This case study is based on a real client situation that has been anonymised for privacy. It is provided for illustrative purposes only and does not constitute personal financial advice or a recommendation. Individual circumstances and outcomes will vary.
Background
Mr W had been working for his employer for a number of years and was recently, and unexpectedly, offered voluntary redundancy. He decided that, rather than seeking new employment or a potential contracting role, this represented a good opportunity to transition into retirement earlier than originally planned.
While Mr and Mrs W’s existing assets meant retirement was financially achievable, the change created two important planning priorities:
- Generating sustainable income to meet ongoing living costs and retirement expenses.
- Preparing financially for a planned ‘forever home’ move within approximately two years.
Mr and Mrs W intended to move to a property better suited to long-term retirement living. After allowing for Stamp Duty, legal fees, estate agency costs and moving expenses, the anticipated additional capital required was approximately £600,000.
This meant financial planning was required to balance short-term liquidity needs, retirement income sustainability and the longer-term security of their overall financial position.
Reviewing the wider financial position
As part of the advice process, we reviewed Mr and Mrs W’s full financial position, including pensions, investment accounts and existing cash reserves.
An important first step was confirming that Mr and Mrs W’s essential expenditure in retirement was expected to be met through secure and reliable income sources, including inflation-linked lifetime income. This meant that core living costs were not dependent on investment performance or future market conditions. As a result, the remaining assets could be planned more flexibly to support lifestyle objectives and future housing plans, while maintaining overall financial security.
Detailed cashflow modelling was used to assess the impact of retiring earlier than originally planned, the proposed capital withdrawals and the future property purchase. This helped to assess whether sufficient assets would remain to support their anticipated expenditure throughout retirement.
A key objective was to identify how funds could be accessed tax-efficiently whilst maintaining flexibility and avoiding unnecessary long-term tax consequences.
Creating a tax-efficient withdrawal strategy
Following detailed analysis, a phased approach to accessing capital was agreed.
This strategy included:
- Utilising Mr W’s full available Lump Sum Allowance, allowing £268,275 tax-free cash to be taken from an existing flexible pension arrangement.
- Planning the timing of a subsequent withdrawal from a separate Section 32 pension policy which included scheme-specific protected tax-free cash rights. By carefully considering these protected rights alongside the benefits taken from his other pensions, Mr W was able to access approximately a further £40,000 tax-free, based on his individual circumstances and the applicable pension rules.
- Mr W was also advised to use small pension pot rules to take benefits from three smaller pension arrangements, generating a further £7,500 tax-free and £22,500 taxable at his marginal rate of income tax, subject to the relevant small-pot conditions.
- The remaining capital requirement was met using existing cash savings together with carefully planned withdrawals from a joint General Investment Account, making use of available Capital Gains Tax allowances where appropriate.
By coordinating withdrawals across multiple sources, Mr W was able to make use of a combination of available pension tax allowances, protected pension rights and Capital Gains Tax allowances when raising the required capital.
The Outcome
By following the tax-efficient withdrawal strategy advised by CMS Wealth, Mr and Mrs W were able to:
- Access approximately £315,775 in tax-free pension benefits across Mr W’s different pension arrangements, compared with the usual maximum Lump Sum Allowance of £268,275, subject to individual circumstances and the specific pension rights available to him.
- Create the funds required to support their planned ‘forever home’ move using a combination of pension benefits, existing cash savings and investment withdrawals.
- Establish a sustainable retirement income strategy, supported by detailed cashflow modelling which can continue to be reviewed as their circumstances and plans develop.
The agreed strategy gave Mr and Mrs W greater confidence that retirement and the planned property move could both proceed without placing unnecessary pressure on their finances during a challenging period.
Key Takeaway
The focus throughout the process was not simply on accessing capital, but on coordinating decisions across pensions, investments and taxation to support both immediate goals and long-term financial security.
This case illustrates the importance of considering an individual’s overall financial position and identifying planning opportunities through a detailed understanding of current pension and tax legislation.
In this case, the value of financial planning came from looking across the clients’ entire financial position rather than considering each pension or investment in isolation. Coordinating the timing and source of withdrawals helped them fund an important lifestyle objective while retaining a sustainable plan for retirement.
Please note that tax treatment depends on individual circumstances and current legislation, which may change in the future. Pension and investment withdrawals can affect future income, tax position and eligibility for certain benefits.
Investments carry risk and their value can fall as well as rise, meaning you may get back less than you invest. Past performance is not a reliable indicator of future returns. Any financial decisions should be based on regulated personal advice tailored to your individual circumstances.