THE CHARTERED INSURANCE INSTITUTE

R06—FINANCIAL PLANNING PRACTICE

CASE STUDIES – APRIL 2012
Case study 1

Joseph and Sally, aged 37 and 34 respectively, are not married and live together. They have one child,
David, aged three, and Sally is pregnant with their second child. Joseph works as a finance director for
Innovative Technologies, a medium sized systems integration business. His basic salary is £100,000
gross per annum and he is a member of the company’s defined contribution pension scheme, which
provides four times basic salary as death-in-service life cover. Joseph’s annual bonus was £40,000 last
year. Sally has worked as an auditor since she qualified as an accountant in her twenties, but she is
currently on maternity leave and does not plan to return to work after their second child is born.

After David was born, Sally purchased a term life assurance policy for £200,000. Joseph and Sally are
concerned about having sufficient cover in the event of either of them dying or being unable to work due
to sickness.

As their family is growing, Joseph and Sally wish to move to a larger house. They have found a suitable
property and are seeking an appropriate mortgage.

They currently have a portable interest only offset mortgage which is on a base rate tracker basis. They
are happy to take a medium risk approach to repaying their mortgage.

They would like to send David and their new child to private schools from the time they each reach age
seven. Sally’s parents are prepared to provide a lump sum gift to help with school fees and Joseph and
Sally are also planning to save regularly for this purpose.

Joseph has not made a Will and Sally’s Will was made before she met Joseph. Sally’s Will leaves
everything to her parents.

Their financial aims are to:

 provide a fund to pay school fees for their children;

 review their protection arrangements;
 arrange a suitable mortgage for their new home;
 ensure that they each have a Will that meets their needs.

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Case study 2

Peter and Katie are aged 62 and 60 respectively. They have two children, Olivia and Lynne, who are both
married, in their early thirties and financially independent of their parents. Olivia and Lynne each have one
child and both of Peter and Katie’s grandchildren are aged five.

Katie works as a personnel manager for a logistics company. The company is going through the process of
seeking a listing on the Alternative Investment Market. Katie is considering buying shares in the company
but is not sure whether or not this would be a good idea.

Some years ago, Peter was advised by his accountant to set up a self-invested personal pension (SIPP) so
he could use his expertise to acquire property and effectively manage his own pension. He has to this end
acquired, through the SIPP, two properties worth around £600,000 in total which provide combined rental
income, after expenses, of £40,000 per annum. The SIPP currently has borrowings of £100,000. Peter
may acquire further assets for the scheme. Katie has a company sponsored defined contribution pension
which she expects to provide an income of £25,000 per annum when she retires. Ideally, Peter and Katie
would like a joint income of £70,000 per annum gross in retirement.

Peter and Katie own the following assets as joint tenants.

Asset Amount
£
House 800,000
Chattels 100,000
Bank Savings Account 150,000
Open-Ended Investment Company 163,000
(UK Equity Income Fund)
Onshore Investment Bond 180,000
(Balanced Fund)

They each have cash ISAs worth £40,000 each and stocks and shares ISAs worth £50,000 each.

Peter is about to retire and his partners have agreed to purchase his interest in the business for £700,000.
Peter and Katie are considering making a joint gift of this to their grandchildren. They have concerns about
one of their sons-in-law whom they regard as being careless with money. Neither Peter nor Katie has made
significant gifts previously.

Peter is a higher-rate taxpayer and Katie is a basic-rate taxpayer. Peter and Katie both have a balanced
approach to risk.

Their financial aims are to:

 ensure that they have an adequate income in retirement;

 minimise the impact of Inheritance Tax on their estate;
 ensure their investments are arranged in a tax-efficient way.

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