After some years working abroad for a multinational oil company, he returned in 1992 to find that he was too old to go into the company scheme. The company's actuaries suggested an Eagle Star personal pension plan. It was started with a lump sum of pounds 8,568 transferred from an offshore savings contract, which, grossed up for 40 per cent tax relief, came to pounds 14,280. A further addition of pounds 4,309 gross was made two months later, followed by 10 monthly payments of pounds 708 gross (a total net cost of pounds 6,833). The total fund is now worth around pounds 30,000.
Peter now draws the state pension, a small pension from a former employer, and dividends from shares, while his wife, Mary, works with the Shaftesbury Housing Trust - enough to give them a comfortable lifestyle, with a bit left over. But thanks to some nifty planning, he is sitting on a pounds 30,000 fund, which he should be able to swap for a useful income at any time up to the age of 75.
Until retirement, however, the other main factor in determining the best savings vehicles for people like Peter who have left their planning late will be his attitude to risk. "It's not money you can play with," says Nigel Darnley, technical director with Foster & Braithwaite Investments. "Over a five-year period, one should be looking for a relatively safe investment, assuming that the income is going to be a significant part of retirement income."
Outside any pension plan, the "safe" portion of the portfolio could include Tessas, index-linked National Savings (the Eighth Issue gives 3 per cent over inflation) and, for those over 60, the pensioner's income bond, which currently gives 7 per cent gross. Whether it is best to buy these while still employed or at retirement depends on the investor's current income and tax position.
For those not averse to risks, James Higgins suggests regular savings into an investment trust. "As long as it costs nothing extra, the monthly savings could be held within a PEP, but avoid 'packaged' PEPs with high initial charges or withdrawal penalties. The tax breaks of a PEP are overrated for most people and in the short term the average charges tend to outweigh the tax savings. If the capital is available, a lump sum into a PEP would make sense, but use the self-select type and buy good investment trusts and shares, paying only the conventional stockbroking charges."
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