Wealth check: I want a comfortable life during retirement
A parish clerk has made a good start on her pension savings, but wants to be in a stronger financial position. Maryrose Fison reports
Sunday 29 August 2010
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.
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF
Customers paying up to £250 more on energy bills than they should every year
10 tips for taking out a personal loan
Has your Premium Bond won the £1million jackpot?
There are 'dark corners' of the investment and pensions industry, says Pension Minister
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
- 1 What happens to your body when you give up sugar?
- 2 Japanese island overrun with cats after population explodes
- 3 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 Average penis size revealed: Scientists attempt to find what is 'normal' to reassure concerned men
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
iJobs Money & Business
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...
£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...
£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads