In this series of case studies, based on client testimonials from VouchedFor, FTAdviser speaks to advisers about particularly emotional or complicated financial planning cases to find out how they helped clients at difficult times in their lives.
Adviser name: Julian Baker
Firm name: Live Smart Financial Planning
Firm size: 2
The problem: My client did not want to work past 60 but, despite having a reasonably good income, he never seemed to be able to afford to do certain things. Basically, he did not understand tax thresholds, and how to save and invest tax-efficiently in order to meet his goals.
Julian says: As with many clients it came down to tax, and started really with the client not understanding why he earned a very good basic wage but never seemed to be able to do certain things.
When we got all of his income and outgoings put into order, and started to cashflow model his retirement - which was based on him trying not to work past age 60 - we realised he was on a key threshold.
When you are earning over £100,000 you are obviously paying away a lot of tax, and he had a young family so had lost his childcare contribution so this was also a cost, and he needed a new car.
How did you approach the situation?
So, we dismissed the car initially in favour of doing pension contributions which meant he could achieve his retirement goal and get back his childcare contribution.
Based on salary sacrifice and approximately 50 per cent in tax saving, it meant a large pension contribution was not costing him much at all. This equated to thousands of pounds saved for him to retire earlier.
Subsequently, we did a generous Octopus lease/salary sacrifice scheme for a company car, and worked that in. Longer term, he will be able to change his car as well.
We worked out we could put roughly another £10,000-15,000 a year to his pension, and maybe later on he can have a new electric car. Because of the childcare contribution, this meant a net cost of no more than about £1000 a month on his net wage.
Allowing for the car alone being £750 a month as a standalone lease, this worked well for the family's monthly budget - and is still a work in progress as his wage changes.
What were the challenges?
Despite a tax saving there was still a net cost, but this is leveraging the tax efficiency of pension tax relief with other benefits and using his employer's salary sacrifice limits to the max.
The challenge is the salary sacrifice limit in this case, which 'stalled' the car until maybe next year.
How did you go about doing the consolidation - was there a lot of chasing of providers?
Consolidating the family's pensions only really acted as the mechanism to achieve the client's retirement goal. In reality, the previous individual pensions were expensive and some cost over 1 per cent a year to run, and had poor performance.
