Money: Financial Makeover - Afraid of retiring hurt

Barry Smith, 54, is a self-employed writer and illustrator of children's books whose income fluctuates a lot - it has been between pounds 2,000 and pounds 38,000 a year in his 23 years of self-employment. Presently he is earning around pounds 15,000 a year.

He has an pounds 11,000 endowment mortgage with Nationwide (the endowment policy is with Scottish Amicable) on his 60 per cent share of a flat in Hackney, east London. Barry also inherited a flat in a coastal resort in New South Wales, Australia, which is worth around pounds 50,000.

He has a collection of pensions and insurance-linked savings plans worth pounds 58,000 and shares and personal equity plans worth a total of pounds 70,000.

Barry is looking forward to retiring, possibly to Australia. He feels he was sold some poor financial products in the 1980s and would like to know how to reorganise his finances, particularly for retirement, without making any additional savings from his relatively low income.

What a financial adviser says:

Barry will probably be retired before his mortgage is paid off as the endowment policy matures in 13 years' time, when he is 67, but much of his pension savings will start paying out from when he is 65.

He should approach Nationwide to see whether the building society might offer him a better deal for an existing borrower. You do not have to switch lenders to benefit from the remortgage deals now widely available. He may well be able to obtain some sort of cash-back, discount or a favourable fixed-rate remortgage. Such a deal may tie him into the Nationwide for a further period, but if he has no plans to move the mortgage, then it makes sense.

Barry should leave the Scottish Amicable policy as it is until maturity. If he encashes it early, he stands to lose a portion of the maturity bonus (also called the terminal bonus).

In total, Barry has five separate pension plans with Barclays, MI Group, Equitable Life, Scottish Equitable and NPI. As a general rule this is too many as in each case the companies will probably be making some flat- rate charges that on smaller amounts could have a relatively big impact. The funds he has invested in are also quite a mixture, from cautious with- profits funds (which never fall in value) to funds invested in the Far East.

With hindsight, Barry would have done better having the main chunk of his money directly exposed to the UK stock market in "unit linked" funds. That said, at his age and looking to retire within 15 years, it is not necessarily a good idea to switch out of these with-profits funds. Likewise the international funds he has are probably at least as good homes for his money as the United Kingdom, given the present all-time high of the UK stock market. If he does feel brave enough to face the UK stock market directly through unit-linked funds, he should look to be back in with- profits at least five years before retirement. True, Barry's pension portfolio is far from ideal, but rationalising it is a different matter. In many cases there will be charges for stopping payments into his plans. That aside, as a self-employed person Barry should, where he can, take up "waiver of premium" options on his pension plans so that if he cannot work through ill-health, his plans will continue to be funded.

As well as his pension plans Barry has insurance-linked savings policies with Irish Life and MGM. Again, for the premiums that Barry is paying, the charges can be high for these types of policies. But if he cashed them in now, he would most likely lose out. I am afraid that Barry is rather stuck with what he has.

Barry also has a collection of shares and investment trusts, some in PEPs.

He has a Foreign & Colonial PEP that has done well, virtually doubling his money over a five-year period. But with a single-company PEP he has with Barclays he should check the charges and work out whether it is worth his while being in the PEP, bearing in mind that he is a basic-rate taxpayer. The main tax saving is on the dividends of the shares at a rate of just 20 per cent of the value of the before-tax dividend.

Barry has concerns about putting money in investment funds such as unit trusts, the main one being that he is not convinced that the fund managers justify their fees. But direct shares, which represent a fair proportion of Barry's savings, are a relatively high-risk investment route. The downside of individual share investments is that too much of the portfolio is dependent on one share. With the relatively modest amount that Barry has invested, he would be better off with more investment funds, whether unit trusts or investment trusts.

When Barry does come to retire he should shop around for the best deal on cashing in his pensions, taking what is called the "open market option" to get the best annuity rate he can. Bearing in mind that this will provide him with an income for the rest of his life it is worth getting independent financial advice at that stage.

Barry has indicated that he would like a pounds 20,000 a year income to enable him to retire. Taking into account all his savings (including the state pension he will be due), and assuming he continues to save pounds 750 a year in his pension plans, when he is 65 he should be close to his target, and by the age of 70 he should reach it.

But Barry should also remember that if he does go to Australia, he will probably sell his flat in London and realise some pounds 40,000 from this. This can be further invested to generate income at that time.

q Barry Smith talked to Amanda Davidson, a partner at Holden Meehan, a firm of independent financial advisers (0171-692 1700).

If you would like to be considered for a financial makeover for publication, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293 2096 or 2098; e-mail: S.Lodge@independent.co.uk. Please include details of your current financial situation, a daytime telephone number, and state why you think you need a makeover.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
TV
Voices
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Sport
Steve Bruce and Gus Poyet clash
football
Have you tried new the Independent Digital Edition apps?
News
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
TV
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
Life and Style
life
Sport
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
News
Amazon misled consumers about subscription fees, the ASA has ruled
news
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Finacial products from our partners
Property search
This phoenix rose from the stage at the London Olympics. The insurer grew out of zombie life insurance funds

Phoenix Life: Chance of a refund for overcharged policyholders has risen

A retired adviser got his money back from the insurer after claiming he had been overcharged. Thousands of others may have a strong case
Expect a new wave of fishing expeditions by fraudsters now we can invest our life savings

Cold callers and your pension: watch out for dangerous boiler room scams

Sean O'Grady received a cold call last week that was much more sinister than normal. Yes, someone wants to get their hands on his pension...

Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity

The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter

MPs call for Equitable Life policyholders to be paid £2.8bn owed by government

Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century

The elderly woman's family discovered the mistake

DWP criticised after it left a pensioner £26,000 worse off

The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.

The FCA has today issued a consultation paper on its plans to tighten up consumer credit rules to give consumers greater protection on guarantor loans and in other areas

Payday loan companies must publish their rates, says CMA

A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers

Vulnerable consumers are defined as those with poor literacy skills, those who have caring responsibilities, people with disabilities, dementia or the old

Financial companies are not meeting the needs of vulnerable consumers, says City Watchdog

The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges

The FTSE 100 is inching closer to its record high but can it maintain these levels?

In 1999 stock markets quickly tumbled, losing many a fortune in the process

Tax-free savings: Freedom dawns for the junior savers caught in low-income accounts

The parents of six million children stuck with low-interest saving accounts worth more than £5bn will be able to move the cash from this April. But what are their options? Samantha Downes reports

How much lower will mortgage rates go?

Another day, another cut. As lenders compete to offer the cheapest deals, Simon Read asks if borrowers should jump in now or wait for further falls

Are bills ruining your family life? Try the lover's guide to coping with debt...

If you're in the red and can't find a way out, it's time to get some help. Neasa MacErlean hears that relationships will suffer unless you are open with your partner, but there are organisations that will put you on the right track and get you talking

How to complain: From retailers to energy suppliers, it's easier than you think

When companies let us down, millions of us just take it on the chin. Simon Read shows how to make your voice heard
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

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Austen Lloyd: Law Costs HOD - Southampton

    £50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

    SThree: Recruitment Resourcer

    £20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

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

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn