Retiring types

The Agerbaks want to buy a home and ensure a decent income. Adviser Paul Gauntlett tells how

Tim and Linda Agerbak had a full financial review carried out for them by an independent financial adviser, on a fee basis, in April 1995. The purpose was to ensure they would have an adequate income after Tim's proposed retirement in the summer of 1999 at the age of 60. Their primary objectives at present are as follows:

r The purchase of a home for their retirement costing, say, pounds 100,000.

r A retirement income, net of tax, of just over pounds 15,000 a year in today's terms.

r To use reinvestment relief to defer part of the chargeable capital gain arising from their Cheltenham & Gloucester "windfall" in August 1995.

r To keep their investments on track following on from the advice they received in 1995, particularly if there proves to be a bumpy ride ahead on the stock market.

Tim and Linda have a portfolio of deposits, National Savings, traded endowment policies, gilts unit trusts and PEPs. These aregeared to growth rather than income. The likely income shortfall needs to be more accurately established between Tim's age 60 and 65 and thereafter.

Between now and 1999, when Tim is 60, the PEPs can be transferred into equity income funds with a view to providing rising tax-free income with, hopefully, protection of capital against inflation.

With the need to buy a retirement home for pounds 100,000 in mind Tim and Linda have just realised pounds 28,000 from one of their equity linked investments and have over pounds 100,000 in building society deposits. They have purchased three traded endowment policies (costing about pounds 63,000) and set aside pounds 40,000 of the building society cash to cover the purchase of a retirement home. After allowing for this purchase, Tim and Linda have about pounds 170,000 invested, ample to provide the extra income required. even at the relatively low initial yield available from a balanced equity portfolio. They need not therefore feel threatened by short-term stock market volatility.

Of the pounds 100,000 on building society deposit, pounds 40,000 will need to be retained in cash since the house purchase is likely in the next two years. This can also serve as an emergency reserve in the interim. The balance can be used to start a Tessa for Tim, make the 1997/98 PEP investments and take advantage of any opportunities which may arise - particularly if a fall in stock market valuations provides a good window in which to invest for long-term income and growth.

Their current annual expenditure exceeds pounds 21,000. However, once Tim retires, and they move into their new home, they will save over pounds 6,000 a year in rent and pension contributions. This indicates a required net income of pounds 15,000 per annum or so. An updated forecast of likely pensions is now needed.

At the time of the last review these were estimated as Tim pounds 11,915 and Linda pounds 1,925 per annum. After tax, this indicates a joint pension income of about pounds 12,400. Further income of pounds 2,500- pounds 3,000 per annum will need to be generated from investments and this will need to be protected against inflation as far as possible.

Even though he has taught overseas from time to time he will undoubtedly have accrued some state pension entitlement in the UK, payable from the age of 65. Tim should immediately complete and send form BR19 to the Benefits Agency to request a retirement pension forecast. It may well be the case that the Agerbaks' initial objective from their investments will be to provide a bridging income until Tim's state pension starts at age 65, whereupon things can be reviewed again.

Linda is receiving no retirement pension but should check whether she has any entitlement. Meanwhile, Tim should continue as he is now, paying maximum additional voluntary contributions (AVCs) to tax-efficiently boost his prospective occupational pension.

Tim and Linda's joint account with the Cheltenham & Gloucester produced a windfall in excess of their annual capital gains tax exemptions and they paid over pounds 1,700 in CGT. They are waiting to see what indexation relief may be available following Clark Whitehill's successful challenge to the Inland Revenue (The Independent, 5 February 1997).

Meanwhile though, as Quakers, the couple have a strong desire to see that their investments are ethically sound and were delighted to be able to make a small investment in a wind farm co-operative in Cumbria known as Baywind. This qualifies under the Enterprise Investment Scheme (EIS) for income tax relief at 20 per cent and they can also elect to defer part of their C&G capital gain by reinvesting under this EIS.

Such an investment would normally be considered unduly risky for a couple like the Agerbaks but they have taken comfort from Baywind's 15-year contract under the Government's non-fossil fuel obligation (NFFO). Under EIS rules it is possible to defer capital gains tax where the chargeable capital gain is reinvested (in part or whole) into qualifying shares within three years of the date of the original gain (which must be after 29 November 1994). They should however bear in mind that CGT is deferred rather than avoided.

Consideration ought to be given to the inheritance tax (IHT) implications of the current wills, which are wholly in favour of each other. This is entirely understandable but not very tax-efficient as it will result in a tax liability on the last death which could be avoided if use is made of the "nil-rate band" of IHT on each death. This involves leaving some assets on the first death to beneficiaries other than the surviving spouse.

They may well feel uncomfortable with this since this course of action could leave the surviving spouse short of income. The answer may be to leave assets under a discretionary trust from which the remaining spouse could potentially benefit.

Finally, thought should be given to how the cost of long-term care may be met, should this be required. Both regular premium and single premium insurance arrangements are widely available.

Paul Gauntlett can be contacted at IFA Moors, Marr Bradley on 01908-66228.

Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
footballShirt then goes on sale on Gumtree
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
Have you tried new the Independent Digital Edition apps?
A poster by Durham Constabulary
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
Emily McDowell Card that reads:
artCancer survivor Emily McDowell kicks back at the clichés
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvBadalamenti on board for third series
Life and Style
Standing room only: the terraces at Villa Park in 1935
Ben Stokes celebrates with his team mates after bowling Brendon McCullum
sportEngland vs New Zealand report
Amal Clooney has joined the legal team defending 'The Hooden Men'
Finacial products from our partners
Property search
Up and away: rates will rise but your mortgage won't escape its moorings with a long-term fix

Is a 10 year mortgage deal a fix too far?

A cut-price deal for a decade-long home loan - where's the problem? Only, says Simon Read, that circumstances can change and it won't be easy to get out
In a surprise move the Tories have decided against putting a career politician into the job. Instead they’ve handed the responsibility to campaigner Ros Altmann

New pensions minister has massive job on her hands

The Tories have appointed campaigner Ros Altmann to the post

Promises, promises: David Cameron talks to staff at Asda's head office in Leeds today

General Election 2015: How you vote next week could affect your finances

Rival party pledges could shrink your savings or grow your nest egg
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
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine