. Susan at this time receives a dependents pension from John’s FIPP. As she is only 52, and in good health when John dies, she decides to take a small income via Income Drawdown.
When Susan reaches 75 she wants to increase her income so that she can pass some money on to her children, reducing IHT on her death. Susan discusses her wishes with her Financial Adviser and is recommended to switch to Scheme Pension in order to maximise her income. After setting this up, Susan uses the ‘Gift out of Income’ rules to give money regularly to her children.
At age 84, Susan is diagnosed with a terminal illness and new actuarial calculations therefore allow her to increase her Scheme Pension income still further. Again, utilising the ‘Gift out of Income rules’ she uses her spare income to set up pension funds for each of her grandchildren, gaining further tax benefit.
She passes away aged 86 with very little left in her pension fund. A combined tax charge of 82% is applied and the remaining 18% is passed to her children.