Wealth Check: 'I want more income in my retirement'
Saturday 11 February 2006
Personal: Works as a registrar of births, deaths and marriages.
Property: Lives in Bournemouth with younger son. Her house is worth £285,000 (no mortgage).
Savings: Two cash ISAs worth £6,000.
Pension: Contributing to Local Authority Superannuation Scheme, a final-salary scheme where 6 per cent of salary is deducted at source.
Income protection: Employer would give six months' full pay and six months' half pay. Death-in-service benefit of £47,000.
Income: Net monthly pay averages £1,200. Receives child benefit of £68, child tax credit of £72 and child maintenance of £300.
Sharon Ricketts, a divorced mother of two, lives in Bournemouth with her younger son, Jon. While married, Sharon cared forher children, but she now works as a registrar.
Sharon's property, worth £285,000, is mortgage-free and she is considering downsizing to generate income for her retirement. She would like to support Jon through sixth-form and university and is interested in a buy-to-let property on an interest-only mortgage.
Sharon is due to retire in December 2014 and she is contributing to a Local Authority Superannuation scheme - a final salary scheme where 6 per cent of salary is deducted at source.
We asked three independent financial advisers for their help: Patrick Connolly at John Scott & Partners, Colin Jackson at Baronworth Investment Services and Kevin Tooze at Equal Partners.
The key to Sharon's long-term financial prospects is her property, says Patrick Connolly. There are schemes that allow her to take some equity from her house and still live there, but these come with risk and high charges attached.
A buy-to-let investment would be a very dangerous strategy. Mortgage payments could be offset against rental income, but if there are periods when the property is empty the mortgage would still need to be paid. Also, what if residential property prices fall?
Perhaps Sharon's ex-husband would consider upping his maintenance payments to fund Jon's further education, suggests Colin Jackson. If this is not possible then she may have to consider downsizing.
If she can scrape together a regular amount, Jackson suggests that Sharon invests monthly in a stock market ISA in the next tax year. There is sufficient time between now and her retirement to iron out the peaks and troughs of the equity market. Nearer retirement she should restrict her investments to cash ISAs or something very low risk.
Sharon will have the option of taking her state pension at 60 or deferring it, says Connolly. The longer she stays working and remains a member of the Local Authority Pension Scheme, the more benefits she will accrue. This is a final salary scheme with benefits dependent on the length of membership and salary.
It is likely that benefits from public service pension schemes will be reduced at some stage, which could mean members having to increase contributions, an extension of the retirement age or final salary calculations being moved to career average salary figures.
The best option, says Kevin Tooze, would be for Sharon to buyadded years in her work pension scheme. The benefits will be index-linked and the risk is minimal. The next port of call should be a stakeholder pension with low charges and total flexibility.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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