Jude Bull, a charity worker from Basingstoke, has just taken voluntary redundancy after 13 years with the same employer. The 33-year-old has a new role lined up as an events and community fundraising manager, but has concerns for her long-term financial future.
"I will be starting my new job in a couple of weeks," Jude says. "I've relocated to Hampshire to where my new role is and am currently renting a property with my husband Andrew in the interim. But the job means that I will be enrolled in a money-purchase pension scheme rather than final-salary.
"I'm concerned about my pension, or lack of it," she says, "and I'm wondering if I should use some of my severance payment to increase my retirement savings.
"I'd like to be able to retire with a reasonable income when I'm around 50, and I am considering other big changes in my life, including emigrating to Thailand within the next five to 10 years."
Jude has several financial themes that she will need to carefully consider if she hopes to achieve her goals of a life overseas and a comfortable retirement.
"Without an idea of the income she would like to receive at retirement, it doesn't surprise me that Jude has limited savings and a relatively small pension fund," says Dennis Hall, of Yellowtail Financial Planning.
"If she was serious about retirement at age 50, she would need to have considerably more in the pot today. Even retiring at age 65 will require a significant shift in attitude to savings and investment. If you don't know where you are going, any road will take you there."
Having targets for all her financial hopes, including the ability to live in Thailand, will give Jude something to focus on and something to measure her progress against.
Savings and loans
Jude has savings of around £35,000 including her redundancy cash, and should use some of this to pay off the personal loan charged at 6.9 per cent interest which costs her £180 in monthly repayments. Not only will this save her the interest but she could put that money towards her pension every month.
For the rest of the cash, Jude has several options, including her own idea of adding it to her pension – but only once she has put aside an emergency fund worth between three and six months of her salary.
She could also consider paying off the mortgages on two flats she owns in Yorkshire. If she can pay off her mortgages before emigrating, renting out those properties could provide the income she needs before her retirement income kicks in.
"As for any extra cash saved from salary, everyone should try to make the most of their annual tax-free ISA allowance, but Jude and her husband should particularly bear this in mind if they do move to the Far East, as non-UK residents aren't eligible," says Colin Rothery, of Throgmorton Financial Services.
"Jude has some ambitious retirement plans," says Danny Cox, of financial adviser Hargreaves Lansdown. "She needs to consider the lifestyle that she and her husband aspire to in retirement and assess how much income they will need to achieve that lifestyle. Although they may need less income if they are living in Thailand than in the UK, it is important to set a target to aim for as soon as possible."
If Jude retires at age 50, she will be too young to draw her pensions. The final-salary scheme she currently has from her previous employer will achieve its best value for Jude if she leaves it in place until she is 65. "This pension, the equivalent of £4,600 a year, will rise annually broadly by the rate of inflation, so provides an excellent underpin for retirement income," Mr Cox adds. "This future income will almost certainly be much more valuable than transferring her £28,000 of saved funds to an alternative pension scheme.
"Realistically, Jude might be able to draw her pension benefits early, but no earlier than age 55, and even then there will be a considerable penalty for doing so," he says. "And her state pension will not be payable until age 65 either."
Jude's new employer offers a good pension scheme – though it doesn't compare to the final-salary scheme she had enjoyed with her previous employer – but once again, this won't pay benefits until age 55. That means that Jude will have to find alternative sources of income to tide her over until her pensions become payable. With that in mind, Jude may assume it's better to keep her redundancy cash out of her pension to help bridge the 15-year gap between her preferred retirement date and the time she can take her full pension income.
But Mr Rothery suggests investing a lump sum in her new employer's pension scheme.
"As Jude's new employer will pay 9 per cent of her salary into her pension, she should consider investing a lump sum to obtain tax relief on her savings growth," he says.
Jude can choose where to put this cash, but her work scheme may be the best way of avoiding high annual management charges. Regardless of how she plans it, and despite having no clear idea of how much she feels she will need in retirement in Thailand, the advisers agree that she will have to increase her pension savings considerably if she hopes to live comfortably in old age.
Wills & insurance
Another excellent benefit that Jude's new employment package offers is a death-in-service benefit of four times salary. However, Jude's bigger worry should be what would happen if she were unable to continue working through ill health or disability. Income protection, which pays a regular income should Jude be unable to work, should be considered. And Jude and her husband should each make a will. If one of the couple were to die, their possessions and assets will pass to the surviving spouse in this circumstance as they have no children. A will would make the whole process much simpler.
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF email@example.com