Our client was an employee of a Midlands based company who was approaching retirement with an accumulated pension pot of €340,000.
Like many people facing retirement he was keen to make the right decision in relation to the options which were available to him.
Our client had two options, namely;-
1. Cash and annuity
Using the calculation based on length of time in employment and salary, or client could take a tax-free lump sum of €40,000 and the balance of his assets €300,000 would be compelled to buy an annuity. The annuity available in the market at the time was €12,000 pa.
2. Cash & Approved Retirement Fund (ARF)
Alternatively, he could take 25% as a tax-free lump sum (€85,000) and use the balance of €255,000 to invest in an ARF and draw a regular income.
A consultant from APT Wealth Management travelled to the home of the client to discuss the options with the client and his spouse. Having gathered sufficient information regarding their circumstances, our consultant was well placed to give appropriate advice.
The considerations outlined for the client were as follows;
The first option (cash & Annuity)offered a lower tax free lump sum.
The first option offered a guaranteed annuity income of €12,000 pa.
Choosing the first option meant the capital sum of €300,000 was lost to the member, as the insurance company did not return it on death.
The second option(cash & ARF) offered a higher lump sum.
The second option offered no guaranteed income – the income was dependant on the investment return achieved.
The client retained ownership of the capital amount under the second option as the proceeds pass to the family on death.
The client opted for the second option ARF and investment the fund using a balanced risk approach. To date, the client has achieved returns in excess of the mandatory drawdown requirement of 4% pa, and benefits from an annual meeting with his APT consultant.