The guaranteed maturity value at the end of the fixed term provided her with a taxable lump sum which she planned to use for further holidays.
This example illustrates how customers may have access to different pension pots at different stages of their retirement, meaning their financial circumstances will change. Choosing the right products can provide the flexibility needed to cater to these changes, and, indeed, fixed-term annuities are proving a popular option for those wishing to supplement other income over a shorter period of time.
Some straightforward cases do not justify the extra cost of financial advice, especially when customers are proactive in doing their own research. But it is not the clear-cut case that many were expecting, of drawing lines in the sand based solely on the overall size of a client’s pension savings to determine when they should opt for guidance, and when it is worth them investing in advice.
However, as a rule of thumb, the larger the pension pot, the more options a client has. And while the ability to take the 25 per cent tax-free cash allowance can seem like an obvious choice, selecting a product for the rest of a pension pot is more difficult.
A client with a larger pension pot of £265,000 recently sought advice on this decision. He was 58, and intended to remain working until he was 66. However, he wanted to withdraw his tax-free cash allowance in order to repay his mortgage and reduce his expenditure.
In this case, we advised him against taking any additional income as this would only increase his tax bill. He was then able to use the remainder of his pension pot to create growth over the following eight years, at which point he will be able to reconsider his options.
Giving advice to a client requires thorough research into all the terms and conditions of their packages with providers, and the upfront expense of advice often pays dividends. Investigations for another client with a similar-sized pot uncovered that one of his pension providers allowed him to take 38 per cent tax-free cash – rather than the 25 per cent normally available. He was advised to take the larger allowance with his existing provider, rather than transfer his fund and risk losing the benefit.
In a positive sign for the market, we are beginning to see a growing appetite for clients to pay for advice. Furthermore, it is clear that the complexities of the new options on offer to customers, and the importance of managing tax, mean an advised service has a lot to offer for clients – even if their pension savings are modest.
