Case study: This case was introduced to us by a local firm of solicitors, and the initial details o...
Case study: This case was introduced to us by a local firm of solicitors, and the initial details outlined were as follows:
Mr & Mrs Brown had amicably agreed to divorce. They had been separated for two years and married for 31. Both were 55 and in good health, although they are cigarette smokers. They have three non- dependant children.
Mr Brown is managing director of his family's business, earning £85,000 a year, with a 60ths final salary pension scheme. Mrs Brown has never worked and has no intention of doing so now. He moved out of the family home two years ago but continued to provide financial support.
The home is worth £650,000 with a mortgage of £80,000. There are other investments totalling £90,000.
At an initial fact-find meeting with the solicitor and client both present, Mrs Brown's priorities were identified as:
• A guaranteed income of £1,700 a month net.
• Repay the outstanding mortgage.
• To retain a cash emergency fund.
• To leave her assets to her children after her death.
Mrs Brown was a very cautious investor and not prepared to accept any risk that her income might fall. Her biggest concern was that she might have to sell her home and move to somewhere cheaper.
Both parties agreed that Mrs Brown would retain the property and advice was required in respect of the pension fund.
It was clear that offsetting would leave Mr Brown with his pension but nothing else, and an attachment order would not meet Mrs Brown's need for immediate income. The only suitable option was therefore a pension sharing order. Taking into account Mr Brown's high income and the time that he had available to re-build his pension, our advice was that a 60/40 split in favour of our client would be appropriate. This would enable Mr Brown to retain the investments of £90,000, and avoid paying maintenance. Both sides were happy with this.
A statement was provided by the scheme trustees, quoting a cash equivalent transfer value of £720,000. AVCs of £120,000 produced a total cetv of £840,000, of which Mrs Brown's share would be £504,000
We arranged for the cetv to be checked by an independent actuary, who confirmed that the amount offered was actually quite generous.
A report was prepared examining the options available. The trustees were happy to offer a pension credit in the scheme, but in view of the close connection between her ex-husband and the pension scheme Mrs Brown did not wish to consider this facility.
As she wished to leave her assets to her children we looked very closely at pension fund withdrawal and phased retirement but it quickly became obvious that she was not happy to accept the investment risks associated with these options. Our recommendations were:
• Transfer to an immediate vesting personal pension plan. Use the tax-free cash of £126,000 to repay the mortgage, leaving £46,000 to provide a cash reserve.
• As Mrs Brown is a smoker, we secured a lifestyle annuity providing a guaranteed income of £1,830 per month net, (guaranteed 10 years to provide some protection for her children).
Andy Stowers is financial services manager at Larking Gowen
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