CII AF8 Retirement Income Planning Assignment 2 Coursework 2026

AF8-Retirement Income Planning  Assignment 2

Patrick and Jane’s attitude to risk has recently changed due to their change in circumstances following Patrick’s heart diagnosis.

Evaluate a range of suitable options to enable Patrick and Jane to adjust their current financial arrangements to better match their revised attitude to risk.

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Scope of Advice

Patrick and Jane’s attitude to risk has recently changed due to their change in circumstances following Patrick’s heart diagnosis. This assignment evaluates a range of suitable options to enable Patrick and Jane to adjust their current financial arrangements to better match their revised attitude to risk.  
 
For the 2025/2026 tax year Patrick will receive a partial salary, Jane will receive her full salary for part of the year and then her lower salary.

Their income over the next three tax years starting in April 2026 will be as follows:  

Patrick and Jane would like to generate a minimum income of £45,000 per annum (net) throughout retirement. Their expenditure over the next three years will be as follows:  

The shortfall is £205,000 - £42,105 = £162,895

Assumptions

• Patrick plans to retire over the next few months and therefore will only work for approximately six months of the 2025/2026 tax year. Therefore, he will have earned income of £26,000 (gross) for the current tax year (£52,000 / 12 = £4,000 per month, therefore 6 months x £4,000 = £26,000).
• Jane plans to reduce her working hours over the next few months so will only receive a full salary for approximately six months of the 2025/2026 tax year. Therefore, Jane will have the following earnings for the 2025/2026 tax year: 6 months earning £1,500 (£1,500 x 6 = £9,000) + 6 months earning £833.33 (£833.33 x 6) = £5,000 = £14,000.  
• Patrick and Jane have an income requirement of £45,000 per annum in retirement. It was agreed that an emergency fund would be retained on accessible deposits so monies totaling £39,500 should be retained, which equates to 10 to 11 months of expenditure.  
• Maximum tax relievable pension contributions available to them for the 2025/2026 tax year will be as follows:  
   
  Patrick 

     Jane  

Product Rationale 

Pension

Patrick should invest £19,759.98 into a personal pension plan. His contribution will benefit from basic rate tax relief of 20% which is received at source and will be grossed up to £24,699.98. This will be funded from the £200,000 cash that will be released from the property downsize. If he is a higher-rate taxpayer for the 2025/2026 tax year he would also receive a further 20% tax relief.    

Jane should invest £10,616 into a personal pension plan and will benefit from basic rate tax relief of 20% which is received at source and will be grossed up to £13,270. This will be funded from the £200,000 cash that will be released from the property downsize.

Pensions allow their monies to grow free of Income Tax and Capital Gains Tax. When it comes to withdrawing the monies, 25% of the fund can be taken as a pension commencement lump sum (PCLS) and will be free of Income Tax. Withdrawals in excess of the PCLS will be liable to Income Tax at their marginal rates.

Stocks and Shares ISA

Patrick and Jane should each invest £20,000 within their Stocks & Shares ISAs funded from the £200,000 of cash that will be released from the property downsize.

ISAs are a tax‐efficient investment vehicle as they are not subject to Income Tax or Capital Gains Tax on withdrawals from the investment. 
Joint Unit Trust / OEIC

A further £86,009 should be invested within UT/OEIC funded from the £200,000 of cash that will be released from the property downsize.

They both have an annual divided allowance of £500. Any excess dividend income will be taxable at 8.75%, based on the assumption that they remain basic rate taxpayers in retirement. Any gains in excess of their annual CGT exemption will be liable to tax at 18% if they remain basic rate taxpayers. 

With further planning, it is possible to utilise future year’s ISA allowances with the monies held within their Unit Trusts and OEICs.

Your Attitude to Risk

Following detailed discussions, it was established that Patrick and Jane’s attitude to risk should be revised from ‘adventurous’ to low to medium risk. This takes into consideration their change in circumstances with Patrick’s recent health issues as well as their impending retirement.

