Occupation: Retired computer engineer
The problem: Mr Greer was made redundant two years ago. He does charity work that occupies about three days a week and in the summer he enjoys watching Lancashire play cricket at Old Trafford. His mortgage is paid off, his pension is adequate for day-to-day expenses, and he has built up a portfolio of investments. They include an investment bond with Irish Life, another with Equitable Life. He has a roll-over Tessa with the Halifax, a National Savings First bond, five different shares in self-select PEP accounts, some Bank of Ireland shares and odds and ends in Premium Bonds and the Bradford & Bingley. It adds up to a substantial and diversified portfolio. But has he got the balance right for the future?
He has four main objectives:
1. To be able to supplement his pension income in future years
2. To be able to pay for long-term care should the need arise
3. To avoid the need to fill in an annual income tax return
4. To take care of inheritance tax demands
The adviser: Garry Haywood is a partner at Allied Associates, based in Twickenham, Middlesex (0181-891 0711). The firm is part of the DBS network and regulated by the Personal Investment Authority
The advice: Michael Greer is the epitome of Mr Micawber's happy man, the one whose income is pounds 1 and his expenditure is 19s 6d. Thanks to a combination of shrewd investment, some redundancy money and inherited shares, Mr Greer has amassed sufficient assets to see him through his allotted span. When an Irish Life policy matured in 1993 he was happy with the returns and reinvested in an Irish Life Bond
When his mother died in 1985 Mr Greer inherited from her a modest holding in the Bank of Ireland. Over the years his investment has grown and he has reinvested the dividends in further shares. Over the past three tax years he has switched some of the shares into self-select PEPs by selling shares to reinvest immediately in a PEP.
This technique is known as "bed and pepping" and remains effective for this year at least (unlike the "bed and breakfasting", or selling enough shares to establish a tax-free profit and buying them back immediately to establish a new and higher base for future gains). Bed and breakfast was made ineffective in the last Budget, but "bed and ISA" will probably remain an effective way of converting taxable into tax-free investments in future.
In fact Mr Greer could have reduced his liability to both income tax on dividends and capital gains tax on realised gains much more by bed and pepping much earlier, but his PEPs will give him tax-free income and exempt him from gains if he needs to sell in future.
One area of concern I have is that this single holding in Bank of Ireland represents getting on for half of Mr Greer's capital assets, a large amount of his eggs in one basket.
His pension is index-linked at 3 per cent a year which should help his income keep pace with inflation. He has earmarked the proceeds of his roll-over Tessa which matures in three years' time to pay for any capital items such as a new car.
His income is adequate to fund the cost of long-term care, so there is no need to worry about whether to invest in a policy to help supplement his income should the need arise. While a policy is often the only practical way for individuals whose income will not stretch to the pounds 20,000 a year that a residential home can cost over a long period of time, it is a sad fact that the average time of funding long-term care is only three years.
He has also structured his investments in such a way that he has no liability for the higher rate of income tax, and there is therefore no need for him to fill in an annual tax return. His final objective is to minimise his inheritance tax liability. Currently there is a very small potential liability of approximately pounds 3,000. This could be eliminated by putting his investment bonds in trust for his beneficiaries. This can easily be done by writing to the bond providers, Irish Life and Equitable Life, and asking for a trust form.
Mr Greer has also taken the wise precaution of making a will and thus ensuring that his money goes exactly where he wants it to. This is particularly important should you wish charities or non-family members to benefit.
He has the happy prospect of looking forward to his old age pension being paid when he reaches his 65th birthday. At this point he will need to keep close watch that he does not fall into the age-allowance trap, which reduces the additional tax-free allowance he is entitled to after 65 by pounds 1 for every pounds 2 he earns above the threshold, currently pounds 16,200. He could do this by continuing to switch assets into tax-exempt bonds and ISAs.
But all in all it makes a pleasant change to review a situation where there is little requirement for change. It might still be useful for Mr Greer to work with an independent financial adviser in order to take advantage of all the changes in legislation and investment opportunities over the years.Reuse content