Pre-Retirement Planning Case Study

Simon, aged 32, contacted LR Connections to arrange an appointment with an Independent Financial Adviser to discuss his retirement.

After an initial discussion, it became apparent that Simon was concerned at the level of contributions his employer was paying into his workplace pension scheme and wanted to know if there was anything he could do to make his retirement more comfortable.

He said that he wanted to retire at age 65, but his company pension scheme had a retirement age of 75 and that he would not get his state pension until he was 68.

We explained that although his company pension scheme had a retirement age of 75, under current legislation, as the scheme was a group personal pension, he could access his pension funds from the age of 55. However, at age 65, the value of those funds would be less than if he accessed his funds at age 75, as he and his employer would not have paid in to the scheme for the last ten years.

We asked if Simon had an idea of how much he wanted at age 65 and replied that he was not sure. We suggested that as a starting point he thought about how much he is currently spending on his bills then subtract the cost of the bills that he would not have to pay at age 65 – for example, his mortgage and any life assurance associated with it.

Simon checked his bank statements and arrived at a figure of between £1,600 and £1,700 per month, so for ease of calculations we agreed £1,650 after tax was acceptable. Following a quick calculation (12 X £1,650) we agreed a figure of £20,000 after tax or an annual income of £22,000 gross (before tax) was needed.

Having completed a Letter of Authority, we wrote to Simon’s workplace pension provider and obtained an illustration showing an estimate of what he could receive at age 65. Based on this, we calculated that Simon had a potential shortfall in his required retirement income of £12,400 per annum.

We also calculated that Simon would need to make additional contributions of over £1,000 per month, which he said was not possible at this time, although he could afford £100 per week.

Even though this would not fill the identified shortfall, by having annual reviews and obtaining projections from his employer’s pension and his new pension plan, it would help Simon to see if his funds’ growth was better or worse than anticipated and help him to keep track of the potential shortfall. Then, if he could afford to increase his monthly contributions, we could estimate whether he was on track to achieve his target income or if he would need to increase his contributions in the future.