Robert aged 55 has built up a pension plan valued at £250,000. He is married with a wife and 2 children. The family home has a small mortgage. The children are due to go to university in the next 2 years causing further financial strain on the household income. He expects considerable legacies in the future as he is an only child. Robert is concerned that his children do not leave university with large debts around their necks and he does not wish to increase his mortgage.

We consider his pension plan - he is now over 55 so he can start to take his pension. He is able to take a lump sum to pay of the remaining mortgage and help fund the children through university. He could take a lump sum of £62,500 and buy a conventional annuity with a 10 year guarantee with the remaining £187,500.

The drawbacks are that he only needs £30,000 cash in order to reach his goal. The income produced from the £187,500 would take him into the higher rate tax bracket. In the event of his death his dependants would only receive an income until the 10th anniversary of the annuity purchase. The annuity would be based on rates from the outset of the plan at age 55.

We looked at all the options and including Robert's investment risk profile.

We decided to crystallise £120,000 of his pension funds. This gave him the £30,000 tax free cash that he needed to provide for his family now. The remaining £90,000 crystallised funds were invested into a SIPP income withdrawal plan with a nil income. This allowed his pension fund to remain invested to grow further. As he was not taking an income he would not be forced into the higher rate tax band. In the event of his death his dependants could start taking an income from the crystallised fund or have the fund paid out as a lump sum tax without paying income tax.

The £130,000 uncrystallised part of the pension could be invested in the same pension plan as the crystallised fund making life simple with just one pension plan.The fund can continue to grow and at retirement Robert can take further tax free cash at retirement.

Robert is able to replace his lost pension plan when he inherits his legacy by making payments equal to his income.