Wealth Check: 'How can I get enough income to retire on?'

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The Independent Online

Kathy Hall, 52, lives in Cambridge and has been employed as a postal worker since 1977, although she took a 13-year break to raise her children. In addition to contributions to her Royal Mail pension scheme, where she has been a member since 1995, Kathy pays £250 a month into an ISA, currently worth £4,750. This money is earmarked for her retirement.

Now separated from her partner, Kathy has paid off the mortgage on a property worth £130,000 and would consider downsizing at some stage in the future to generate further income.

She would like advice on how to invest her money so that she has enough to live on when she retires. We asked three independent financial advisers for their verdicts: Ben Gibbs of Re-Financial Planning, Jason Evans of Kohn Cougar and Richard Barker of HSBC Insurance Holdings.

The patient

Kathy Hall, 52, postal worker

Personal: Worked for Royal Mail since 1977 but took 13 years out to raise a family.

Income: £17,500 a year.

Property: Home worth £130,000. No mortgage.

Pension: Member of the Final Salary Pension Scheme since 1995.

Savings: ISA worth £4,750

Monthly expenditure: Domestic bills of £250, ISA contribution of £250; General living expenses of about £200.

The cure


The Royal Mail Pension Scheme is a final salary plan, explains Ben Gibbs. The amount of pension Kathy eventually gets will depend on the length of time she serves in the scheme, her earnings just prior to retirement and the "accrual rate", the proportion of salary received for each year of membership.

Jason Evans advises Kathy to think about buying added years of membership of the scheme, in order to boost her final pension. Her employer's pensions department will be able to explain the mechanics of the process - and the cost - but this is a good way to boosting savings tax efficiently, without any investment risk.

The bad news for Kathy is that she won't be able to claim the basic state pension until she reaches 63 and a half, because from 2010, the Government plans to gradually start increasing the pension age for women from 60 to 65. Kathy may not get a full pension in any case, because of her years out of the workforce, so she should ask her local Benefits Office for advice on how much she will get.

Kathy is lucky that she owns her own property and is free of mortgage debt, says Barker. Selling up and moving to a smaller property would enable her to realise some of the capital growth in her home, which could then be invested to generate extra income. Barker also suggests Kathy checks out an equity release plan, which she could use to generate income without having to move.

He is optimistic about Kathy's retirement - she has been a member of an excellent final salary pension scheme for 10 years. If she stays with the Royal Mail until she is 60 she will receive a pension of 18/60ths of her final salary. In today's terms that's £5,250 a year on top of a state pension worth up to £4,000 in today's money.

Other savings

Gibbs says Kathy's ISA, a cash plan, is a sensible way to hold money on deposit, since interest is free of tax, which would be otherwise be payable at 20 per cent income tax. Kathy's Halifax ISA Saver Direct pays a decent interest rate of 5 per cent a year, but she should keep an eye on the account to make sure it remains competitive.

Kathy has the option of contributing to an individual stakeholder pension alongside her Royal Mail scheme, Gibbs points out. She will receive basic rate tax relief on the contributions she makes - reducing the cost of a £100 contribution to only £78.

His only caveat is that with potentially less than 10 years to go to retirement, Kathy needs to stick to lower risk funds. This might include a mix of cash, fixed interest and UK equity income funds. The later Kathy is planning to retire, the more aggressive she can be - extra investment risk will boost her chances of beating inflation.


Evans is concerned that Kathy has no insurance against a serious illness preventing her working and earning. Critical illness cover is worth considering, he says but at an average cost of £1 per £1,000 of cover, a maximum of £50,000 may be appropriate. Critical illness cover can be riddled with small-print, however, so Kathy needs to take advice.

Finally, Barker recommends that Kathy writes a will immediately because her separated status could complicate the distribution of assets upon her untimely death.

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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