David is 55 and starting to reduce his working hours.
He's planning to fully retire at 60, and in the meantime, would like to use his £400,000 pension fund to top up his £32,000 salary without paying extra income tax.
David's adviser recommends he takes his full £100,000 tax-free cash to pay off his mortgage and invest £200,000 in a Guaranteed Income Plan for the next five years.
He uses the combination option selecting to have 100% of his investment returned as a lump sum, so he'll definitely get his £200,000 back when he turns 60 and he'll also get an income of £7,544 every year - without pushing him into a higher tax bracket.
With his £200,000 safely being returned in five years, David is free to invest his remaining £100,000 in a range of higher risk funds to get as much growth as possible out of his money.
Combination option, £200,000 investment, 5 year term |
||||||
|---|---|---|---|---|---|---|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Total |
|
Guaranteed income |
£7,544 |
£7,544 |
£7,544 |
£7,544 |
£7,544 |
£37,720 |
Bonus (not guaranteed) |
0 |
£15 |
£29 |
£44 |
£59 |
£147 |
Guaranteed lump sum |
£200,000 |
|||||
Additional lump sum (not guaranteed) |
£1,934 |
|||||
In this scenario David receives £239,801 back from his investment in the Prudential Guaranteed Income Plan.
This plan is great for someone who wants a fixed-term solution that they can reassess and change in a few years’ time. Like David, who can get his lump sum from the plan, and see where the value of his other investments land, and then decide how he wants to reinvest.
If you want to see a different example of how this option might work, download the client guide.
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