After 34 years of work, Barbara Ryder is starting to think ahead towards retirement. She worked for BT for seven and a half years, and worked in the optical business for 13 years.
Mrs Ryder's interests include gardening; she also enjoys travelling to Cyprus and hopes to retire there. However, she is concerned about her pension arrangements
Mrs Ryder has a frozen pension from BT and a pension, through her work, with Equitable Life. Given the well-publicised problems at Equitable, Mrs Ryder wants to know whether she should transfer this pension to another company, and if so, to which.
In addition, she is considering moving jobs. If she were to transfer, would she face a penalty, or would she be better off leaving the small Equitable Life and BT pensions where they are, and starting afresh with a new scheme?
We put her case to Darius McDermott at Chelsea Financial Services, Patrick Connolly at John Scott & Partners and Darryll Connor at Towry Law
BARBARA RYDER, 53, OPTICAL ADVISER
Debt: £11,000 personal loan at 13.8 per cent
Property: Husband pays mortgage
Savings: Mini cash Isa paying 2.3 per cent with National Savings & Investments
Pension: BT pension plan, now frozen; four years' contributions to employer pension plan, which is now with Equitable Life
Outgoings: About £450 a month
Mr Connolly says Mrs Ryder has no significant savings for retirement, yet a debt that is expensive, at 13.8 per cent interest. There is little or no point in putting money into savings or investments until she is able to cut her debt, as it is highly unlikely they will earn more than the debt interest. He says Mrs Ryder should move her loan to a lender that charges a more competitive rate of interest.
Mr Connor suggests Mrs Ryder could use some of her savings to pay off the loan. But she needs to check how her interest is charged as paying off the loan early could prove expensive. As a basic rate taxpayer, she would need to earn 17.25 per cent on savings or investments just to cover the interest, so it might still be worth repaying.
SAVINGS AND INVESTMENTS
Mr McDermott suggests Mrs Ryder should build up a contingency fund of at least £1,500 in a no-notice account. This will allow her to meet any unexpected spending without having to dip into her Isa. Mr Connolly also points out that the interest on her current mini-cash Isa is not competitive.
Mr McDermott recommends the West Bromwich and Lambeth building societies, paying 5.75 per cent and 5.40 per cent respectively, for longer-term savings. For the short term, Mrs Ryder could look at Alliance & Leicester's EasySaver, at 3.55 per cent, with instant access.
Mrs Ryder is not really in a position to invest in equities until she has paid off her loan. But Mr McDermott says there are some lower-risk equity funds she could consider to boost her savings before she retires.
Mr Connolly says Mrs Ryder should write to the BT pension fund administrators to discover the benefits she will have on retirement. She could then take professional advice on what to do with the money.
Mrs Ryder should ask the company for full details of her Equitable Life plan. The investments worst affected by the problems there are the with-profits funds. The warning Mrs Ryder has had from the company, that she might not get back what she has paid in, applies to all money-purchase pensions, Mr Connolly says.
Mr McDermott says Mrs Ryder should look at transferring to a more stable company, such as Norwich Union or Legal & General. She should boost her retirement provision by taking out a Stakeholder pension plan and paying in as much as she can afford.
Mr Connor points out that if the funds in Mrs Ryder's pension are unit linked, they will not be affected directly by the problems at the company.
He sayspeople approaching retirement, often reduce their exposure to equities in favour of bond, gilt and property funds. Mrs Ryder could also spread the risk further by picking a pension company that allows access to third-party fund managers.
If Mrs Ryder does have her money in the Equitable Life with-profits fund, there may be transfer penalties but there could also be annuity rate guarantees, depending on the age of the plan. She should take professional advice.
MOVING TO CYPRUS
The cost of living in Cyprus is significantly lower than in the UK. The Cyprus authorities have a reciprocal agreement with the UK so she will receive her state pension and it will be index-linked, Mr Connolly says.Reuse content