Retirement Topic 7 - Retirement Planning

Question 1

When assessing the requirements for someone’s pension, there are a number of essential topics that an adviser should investigate into to quantify the pension issue, these are:

Answer 1

• At what age do they wish to retire
• What income will the client need at retirement
• Are there any capital needs at retirement
• Should the client take the 25% tax-free lump sum or not
• Is it necessary to provide a higher income for the first few years as a ‘wind-down’
• Is long-term care an important factor

Question 2

Once quantifying the pension, the adviser has important questions to ask which are:

Answer 2

• How much of the pension need is already provided
• What is the gap between the current provision and the target
• How will the shortfall be funded
• If the shortfall is not funded, does the client understand the potential impact

Question 3

Investment strategy should next be considered, these three areas are the most important to cover:

Answer 3

• Affordability and priorities
• Risk
• Asset allocation

Question 4

After establishing what the client wants from retirement, you then need to establish a budget to fund it. This can be achieved by creating a

Answer 4

current and future cash-flow analysis

Question 5

Investment professionals usually aim to work with between… sub-classes for investments to allow for good diversification.

Answer 5

9-15

Question 6

Lifestyling option

Answer 6

where some personal pension schemes offer the chance to move your funds automatically over the last 5-10 years from equities to fixed-interest securities.

Question 7

SIPPs provide a great way for individuals to arrange

Answer 7

their own investments for retirement,

Question 8

For more sophisticated investors, you can invest through a… which will also allow investing into property.

Answer 8

specialist SIPP provider

Question 9

Advantages of property as a pension (SIPP) investment

Answer 9

• Contributions to SIPP have tax relief
• SIPP fund can be used to buy the property
• Sipp can borrow up to 50% net of the fund value to assist purchase
• Rent provides tax-free income to SIPP
• Any gain made on selling the property is exempt from CGT
• On death of SIPP holder, not subject to IHT

Question 10

Disadvantages of property as a pension (SIPP) investment:

Answer 10

• The purchase of the property may use up most or all of the fund – no diversification
• If the property is the owner’s business premises, market rent will still need to be paid
• If the property forms the bulk of the fund it may have to be sold to provide benefits
• Property is illiquid
• Property transactions are expensive
• Loan interest is not a deductible expense

Question 11

When arranging a pension, there should be regular reviews. These reviews should include issues such as:

Answer 11

• Revisiting retirement objectives
• Assessing plan and whether changes should be made
• Assessing changes in client’s circumstances
• If the client is within 10 years of retirement, consider a consolidation plan
• Revisit asset allocation