FINANCIAL MAKEOVER: Wanted: savings that stand in for earnings

A retired couple receive advice on boosting the income from their investments

THE DOYLES: Mr and Mrs Doyle are both aged 56. Mr Doyle retired early on medical grounds 10 years ago, Mrs Doyle has just taken early retirement.

Pension and benefits: Mr Doyle receives pounds 1,200 a year of pension from his former employer, the hotels and leisure group Granada. He also receives disability and mobility allowances of pounds 2,820 a year. Mrs Doyle has a pension of pounds 3,144 and receives unemployment benefit of pounds 30 a week, although she does not expect this to continue for long.

Mortgage: pounds 8,100 of a repayment mortgage outstanding, due to be paid off in four years. Monthly payments (comprising both interest and capital) are pounds 108. The property, in Cheshire, is worth around pounds 120,000; the Doyles also own a couple of acres of adjoining land.

Investments and savings: Mrs Doyle recently inherited pounds 50,000, which is currently in a postal deposit account. The Doyles also have pounds 13,000 in ordinary instant access accounts, and Mr Doyle has pounds 6,000 in a tax- free Tessa. Mrs Doyle has pounds 48,000 in just three shares, pounds 40,000 of which is from a share incentive scheme with a former employer. Mr Doyle has pounds 2,780 of Granada shares.

Mr and Mrs Doyle want to increase the income from their savings and investments while achieving some capital growth. They are concerned that the value of their savings keeps pace with inflation in case either should need nursing care later on.

What should they do?

The Doyles are already aware of the virtues of shares for long-term saving but their money is in just four different shares - a riskier investment strategy than is necessary. To get a greater spread of investments and so lower the risks of one bad share, while also fulfilling their desire for income, the Doyles should look at investing the bulk of the pounds 50,000 inheritance in income-oriented UK unit trusts.

At the same time, Mrs Doyle should take out a Tessa. She can invest pounds 3,000 in year one, rising to a total of pounds 9,000 over five years. One Tessa worth considering is that offered by the Principality building society, which pays a reasonable 6.8 per cent interest and has low penalties should Mrs Doyle want to transfer her money to another bank or building society if the Principality starts to look uncompetitive.

Personal equity plans will also give a tax-free income and the Doyles should consider putting pounds 6,000 each into PEPs before the end-of-tax-year deadline. It is possible to get a tax-free income of 10.8 per cent a year with some capital growth by buying the income shares of Gartmore's British Income and Growth investment trust for these PEPs. Generally, it might be worth the Doyles not having the same PEPs, but the high income available from the Gartmore trust means other investments do not have to be as income- oriented.

The bulk of the remaining inheritance should be split between a number of unit trusts: GT Income (income 3.8 per cent), Credit Suisse (4.3 per cent), Jupiter Income (4 per cent), Schroder Income (4.5 per cent), Mercury Income (4.2 per cent), and - for growth - GT Orient, which invests in the high-growth economies of the Far East.

With any PEPs the Doyles take out in the 1997-98 tax year, they should look for those that will also accept windfall shares from building societies, to save tax on the dividends.

The change-over to the self-assessment tax system may induce the Doyles to consider a portfolio management service, which will help them collate dividend information for the taxman. Services are offered by a number of companies, including Rothschild Asset Management and Singer & Friedlander.

The Doyles should ensure assets are distributed between them to optimise individual tax allowances. A further way of increasing their disposable income might be to pay off their remaining mortgage early, but they should check for penalties in doing this. They could also consider selling the land adjoining their house.

The Doyles cannot take advantage of the generous tax breaks available on personal pension plans for retirement saving because they do not have earned income to save. But in four years' time Mrs Doyle will start receiving the state pension, which will increase the couple's income.

Finally, neither has a will, and they should set these up. The Doyles do not have any children but should not assume that if one of them were to die the spouse would automatically inherit everything. Without wills, they could find assets ending up with other family members.

Mr and Mrs Doyle were talking to David Wilson of Blackfriars Financial Services, an independent financial adviser based in Sandbach, Cheshire, which is part of the Burns Anderson network of IFAs.

