As more people face a cash-strapped retirement, Christina Gibbs, 54, is keen to ensure she doesn't fall into the same predicament when she leaves paid employment.
The main financial goal the full-time parish clerk from Sileby, Leicestershire, has is to build up a secure pension pot for retirement. "I want to remain independent but also have enough money to be able to go on occasional holidays without worrying about my financial position," she says.
Ms Gibbs has built up a private pension worth £25,000 with her previous employer and has savings worth £12,000. She is earning a salary of £26,276, rising to £28,686 over three years, but her new employer doesn't offer a pension scheme.
Having worked for 40 years, she will be eligible for a basic state pension worth £5,077 per annum (£97.65 per week) but her outgoings – totalling approximately £900 per month and a £3,000 credit card debt (interest free for the first 15 months) – means she will have to do some serious saving over the next decade if she is to lead the lifestyle she wants in retirement.
Tina Weeks, the director of London-based Serenity Financial Planning, says Christina would be advised to open a private pension as soon as possible. "There are many on the market now. They are mostly offered by life assurance companies, but increasingly we are seeing them being offered by investment companies and wrap or platform providers," she says.
The flexibility to increase and decrease her monthly contributions will be important as well as whether the scheme allows for lump sum payments to be made if required. She also advises searching for a pension with an annual management charge that doesn't exceed 1 per cent and that has a good selection of funds to choose from, including potentially a "lifestyling option" which would allow Ms Gibbs automatic phasing into cash holdings as she nears retirement and reduce the risk associated with her pension.
Budgeting for a nest egg
The financial planners are in consensus that she will need to do some more homework if she wants to ensure she doesn't underestimate the cost of her desired retirement lifestyle.
Jeremy Deedes, the director of Yorkshire-based Planning for Life, recommends the so-called "keep warm strategy" to ensure her pension income is sufficient to cover living costs so that later she is not too concerned about being able to pay the fuel and food bills. "Additional pension and investment income and capital can then be used for discretionary spending on the fun things. It goes without saying that this requires a bit of budget work by Christina – work which should begin now, not on the day before her 65th birthday."
Growing the pensions pot
To bulk up her pension pot, Ms Weeks recommends Ms Gibbs remain in her present job and begin making monthly contributions immediately.
"Christina would have to contribute approximately £346 per month out of her net income into her pension to build up a large enough pot to provide a pension of £5,723 per annum. This combined with her annual state pension of £5,077 would give her the £10,800 she would need to cover her annual expenditure," calculates Ms Weeks. However, she says there is room for flexibility on contributions.
"Christina would also like to be able to have an active life in retirement, not depend on anyone and be able to go on the occasional holiday. To build up additional pension to do these things she should consider either paying more than £346 per month or carrying on working beyond age 65. If Christina was able to increase her monthly payments from £346 per month to £434 per month and worked for three extra years till age 68, this will give an extra £3,000 approximately per year during her retirement. "
Saving for a rainy day
To cover unexpected periods when Ms Gibbs may not be able to work due to illness, unemployment or unforeseen circumstances, Ms Weeks also recommends she builds up an "emergency cash" fund using her £12,000 of savings which would be inaccessible if she put it into her pension.
"I would recommend she transferred this money to a high interest easy access deposit account. She should consider putting some of the money into a cash ISA if she has not already used her allowance. Premium bonds are also an option."
Credit card debt
While Ms Gibbs has £3,000 on a Capital One credit card, because it is interest free for 15 months, the financial advisers don't recommend she pays it all off immediately.
"As she is paying £100 a month, her remaining debt would be £1,500 at the end of the 0 per cent promotional period. She should withdraw the £1,500 from her £12,000 savings at this point and pay off the debt to avoid excessive interest charges," says Ms Weeks.
Handling multiple pensions
By the time Ms Gibbs retires she will have pension income from two sources: her first private pension (worth £25,000) and the newer pension she is advised to take out. Mr Deedes says that consolidation of the two pension pots is not strictly necessary but can sometimes help to cut down on administration and possibly lead to better investment strategies.
"It may make sense to consolidate her pensions. When deciding, she should consider are the costs of her existing pension, the investment options available and any penalty charges or loss of guarantees," he advises.
The financial advisers also recommend paying close attention to the funds she is invested in as she nears retirement, as any big losses will not be able to be recouped quickly.
"Christina should remember that if her existing pension fund is invested in equities, she should move into lower risk cash and fixed interest investments such as bonds as she approaches retirement. This will limit investment returns, but protect her from falls in global markets," says Mr Deedes.
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Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF