The Daily Telegraph - Saturday - Money
‘I want to drive a Porsche and watch the LA Lakers’
Our experts help chemist John Sutton ensure that he gets the retirement he wants. Noah Eastwood reports
There can be few die-hard fans of the Los Angeles Lakers, an American basketball team, in sleepy Newcastle-under-Lyme. But, aged 62, John Sutton is a local and says he never leaves home without sporting his Lakers cap.
He plans to retire soon, when he will make the trip of a lifetime to the Golden State to finally see the team play and, with a healthy pension pot of just over £1m, he hopes to make it a regular pilgrimage.
“I am not a risk taker,” he says, adding that he is “more interested in being able to live a similar lifestyle as I do at the moment” in retirement, with a few more perks.
Aside from travelling around the world more with partner Helen, Mr Sutton says he wants to buy a Porsche Macan or BMW i3 as his retirement car, for which he is prepared to pay £70k to own the vehicle outright, or look into leasing options.
A long and fulfilling career has left him with no fewer than five defined benefit pensions, after working as a chemist for the likes of the Ministry of Defence and BAE Systems.
The couple own a house worth £ 290,000. Mr Sutton has two adult children who are no longer financially dependent and have found successful careers. He says it would be a bonus if he could leave them something behind.
He estimates that he will be able to take a tax- free lump sum of around £ 230,000 from his savings upon retirement. On top of this he has a £10,000 Isa which currently is growing at an impressive rate of 18pc per annum.
Carla Morris RBC Brewin Dolphin
To start with Mr Sutton should look to review his defined benefits pensions to find out what income he will get and from when. Mr Sutton has said he is not a risk taker, therefore he should not consider transferring these pensions as he would lose the security they provide, as he would be giving up a guaranteed inflation proofed income stream for life, in exchange for taking investment risk with his pension pot.
These pensions can also meet his main objective, which is to guard his savings against inflation for the rest of his and his wife’s life in retirement. The rate at which the pension income increases will be linked to inflation, although there may be a cap on the increase, so in times of high inflation like now, the increases will still not keep pace with inflation.
Mr Sutton should check the retirement ages of the policies, as they may have different retirement ages and if he were to take benefits before that age, he could receive a reduced income. Conversely, if he delays retirement past the normal retirement age he should check how the pension will increase, if at all, over that period.
Although there is no longer a lifetime allowance charge, and the allowance itself will be removed next tax year, there is still a cap on the amount
‘This could enable him to visit LA and see his favourite team play in person and pay for other holidays’
of tax-free cash that can be taken from pension schemes which sits at £ 268,275 a figure Mr Sutton could exceed before he takes benefits from his pensions.
Once he has clear information on his pensions, he could stagger taking them to fit in with the retirement ages of the scheme, if they are later than 62 and potentially use the tax free cash to supplement his income and/or fund his trips abroad.
In terms of leaving money to the children in tax efficient way, John and Helen have allowances totalling £1m, nil rate band of £ 325,000 each and main residence nil rate band of £175,000 each, and because it appears their assets are below that level currently no inheritance tax would be payable on their estate so it will all pass tax free to the children.
Felix Milton
Philip J Milton & Company
Mr Sutton is in the enviable position of having not just one, but five defined benefit pension schemes, a type of pension that is rarely seen in the private sector anymore.
With respect to his objective of buying either a Porsche Macan or a BMW i3, if he doesn’t envisage wanting to change his car for some years, buying the car outright is probably the most sensible option.
However, if he goes for the BMW i3, which is an electric car, leasing could be a better option as he will not be liable for the battery degradation and can simply get a new car after the initial lease is over.
He should use some of the tax-free cash from his defined benefit pensions to make this purchase. In terms of meeting his holiday goals, while I do not know how much he plans on spending each year, I suggest he invests the remaining tax- free cash into a sensible stock market portfolio, and this, along with his pension fund of £1,030,000 should be able to comfortably generate an income of about £45,000 per year, which would continue indefinitely.
This could enable him to visit LA and see his favourite team play in person as well as pay for his other holidays too, giving them a generous budget per holiday. The remaining pension fund on his death could be left to Helen or their children.
While he has stated he is not a risk taker, leaving such a large amount of cash on deposit is a risk as inflation will be eroding the true value of the funds over time.