Investment Strategy & Fund Recommendations

My preferred investment strategy is a Multi‐Asset approach as it is important for individuals to invest in a range of different asset classes (for example cash, gilts, corporate bonds, property and stock market-based investments). Asset classes tend to have different correlations to each other and therefore it is difficult to predict which will be the best performing asset class each year. By investing in multi‐asset funds, you are not reliant on the performance of one asset class and where one asset class performs well, it will reduce the impact of an asset class that hasn’t performed as well over the same time‐period. By investing in a range of asset classes it will provide diversification which should reduce the overall risk of their portfolio whilst providing the potential for the target level of growth. 
Whilst Patrick and Jane could adopt a single asset allocation investment approach and rebalance these funds on an ongoing basis, it would be difficult to take account of any changes in the markets as quickly as a professional fund manager. Equally, Patrick and Jane have plans to travel extensively over the next few years and may be unable or unwilling to review their investment portfolio sufficiently to take into account economic and market changes. On this basis, I have decided that the multi‐asset approach is more appropriate as the fund manager is able to make an immediate decision dependent upon market conditions.

The funds I have recommended have all been assessed and are considered appropriate for their objectives. When considering whether a fund is appropriate, it is important to consider a range of factors including the fund management group, manager ability/tenure, investment processes and overall charges (Total Expense Ratio). I also recommend a number of Multi‐Asset funds to offer diversification across fund manager and fund manager group. Overall, the funds I have used meet Patrick and Jane’s risk profile and are well placed to help meet their objectives of providing an income and growing capital for use in retirement. I have recommended that all the investments are invested in a range of Cautious Managed Multi‐Asset funds with the exception of £50,000 within Patrick’s Pension, as this money will be withdrawn over the next three tax years so will be required to fund their spending and travel plans. I recommend that this amount is held within a Cash fund within the Pension.

The £200,000 funds released from the property downsize will therefore be allocated as follows:

• Tax implications of surrenders and fund switches Stocks & Shares ISAs
• Fund switches within their ISAs will be tax‐free

Pensions

• Fund switches within their Pensions will be tax‐free
• Unit Trusts / OEIC  

Capital Gains: 

• Fund switches would be liable to CGT but they could each offset their annual allowance of £3,000 against any gains. They should undertake the recommended fund switches in the 2026/2027 tax year.
• Based on his expected earnings for the tax year it may be that Patrick will not be a higher rate taxpayer for this tax year depending on when he exactly retires. In this case he would pay 18% on any gain above his exemption, rather than 24%.  
• For future disposals the Unit Trusts can be transferred to Jane prior to any encashments so realized gains over the CGT exemption will be subject to 18% rather than 24%. 
  Investment Bond 

•  Any gains on the bond would be split between them as it is jointly held 
• The pension contributions that Patrick and Jane are currently making will extend their basic rate tax threshold and therefore reduce the tax liability when considering encashment of the Investment Bond or Unit Trusts
• The top‐sliced gain would be added to Patrick and Jane’s income.
• Jane would not have any further tax liability on encashment of the investment bond due to the availability of top‐slicing as she would remain within the basic rate threshold.
• Depending on Patrick’s retirement date and his total income for the 2025/2026 tax year, he may have a further liability if the gain pushes his income into higher rate tax at an additional 20% on any gains.  
• However, in order to definitely avoid any tax liability for Patrick, they could assign the bond to Jane prior to encashment which would remove the tax liability on Patrick and still not result in further tax liability for Jane. If this were to happen, the resulting monies could only be invested in Jane’s name to avoid an associated transaction occurring and Patrick subsequently incurring a tax liability as if the assignment had never taken place.

Summary

I believe the above changes will leave Patrick and Jane suitably positioned to achieve their retirement objectives for travelling over the next few years and to generate £45,000 per annum in retirement.