See how we helped a client grow their fund from £56,000 to more than £1 million

14th January 2021

One of the questions we hear most often is: “what does a financial planner actually do?”

These days, financial planning is about much more than selecting investments. It’s about establishing your goals, smart decision-making, creative ideas, and making the most of any tax or financial opportunities that are available.

It’s all very well for us – or our clients – to tell you what a great job we do for them. Sometimes, however, it’s better for you to see a specific example of work we have done to give you a better idea of how our approach truly benefits clients. Here’s an example of how we have worked with a client over more than a decade to help her meet her goals.

Background

In 2007, a client contacted Andrew seeking advice about her pension arrangements. Her total fund value at the time was £56,000, and she’d had little growth over the preceding six years.

Advice and recommendations

Initially, we started helping the client to build her pension fund. The tax benefits of pensions are clear – a minimum of 20% tax relief for basic-rate taxpayers, rising to 40% and 45% for higher- and additional-rate taxpayers – so we looked to maximise her pension contributions and to contribute as much as possible as her earnings increased.

At the same time, we put together an effective investment strategy designed to help the client grow her fund based on her attitude to investment risk, time to retirement, and capacity for loss.

Growing the fund

Thanks to maximising contributions and an effective investment strategy, by January 2014 – around seven years later – the client’s fund was worth £370,073.

The table shows the increasing value since then, together with the continued contributions our client made.

The impact of the Tapered Annual Allowance

As illustrated in the table, contributions since 2018 have been restricted due to limitations on amounts that can be paid into a pension through the Tapered Annual Allowance.

The Tapered Annual Allowance can affect you if your threshold income (all taxable income excluding pension contributions) in the 2020/21 tax year is £200,000 or more.

If your adjusted income (all taxable income including pension contributions) is over £240,000 your Annual Allowance in the current tax year will be reduced.

For every £2 your adjusted income goes over £240,000, your Annual Allowance for the current tax year reduces by £1. The minimum reduced annual allowance you can have in the current tax year is £4,000.

So, if your income is £312,000 or more, it’s likely your Annual Allowance will be just £4,000. If you’re affected by the taper, you may have to reduce the contributions you or your employer pay, or an Annual Allowance charge will apply.

To take the Tapered Annual Allowance into account, our client instead maximised contributions into her Individual Savings Account (ISA) to the extent that, in July 2020, the ISA was valued at £348,469. This gives the client a separate fund to draw tax-efficient income from in retirement.

Looking ahead

We will continue to advise the client as she moves towards retirement. We’ll suggest the most effective and tax-efficient way to take income from her accumulated funds – now totalling more than £1.1 million.

We’ll also continue to review her investment portfolio, ensuring that the fund selection remains appropriate to meet her changing needs in retirement. Finally, we’ll ensure that any remaining wealth is passed tax efficiently to her family when she dies.

Get in touch

Want to find out how financial planning can add value to you? Get in touch. Email info@depledgeswm.com or call (0161) 8080200.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be regarded over the longer term and should fit in with your overall attitude to risk and financial circumstances. Levels, bases of and reliefs from taxation, in addition to the tax implications of pension withdrawals are subject to change and their value depends on the individual circumstances of the investor.