Mr Jones- age 60– he is still working and is a 40% tax payer. He has a £50,000.00 fund and would like the 25% tax free cash but no income until he reviews his options again at age 66 when he may take a lifetime annuity.
A fixed term for 6 years- £12,500.00 tax free cash paid with the balance of £37,500.00 going into the fixed term for 6 years – no income to be taken during the term. The guaranteed maturity value would be £41,025.00 making a guaranteed return of £3,525.00, with no investment risk plus 100% value protection so his family would receive the invested amount should anything happen to him during the 6 year term.
Mrs Smith- Age 65- has retired and is in receipt of her state pension. She has a £40,000.00 fund and would like to withdraw the 25% tax free cash and take £3,000.00 per year, keeping within her personal tax allowance.
A fixed term for 10 years- £10,000.00 tax free cash paid with the balance being eroded using the flexi access drawdown rule. Mrs Smith will take £3,000.00 per annum for 10 years with a guaranteed maturity value of £2,208.00 at the end of the term which she can take as cash and will still be within her personal allowance. Her fund is protected as she has opted for 100% value protection. She would have received a total of £32,208.00 back from her original £30,000.00 fund.
Mr Hill- Age 65- has a final salary scheme and his state pension already in payment. He has a £60,000.00 fund and would like to take tax free cash and draw down the balance of the funds until he is age 75 as he does not require another guaranteed lifetime income.
A fixed term to age 75 (10 years)- £15,000.00 tax free cash to be paid with the balance of £45,000.00 being eroded during the term using the flexi access drawdown. Mr Hill would receive a guaranteed income of £4,814.52 per annum for 10 years. Over the term he would have received an extra £3,145.20 in income to his initial investment.
*Source – The Exchange January 2022
