Wealth check: 'Can I afford to retire gracefully?'
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 31 October 2004
Now 56, Pat Davison had her heart set on retiring early but is aware she may have to put her dream on hold.
"I really wanted to retire at 60 but this is looking uncertain and I think I'll probably have to work on to 62," she says. "I've been divorced for 15 years, so whatever happens is down to me."
To start with, she pays 8 per cent of her salary - £178 a month - into a company pension scheme with Norwich Union, to which her employer adds 3 per cent of her salary.
She also has money invested in a Standard Life private pension, two Legal & General (L&G) plans (including a pot for additional voluntary contributions) and a final salary scheme run by AstraZeneca, the pharmaceuticals company where she worked before joining her current employer.
A previous financial adviser told Pat these payouts should add up to more than £11,000 a year when she reaches the age of 65. But she is not sure how accurate these projections are.
Pat transfers £150 a month into a Royal Bank of Scotland (RBS) deposit account; she now has £2,500 with RBS, earning 1.55 per cent interest. She has been planning to open a mini cash individual savings account (ISA) for some time but hasn't yet got round to it. She also has £100 in premium bonds.
Her other investments, which date back to 2000, have yet to bear fruit, she says. A £2,000 lump sum invested in a Jupiter "cautious managed" equity ISA is currently worth about £1,600, while £3,000 invested in a Friends Provident with-profits bond had a £2,625.31 encashment value in February.
Pat is unimpressed: "Neither investment has performed very well - and I'm not sure whether to keep them."
She remortgaged her £155,000 home with Skipton building society in April and now has a £58,000 repayment mortgage set at a fixed rate of 4.99 per cent for the next three years. Her basic repayments come to £610 a month, but she has just started to overpay by £150 a month.
Pat's employer provides death-in-service benefits as well as Bupa private health cover.
Although it's not something she wants to consider, Pat stands to benefit from a likely £60,000 inheritance after the death of her mother, who is 96 this year.
She also has two adult sons, one of whom will probably move to Australia. If this happens, she will want to visit frequently, so a fund for travel expenses will be an essential part of her financial planning.
Interview by Sam Dunn
Pat Davison, 56, from Manchester Job: human resources manager Income: £34,500 Savings: £2,500 in a bank account Investments: £2,000 invested in an equity ISA; £3,000 in a with-profits bond; £100 in premium bonds Goal: to unpick tangled pension and retire as soon as possible
The forecast painted a rosy picture, but nurture that pension and it will bear fruit
Her mixed bag of company pensions might give Pat only £6,000 a year instead of £11,000, warns Ben Yearsley of independent financial adviser (IFA) Hargreaves Lansdown. However, Mr Yearsley believes she has two strong retirement savings schemes that are definitely worth keeping and one that is worth adding to.
Pat's savings and investments could work a lot harder, says Anna Bowes of IFA Chase de Vere. An immediate switch to a mini cash ISA is a must.
Her Jupiter equity ISA investment could do with a rejig too, says Vivienne Starkey of IFA Equal Partners.
Determining how much Pat can expect to receive when she retires is an imprecise science. For the most accurate figures, Ms Starkey advises that Pat write to each company with which she has a pension and "ask for an illustration of possible benefits at retirement age 60 and 62".
Pat should also get a forecast for her state pension by completing form BR19 on the internet at www.dwp.gov.uk, says Mr Yearsley. He believes the Norwich Union scheme offered by her current employer is a decent one, and she could consider paying another 12 per cent of her salary in each month.
She should retain the AstraZeneca plan as it is "a good final salary scheme", he adds. He thinks the Standard Life pension plan is worth holding on to, as it should offer Pat a windfall when the proposed demutualisation takes place. Ms Bowes says that she should check the type of fund in which the Standard Life money has been invested to make sure it's the best.
Despite the drawbacks of having L&G funds in light of the Financial Services Authority's determination to fine the insurer £1.1m for allegedly mis-selling endowments. Mr Yearsley suggests Pat stick with them for now. Any attempt to consolidate her pensions by moving funds elsewhere would attract high charges and "probably prove prohibitive".
Pat should switch the £2,500 from her RBS bank account into a mini cash ISA straight away, says Ms Bowes. "Abbey is offering an easy access ISA at a very competitive 5.35 per cent," she adds.
Higher rates than this are available, Ms Starkey says, but they include bonuses that are withdrawn after an introductory period.
All our IFAs lament Pat's decision to invest in her Jupiter equity ISA at the top of the market in 2000. However, both Ms Bowes and Mr Yearsley think that her fund should "have no problems over the longer term" and suggest she leave the money for now.
If Pat is particularly unhappy with the performance of the Jupiter equity ISA, Ms Starkey suggests a switch to the Jupiter Merlin Growth Portfolio fund to get "a diversified portfolio for a relatively small investment".
The Friends Provident with-profits bond will likely have penalties for anyone who wants to exit in the first five years, says Ms Bowes. "Pat should wait until its fifth anniversary before asking for another valuation statement and reviewing any decision to encash it."
Changes to pension rules due to take effect on 6 April 2006 will allow Pat to use her anticipated inheritance to boost her retirement income.
"At that time, she will be able to invest a lump sum amount up to [the value of] her current salary [each year] into a pension and receive tax relief," says Ms Bowes. The remainder of the inheritance could be invested according to how much risk Pat is prepared to take, Ms Bowes adds.
Mr Yearsley suggests she uses the inheritance to pay off her mortgage and invests the rest to provide an additional income in retirement, perhaps via equity income funds.
If Pat has a low-risk attitude, Ms Bowes suggests fixed income funds like the Allianz Dresdner High Income bond or SWIP High Income bond funds.
If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email email@example.com
Five Questions: Changes to car tax discs
Bargain Hunter: There's one day left to book a bargain flight with Air Asia
Two million first-time buyers are locked out
How to save money: UK is crashing down the European league table for putting money away
Mark Dampier: When even safety first is a risk, go for income and capital growth
- 1 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 2 Oil tanker with $100 million cargo goes missing off Texas coast
- 3 George Galloway left with severe bruising after attack in Notting Hill by man 'shouting about the Holocaust'
- 4 Lady al-Qa’ida: On the trail of Dr Aafia Siddiqui, the world’s most wanted prisoner
- 5 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
- < Previous
- Next >
iJobs Money & Business
Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...
£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...
£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...
£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony