A safe investment in your retirement

Those considering pension plans can now get a clearer picture of their eventual value. Clifford German gives some pointers

PENSION plans have overtaken property as the biggest and best investment for retirement. How well a particular personal pension fund will perform is one of the great unknowns. But it is possible to measure past performance, and since the beginning of this year it has also been possible to project possible effects of charges on future yields.

The latest survey by Money Marketing magazine shows that over the past 20 years a monthly contribution of pounds 25 a month with Scottish Widows would this year have paid out pounds 43,728 including the terminal bonus. Scottish Equitable Commercial Union, AXA Equity & Law, Norwich Union and Equitable Life (pounds 40,411) filled the next five places, with Scottish Amicable, Provident Mutual and Britannia Life (pounds 28,333) bringing up the rear in the top 20 companies.

But lump sum investments, contributions over shorter periods, and other important factors such as size of terminal bonuses and early surrender values, would have shown slightly different patterns.

Projecting future investment of pounds 100 a month at a standard 9 per cent compound growth for 20 years from the age of 45, and deducting known charges, puts Equitable Life in first place with a likely fund of pounds 60,961 in the year 2015, with Clerical Medical, Scottish Equitable, Scottish Amicable, Scottish Life and National Mutual in the next five places. The smallest fund of 24 companies would yield just pounds 51,200.

But that ignores differences in actual investment performance. Anyone choosing a pension fund to invest in must consult an independent financial adviser, or at least get the full Money Marketing Guide, available at pounds 3.75 (tel 0171-439 4222).

For individuals within a few years of retirement, there is little point in trying to switch from one pension fund to another, because of the inevitable charges imposed by actuaries on the transfer values.

There is also relatively little advantage in starting regular contributions to a new pension scheme at this stage in a career, because most funds still levy their charges and commissions on contributions made in the early years. It will probably make more sense to go for a single premium investment bond, a single premium pension plan, or perhaps a shorter-term investment, such as a personal equity plan or a tax-free savings scheme. Or perhaps one of the proposed new PEPs investing in corporate bonds; these are the private-sector equivalent of government bonds, but corporate bonds are riskier and therefore yield more. They can be held tax-free as a PEP, which makes a spread of bonds held in a PEP look quite an attractive future choice.

Financial advisers often draw up idealised investment portfolios for individuals and couples as they approach and finally reach retirement.

The emphasis is on higher-risk elements such as share portfolios for secure high-income people at the peak of their careers, down through unit trusts and PEPS for those who prefer a broader spread of risk, to long- term but relatively secure investments, such as government stocks and guaranteed growth or guaranteed income bonds for individuals who are perhaps five years from retirement.

At the other extreme, such secure investments as Tessas (tax-exempt savings accounts offered by banks and building societies) are recommended for pensioners, and especially those with limited means who cannot afford to take any risks.

Pensioners with small incomes, especially wives who have never worked, will be eligible to have interest on bank or building society deposits paid gross. National Savings accounts which pay tax-free income may appeal to those with higher tax liabilities. No two circumstances are the same, and it is always a good rule not to have too many eggs in one basket.

Last but not least, pensioners should keep an eye on their entitlement to benefits. Many pensioners need income support to top up their state pensions. Anyone who will be 65 during the tax year is entitled to a higher personal allowance of pounds 4,630 in the current year before starting to pay tax., rising to pounds 4,800 in the year in which you reach 75.

Likewise the married couple's allowance, albeit restricted to 15 per cent tax relief, goes up in the tax year in which the elder partner reaches 65 and again at 75.

But, since you are dealing with the taxman, these extra allowances are halved if your total income in retirement exceeds pounds 14,600.

Start your day with The Independent, sign up for daily news emails
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Arts and Entertainment
Life and Style
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all