Ways of getting a little extra beyond the Halifax

FINANCIAL MAKEOVER; Ms Wilson should ask the adviser why he feels high-income bonds are a better deal than PEPs

Tricia Wilson is 57, retired, and divorced. She mainly lives off savings and pensions, although she also does nine hours of paid work a week for a charity, for which she gets around pounds 39. The pensions and savings comprise the following: pounds 4,370 a year after tax from a Britannia Life pension, pounds 2,160 from a Standard Life bond, pounds 2,120 a year from an annuity with Clerical Medical, and the interest on more than pounds 60,000 of savings in a Halifax Bonus Gold account.

Tricia also has pounds 9,000 of savings in a second-generation Tessa with the Halifax, and pays pounds 265 a year into a Scottish Amicable pension plan, due to mature in three years when she reaches 60.

Tricia owns her flat in Cheltenham, which has running costs amounting to around pounds 2,400 a year.

Ms Wilson reckons that if she watches her outgoings carefully, she has enough money to do the things she wants: eat out with friends, go to the theatre, rent a holiday caravan in Pembrokeshire every year, and even visit her son in Hong Kong. But in fact she is spending around pounds 1,300 more than her total income every year. Is there a way of raising her income without reducing her capital (which once reduced will be even harder pushed to produce a decent income)?

What does a financial adviser recommend?

Ms Wilson's income shortfall could be seen as a relatively short-term problem as in three years' time she will get her state pension and her Scottish Amicable plan will mature. In addition, she is set to become one of the biggest beneficiaries of the coming Halifax windfall as her pounds 60,000 of qualifying savings should mean shares worth pounds 5,000.

However, these Halifax savings are currently earning interest of less than 4 per cent net of tax. Ms Wilson could withdraw the vast majority of her money now without jeopardising the windfall, although she must continue to keep a qualifying account open until pay day (expected to be in June). To be sure, she might prefer not to touch her money until she gets her shares. This conservative approach is recommended by the adviser who examined Ms Wilson' finances.

He notes that when Ms Wilson does feel happy moving her Halifax savings she should shop around for accounts offering higher rates, perhaps because they are operated by post or because withdrawals can only be made after a period of notice. He advises that as she wants to live off the interest, Ms Wilson should be sure to check that any account would pay interest monthly, as not all offer this service. Woolwich, for example, is offering 6.2 per cent (5 per cent net) on savings balances of pounds 25,000 to pounds 50,000 in its Postal 60 account, where 60 days' notice is required. He suggests that she could put half her pounds 60,000 in a savings account of this type and the remainder into investments that will offer higher returns, albeit at higher risks.

For example, it is possible to receive an annual "income" of 10.2 per cent net of basic-rate tax from a high-income bond that would tie up pounds 10,000 for five years, giving her a monthly income of pounds 82. The catch to this is that for Ms Wilson to receive her pounds 10,000 in full at the end of the five years, the UK and German stock markets must both be at least as high as they were when the bond was taken out. With stock markets looking as fragile as they do at present, there is a possibility that she will not get her pounds 10,000 back in full. Although it would be very unusual for the UK stock market to be down over a five-year period, the risks are increased in this case because there are two stock markets to be considered.

The bond, from GE Financial Assurance, offers a minimum return at the end of the five-year investment period of the pounds 10,000, less the "income" payments that have already been paid.

The Halifax shares Ms Wilson is due to receive are a more straightforward investment. There is no reason to think that they will not give a better return than a deposit account over the longer term. Even over the shorter term the dividends could keep pace with the interest she could otherwise get on the money, especially if the shares are held tax-free in a PEP.

The adviser recommends a relatively low-risk distribution bond for the rest of her savings. These bonds invest in income-oriented investments such as gilts and generate income half-yearly. Current half-yearly distributions are worth 2.6 to 2.95 per cent net of basic rate tax. He notes that over the longer term the bond should also provide some growth in that income.

However, Ms Wilson should quiz the adviser as to why he believes this and the high-income type of bond are better than PEPs (even though these are limited to an investment of pounds 6,000 a tax year) or unit trusts, in view of the fact that he recommends two investments (the high-income bond and distribution bond) that stand to earn him more commission than from many PEPs and unit or investment trusts.

It is also worth noting that Ms Wilson stands to gain from the impending takeover of Scottish Amicable, the mutual insurer with which she has a pension. She should receive a good windfall payment from this and, with her plan maturing in three years, she should escape before any possible negatives from the takeover come through.

q Tricia Wilson was advised by Peter Lawson, a partner of Acorn Financial Planning, an independent financial adviser based in Cheltenham.

If you would like to be considered for a financial makeover, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Please include details of your current financial situation and state why you think you need a makeover.

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Sport
The giant banner displayed by Legia Warsaw supporters last night
football Polish side was ejected from Champions League
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100(and it's got nothing to do with the Great British Bake Off)
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
news It's not just the world that's a mess at the moment...
News
Angelina Jolie with her father Jon Voight
peopleAsked whether he was upset not to be invited, he responded by saying he was busy with the Emmy Awards
News
Bill Kerr has died aged 92
peopleBill Kerr appeared in Hancock’s Half Hour and later worked alongside Spike Milligan and Peter Sellers
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
news
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
Finacial products from our partners
Property search

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

India could be jewel in the crown for investors

With a new government and an ambitious prime minister, the country offers the prospect of strong returns. But there may be hiccups ahead, warns Simon Read

Child Maintenance Service to replace Child Support Agency - but is it better?

Reforms to the vexed question of child support payments by absent parents mean extra charges for both sides. Neasa Macerlean reports

Barclays's new life insurance heralds a revolution on the high street

The new product marks a shift towards 'clear, straightforward and standardised' banking products, says Simon Read

How to protect your assets if the stock markets begin to head south again

Are you worried about your portfolio? Nick Paler asks fund managers and investment insiders for advice
Fuel poverty campaigners united in criticising the delays in helping those in fuel poverty

Plans to tackle fuel poverty are slammed by campaigners

Charities and action groups believe that the Government's proposals are woefully inadequate
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Data Scientist (SQL,Data mining, data modelling, PHD, AI)

    £50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    KYC Analyst, Birmingham - £200-£250 p/d

    £200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone