Create a pension plan

Assignment Brief.

Section One : Case Study Evaluation : Max 1,000 words (plus appendices as required)


Please read the scenario described below carefully, noting the key financial information and the attitudes and needs of the subject.

You are required to draw up a pensions action plan. In order to do this successfully you will need to :

· Carefully investigate the products and circumstances detailed.

· Investigate the cost of / returns from current and suggested products, taking account of current and expected future economic conditions.

· Carry out calculations necessary to support your pension recommendations.

· Take account of tax efficiency and the affordability of current and suggested future actions.

Your financial plan should be holistic ie should address the relevant areas with regard to how they impact on each other and should address the overall net position after your recommended actions are implemented.

The key aspects to address in your preparation are:

WHAT are the issues?

HOW should they address the issues ? (ie identify the strategies they need to deploy and the products they need to use to meet their objectives)

WHEN should they take specific actions ? (ie prioritise)

WHY is the suggested action the best thing to do? (ie justify your choices)

Case Scenario:

Harry is 60. He is Financial Controller of a small private company on a salary of £74,000per year . He is married to Jenny, who is 64 and already retired. She has a small occupational pension from the civil service and her full state pension, with an overall pension income of £178 per week. Jenny is not in the best of health. They paid off their mortgage when they sold their family home and moved to a 3 bedroom bungalow. Harry would now like to spend more time Jenny, so he has come to the view that he should reduce his work hours and ease into retirement over the next 5 years. His company are happy to support him in that plan. He will reduce work hours and therefore his earnings, by 25% from January 2013, then go down to 50% salary from January 2014 until 2017. He has a number of pensions and assets that he might use to help him reduce his work based earnings without loss of lifestyle as he withdraws from corporate life, and aims to retire entirely at age 65. His pensions and assets are made up of:


Aberdeen Emerging Markets Fund – Initial Investment £15,000 in 2007. Current value £26,850.


· State Pension : 38 years contributions

· Private Personal Pension ( 1988 – present):

Current Fund value : £187,000. 10% annual gross contribution

· Deferred Occupational Pension (Defined Benefit)

Salary on leaving: £34,000 + 2%pa increase since 1988. Qualifying years : 14/60. Scheme retirement Age: 65

· Group Personal Pension (1996-present)

Current Fund Value : £78,000. Employer contribution 6% Employee contribution 8%

· Rental property

Current Market Value £260,000. Mortgage outstanding – £120,000 . Mortgage terms : Interest Only, terminating 2014.

Harry’s monthly expenditure amounts to 80% of his take home pay, the surplus is placed into his savings account with

Britannia Building Society

, which currently has a balance of £24,500 . His rental income pays the mortgage on the property and associated costs, and leaves a surplus of £90pm net income.

Harry is worried about his asset values. He has swapped his pension funds largely out of equities and into bonds and cash funds, but his rental property has fallen in value since 2010 and his investment fund values have been volatile over the last 5 years in particular. He is worried that his assets may continue to fall in value over the next 5 years and he is concerned that his pension plans may be unrealistic in the current climate. He wonders how he can afford to cut his earnings and draw some income out of his pensions whilst still preserving a reasonable income expectation later in life when he stops work completely. He doesn’t know whether to buy annuities, use income drawdown or sell his property and funds for cash to produce income, or whether to look at some combination of all of these options. He really needs your help to advise him of the options and risks involved.


1. Are my calculations OK?

a. Your calcs should be as accurate as possible but I am only looking for reasonable figures, not grading you on the pinpoint accuracy of them. You should be consistent in you assumptions eg his date of birth, his actual retirement date etc. You should regard the calcs as a groundwork to underpin your recommendations, they are not the ‘answer’ on their own.

2. Are the pensions contracted in or contracted out ?

a. Private and workplace pensions are more normally contracted out other than in the public sector , but I don’t mind which you use so long as you are consistent

3. Do I need to account for inflation in all figures?

a. Depending on your recommended course of action in relation to each of the products, you may have to account for inflation and growth – assume a reasonable figure in the light of current economic indicators and apply it consistently where used.

4. Can I put my calculations in the appendices ?

a. I would expect most of the calculations to appear in the appendices – the word limit is tight and should concentrate on the summary recommendations and the rationale for them.

b. Please ensure that the appendices are appropriately linked to your discussion eg his take home pay is … (app2)

5. Do I need to reference my sources in part 1 as well as part 2?

a. Yes – if you eg. decide to change his savings account you need to reference the new recommended product with a date.

6. The Britannia account has been discontinued. What should I do ?

a. The account is still in force for existing customers and the rate can be found on the full interest rate list on the Britannia website

b. Alternatively you can use the Select Access 3 account instead or recommend an alternative account .

7. I am confused about the mortgage – it says they have no mortgage but then there is a mortgage on their rental property?

a. The couple live in their own home which is mortgage free, but they have a second property that they rent out to tenants. They have an interest only mortgage on this property, that must be repaid in 2014.

8. What about capital gains on the rental property if they sell it?

a. You do not have enough info to calculate whether a capital gain charge arises. You can proceed on the assumption that there is no gain arising.

9. Is the format a report or an essay?

a. The first section is a client facing plan. You can write it in the first person as an adviser if you wish (eg in the light of your circumstances, I recommend…..) or you can advise the adviser )eg the clients circumstances suggest that their recommended course of action should be to ………)

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