Simplification is the key - Centre for Policy Studies

APPENDIX VII
FINANCIAL PLANNING TOOLS:
A VISION OF THE FUTURE 172
Mr Andrews is a family man in his early 40s, earning around £45,000 per year. Over the
last few years he has begun to take more interest in his provision for retirement, and set
his aspiration at having a retirement income of at least £20,000 a year (after tax)
available at age 67 if, as planned, he stops full-time work at that point.
His company operates a group retirement savings plan, and he has been enrolled in that
for the last five years. The company’s savings and retirement website planner show him
that the contributions his company make to the group pension scheme should
accumulate to a pot of around £120,000 by his retirement date, providing an annuity of
around £7,700 a year on top of his basic State Pension.
He has also contributed to the group scheme (as required to qualify for the employer’s
contribution), but he chose to put his contribution of £2,000 a year into a group ISA
provided by his employer. He chose this option rather than the pension scheme because
he preferred to have the flexibility to access his savings if required, and was aware that
the income he would already have in retirement from his pension fund and the State
Pension would exceed his personal allowance (so that any further pension fund income
would be taxed at the standard rate). The financial planner website showed this could
accumulate an ISA fund of a further £100,000 by age 67, which could yield an income of
£4,000 free of tax in retirement.
In addition he had received an inheritance from his grandparents’ estate of £80,000. He
had fed this into his ISA account over a period of three years to add to his retirement
fund. The planner showed that to reach his target he should save an additional £1,000 to
£1,500 a year into his ISA, and he had asked his employer to deduct an extra £100 per
month from his salary for this purpose. He was reassured in doing this that if he needed
172 With thanks to Lord Blackwell.
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