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
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
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

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'