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
Sunday 30 March 1997
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.
08 May 2015 10:30 PM
13 May 2015 07:34 AM
The Tories have appointed campaigner Ros Altmann to the post
30 April 2015 07:30 PM
06 May 2015 09:39 AM
One reader’s monthly direct debit charge has been increased by 62 per cent
05 May 2015 02:09 PM
Many Londoners who live in social housing estates are not allowed to switch because their landlord has ‘locked’ them in to buying from one supplier
24 April 2015 07:30 PM
01 May 2015 12:00 AM
More than £60m was paid out to more than 2 million prizewinners this month
28 April 2015 05:20 PM
Why can’t we just have open and honest charges, without all the cross-subsiding?
28 April 2015 03:50 PM
With the pound at a high against the euro, it pays to buy now before uncertainty post-election
17 April 2015 06:00 PM
23 April 2015 12:00 AM
Experts disagree about the 7% increase over the past year
22 April 2015 07:29 AM
Too many mortgages are being sold with misleading gimmicks
21 April 2015 09:54 AM
The firm’s revenues slumped by a third to £217 million in 2014
21 April 2015 12:00 AM
The average quote for a buildings and contents policy has fallen by 3.6 per cent
10 April 2015 07:00 PM
- 1 JK Rowling horrified by Harry Potter actor Matthew Lewis's raunchy photoshoot
- 2 As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
- 3 Georgia Army veteran arrested for breaking window to save dog has charges dropped
- 4 New Zealand 'the best country to work as a prostitute', says sex worker advocacy group
- 5 Melissa McCarthy's brilliant response to one sexist question posed to her on the red carpet by a male reporter
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
Labour leadership: Battle lines are drawn as members battle over party's ideology at first hustings of the contest
Gay marriage 'Bert and Ernie' cake bakery found guilty of discrimination in Northern Ireland
iJobs Money & Business
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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