If you would like to be considered for a financial makeover, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Logos for the 'Big Six'; energy companies (top row from left) British Gas, EDF, RWE npower, (bottom row from left) SSE, E.ON and ScottishPower

Winter heating underpayment brings summer pain

One reader’s monthly direct debit charge has been increased by 62 per cent

Almost 15,000 people died last winter through living in cold homes that they couldn’t afford to heat

Social tenants locked into energy tariff for 40 years

Many Londoners who live in social housing estates are not allowed to switch because their landlord has ‘locked’ them in to buying from one supplier

Will your credit card rewards be scrapped following new EU rules on charges?

Providers are unhappy with new EU rules - but ultimately it is customers who will have to foot the bill
There remain more than a million unclaimed Premium Bond prizes worth collectively around £48m

Have you won £1m in the May Premium Bonds draw?

More than £60m was paid out to more than 2 million prizewinners this month

The 0 per cent introductory deals that credit cards offer are one of the most odious tricks

Beware credit card firms’ odious tricks

Why can’t we just have open and honest charges, without all the cross-subsiding?

The pound’s recent strength against the euro could be hit by economic uncertainty under a new government

How planning can make your travel cash go further

With the pound at a high against the euro, it pays to buy now before uncertainty post-election

Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

Pension freedoms: How to deal with cold calls from scammers

Sean O'Grady offers advice on keeping your money safe
Switching to a better bank account is much easier than it used to be

More people are switching current accounts – but what do the figures mean?

Experts disagree about the 7% increase over the past year

The chance of getting what appears to be free money can be hugely attractive, especially to first-time buyers who can be fooled into thinking it’s extra cash to buy the essential new items they need for their dream home.

Beware the boom in cashback mortgage deals

Too many mortgages are being sold with misleading gimmicks

The firm’s revenues slumped by a third to £217 million in a disastrous 2014

Wonga results could get even worse this year, chief admits

The firm’s revenues slumped by a third to £217 million in 2014

The cost of a buildings policy has dropped by 10.1 per cent over the year, with the cost of a contents policy falling by 8.2 per cent

Simon Read: Mild winter cuts the cost of home insurance

The average quote for a buildings and contents policy has fallen by 3.6 per cent

Don't count your retirement money yet: employers will stop receiving a pension rebate next year and their staff may lose out

Defined-benefit pension schemes: Rebate change in 2016 may leave you out of pocket

Employees in defined-benefit schemes are held up as the lucky ones, but the state pension scheme will be overhauled in April 2016
Labour will raise the national minimum wage to more than £8 an hour by October 2019 (EPA)

Barclays new Blue Rewards hands cash to customers. What’s the catch?

Joining Barclays Blue Rewards costs £3 a month but then lets customers in for handouts of up to £15 a month

New research reveals that despite the recovering economy, four out of five low-income households have seen no sign of their financial situation improving

Hard-up families could be eligible for financial help

A charity is urging anyone struggling financially to see if they could get help from the state

When is the best time to buy foreign currency?

Video: With an election looming, a hung parliament could hit sterling

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Management Accountant

    £27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    Day In a Page

    General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

    'We will not sit down with Nicola Sturgeon'

    In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
    VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

    How ordinary Britons celebrated VE Day

    Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
    They came in with William Caxton's printing press, but typefaces still matter in the digital age

    Typefaces still matter in the digital age

    A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
    Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

    'Missing link' between Earth's two life-forms found

    New microbial species tells us something about our dark past, say scientists
    The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

    Pan Am Experience: A 'flight' back to the 70s

    Tim Walker checks in and checks out a four-hour journey with a difference
    Humans aren't alone in indulging in politics - it's everywhere in the animal world

    Humans aren't alone in indulging in politics

    Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
    Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

    Crisp sales are in decline

    As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
    Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

    Ronald McDonald the muse

    A new wave of artists is taking inspiration from the fast food chain
    13 best picnic blankets

    13 best picnic blankets

    Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
    Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

    Barcelona vs Bayern Munich player ratings

    Lionel Messi scores twice - but does he score highest in our ratings?
    Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

    Explosive batsman who sets the range for Kiwis' big guns

    Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'