Pick and mix and do as you please

Increasing contributions to your pension plan is not the only way to provide for retirement. An increasing number of people, particularly career couples in their 40s, are opting for a "pick and mix" approach combining pensions, PEPs and other long-term investments.

That is the strategy being followed by Paul Abrams and Judith Wilson from Kingston upon Thames. He is 46 and a marketing manager in the IT industry; she is younger and works as a local government lawyer.

Flexibility is the keynote. Paul works for a large multinational that is happy to see senior executives step down in their mid-50s. Judith expects to carry on working until she is 60 and retire with a pension worth almost half her final salary.

"It's a culture thing, really," says Paul. "Nobody comes along with a brown envelope containing your P45 and tells you to clear your desk; you just know when you have reached the point where it's time to go. Your final year's salary is topped up and that of course is what determines your pension."

Paul and Judith have been together for 20 years but, as Judith put it, they have never got round to marrying. Their active retirement planning was triggered by two events; Paul's 40th birthday and a small inheritance when Judith's mother died.

Judith says: "My situation is fairly simple in that I've spent most of my career in local government, so I will collect a decent pension, but of course we don't know exactly what Paul's situation will be." They started to boost their retirement fund by investing pounds 20,000 from Judith's inheritance in unit trusts, half in an Asian "tiger" fund and the other half in UK equities. This has been followed by investments in PEPs.

"We review our strategy each year when I know what my bonus will be, and we can plan accordingly," Paul says. "Between us we can put pounds 18,000 a year into PEPs and that's what we try to do in a good year. The big attraction of putting the money into the PEPs is that we can use the money how and when we like, when I'm released from the company."

Several colleagues who have taken "enhanced severance" terms in their 50s are now working part-time as directors or advisers for smaller companies or as consultants for organisations such as Business Links and the Tecs. Paul expects that he will follow a similar route.

"As long as I'm working, all the returns are rolling up and obviously we want that to continue, but we like the idea of being able to dip into the pot if we need to, which we couldn't do with a regular pension."

This has been the third year of big PEP investment for Paul and Judith. This year their portfolio consists of a Virgin tracker and two M&G plans.

Next year Paul plans to try something different: a Sharedeal self-select PEP for which he will buy shares in a couple of companies whose fortunes he has been following.