Is there more to retirement planning than pensions?

12 June 2018

In her previous article Julia Peake, Sanlam UK, discussed how pension freedoms changed our approach to retirement planning. This week we look at alternative retirement income strategies that embody a holistic, multi-asset approach, and how these can meet the needs of clients in today’s market.

Pensions should be the first port of call for clients looking to fund their retirement – they are, after all, one of the most tax-efficient way to save. However, there can be times when pensions may not be the only solution. For example, you may need to look at alternative strategies for clients who:

  • Are subject to the Tapered Annual Allowance

  • Don’t have enough UK earnings to maximise their pension contributions

  • Want to take advantage of the opportunity to pass defined contribution pensions down the generations free from inheritance tax (IHT)

As I mentioned in my previous article, a research study by Cicero revealed that clients want advice tailored to their circumstances, with a multi-faceted approach to funding their retirement. Once the basics are covered, clients want the flexibility of access and income to suit their needs. So, what are the alternatives?



Free of income and capital gains tax, the earlier clients start using this tax allowance the better. For example, someone who saved the maximum amount into an ISA each year for the last ten years, with an average 5% return after charges, would have saved £123,560 and achieved a return of £30,264 – a rather nice tax-free lump sum. With the ISA allowances having increased over the last 10 years, now at £20,000 a year, the savings and potential growth available is worth having.
Clients can take the natural distributions or lump sums with no tax to pay, as an alternative income option. Using ISA funds first could also reduce their exposure to IHT now that certain pension funds can be transferred to beneficiaries free of IHT.

Collectives or Investment Bonds?


After pensions and ISAs have been maximised, usually the choice comes down to collectives or investment bonds. Each has their own merits, and while the advice you give is tailored to your client’s personal circumstances, their tax profile and objectives will determine which investment is best. It could be a combination of both.
This is especially true now there has been a change to the dividend allowance. Depending on the yield of a client’s unwrapped portfolio, they could pay more tax on dividends received at their marginal rate. The table below shows, depending on the yield of the client’s unwrapped portfolio, the impact that the recent reduction in dividend allowance could make to the income tax clients could pay on their dividend income.


Fund value Unwrapped portfolios


£5,000 Dividend allowance (5 April 2018)

£2,000 dividend allowance (6 April 2018)










Source: Technical Connection

Investment Management


Choosing the correct investment wrapper for your clients is important, but so is who you choose to manage those assets. Both need to work together as part of an ongoing plan to ensure the client reaches their objectives for each pot they hold.
Barry Cowen, Senior Fund Manager at Sanlam states that:
“As part of our focus on helping clients achieve their goals as comfortably as possible, we try to see the world through their eyes. They may know little, if anything, about the complexities of the investment world. As managers of risk-managed models, it’s vital we move conversations with clients away from absolute (short-term) performance, towards risk-adjusted performance and, ultimately, outcomes. We manage portfolios accordingly, with risks rather than returns at the forefront of our decision making: we send our car for a regular service not for the mechanic to make it faster, but to ensure it gets us to our destination, reliably. The positive aspect of this, is that successful risk management leads to successful performance, and ultimately to clients reaching their goals with maximum comfort.”



Pension freedoms gave advisers the opportunity to create fully holistic plans for clients, based on what they need and want from the investment assets they hold, not just their pension. Using different investment wrappers, combined with the correct investment management, is where value can truly be added to clients and their families to help them reach their longer-term objectives.


This note is to be used by Financial Advisers only. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at June 2018 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

This section of our website is intended for use by Professional Financial Advisers only. If you are a Professional Financial Adviser, please CONFIRM to continue. Please note past performance is no guide to future performance.

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The value of investments and any income from them can fall and you may get back less than you invested.