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.
13 September 2014 12:00 AM
30 August 2014 12:00 AM
05 September 2014 11:30 PM
30 August 2014 12:00 AM
The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options
22 August 2014 10:30 PM
Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator
22 August 2014 10:30 PM
16 August 2014 12:00 AM
16 August 2014 12:00 AM
- 1 Rihanna 'nude photos' claims emerge on 4Chan as hacking scandal continues
- 2 Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
- 3 Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
- 4 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 5 Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish independence referendum: A nation divided against itself
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...
Day In a Page
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize