Wealth Check: 'We need the funds to visit our children'

by Lesley Wright
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John and Patricia Harris, from Great Linford, near Milton Keynes, have been married for 46 years. The couple's three children now live overseas and they have a cautious attitude to investment risk. Even so, they need to think about the future and work out how to fund trips to visit their children. John suffered a heart attack earlier this year, so money also needs to be put aside for any medical emergencies.

In addition to an annual pension income of £7,500, the couple have savings of about £20,000, tied up with Nationwide and Kent Reliance building societies. John also has life insurance worth £6,000 from Axa and Patricia has a Prudential pension plan, worth approximately £11,400.

On the debt side, the Harrises have no mortgage, though they are considering an equity release plan, but they do have about £1,000 owing on a loan from Nationwide, at 6.7 per cent.

We asked three independent financial advisers for their help - Ben Gibbs, of Glazers; Lee Pimblott, of the Plan Invest Group; and Bruce Jamieson of Jamieson Financial Management.

Case notes

John and Patricia Harris, Great Linford

Income: Patricia has pension income worth £7,500.

Savings: About £20,000 split between a cash ISA and a monthly savings plan.

Debt: £1,000 outstanding on a personal loan.

Pension: One pension already cashed in. Another pension fund worth £11,400.

Property: No mortgage. Considering equity release.


Ben Gibbs points out that a pension is a tax-efficient way to save for the future. Patricia would have received income tax relief at up to 40 per cent on her pension contributions and should be entitled to 25 per cent of the pension fund of £11,400, about £2,800, as a tax-free lump sum.

She should think about whether she needs or wants to take her pension money now - the longer she leaves it invested, the greater her potential to benefit from the tax-efficient investment environment.

As she is over 50, Patricia can take the lump sum now - and it is usually good advice to do so. She could use the remainder of the fund to buy an annuity, though she does have the option to "draw down" income - pay herself money out of the fund. But this is unlikely to be cost-effective.

Lee Pimblott agrees that the main priority is to consider the options available in respect of the Prudential pension. She suggests maximising the tax-free lump sum by taking the full 25 per cent and then using what's left to provide a guaranteed income. The couple should seek independent advice about which insurer offers the best annuity rate. The most competitive rate, assuming Patricia is in good health and a non-smoker, is currently from Norwich Union - it would provide an annual annuity of £576.27.

Bruce Jamieson adds that if the Harrises have any health concerns, it is worth mentioning this to annuity providers. If your life expectancy is reduced for some reason, you should qualify for extra pension.


Pimblott recommends maintaining contributions to John's life insurance policy, bearing in mind his recent heart attack. He also thinks the couple should use some of their savings to repay the £1,000 loan.

Jamieson is against reversionary equity release schemes because the provider will buy the house, but at a huge discount. Such schemes are poor value. An alternative is to go for an equity release where the couple have a mortgage on the property, but Jamieson doesn't like these plans either, because interest rolls up at a frightening rate.


Gibbs says the Kent Reliance savings, with more than £10,000 invested in a cash ISA, are doing well. The account is paying 5.11 per cent and is one of the best deals on the market.

Pimblott adds that the couple will probably want to use some of the tax-free lump sum realised from Patricia's pension for capital expenditure, such as holidays, but any surplus should be added to the mini cash Isa. Their Nationwide savings plan can continue, with the intention of building up further savings.

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