Have pension. Will I be able to travel?

Christine and Tom Forbes
Age: 53 and 54
Live: in Brecon
Occupation: School finance officer and administrator
Earn: ?15,342 and ?34,000
Mortgage: ?21,000 endowment
Debts: None
Investments: Tessa, friendly society bond, Henderson
Investment plan, deposit accounts, HBOS and
Bradford & Bingley shares
Pensions: Local government scheme and Equitable
Life AVC, and Prudential personal pension
Aims: To plan for retirement by using their money
effectively now

Christine Forbes wants to use her retirement to find the sun in the winter. Mostly she enjoys touring around Europe but her husband, Tom, would like to travel more adventurously.

Seeing more of the world is their main aim in retirement: 'We do not have any expensive plans. We just want to do a bit of travelling.'

But she is not sure whether their pensions will be large enough and asks: 'How can we best use the money we have now to enjoy life and do what we want in retirement?'

Like so many women, Christine started thinking about pensions only after she had a family. Now she is contributing as much as she can to the local government pension scheme but so far she has just 17 years' worth of contributions with another seven years until she retires.

About six years ago, Christine decided to put away more money for her retirement and started paying £100 a month to an additional voluntary contribution (AVC). Unfortunately this was with Equitable Life, and she now knows it will not produce as much as she hoped. She stopped paying Equitable Life when the insurer's problems came to light and instead switched her contributions to a Stan dard Life AVC but wonders if she would be better off doing something different.

She has an incomplete National Insurance record because for two years she worked in Greece and then gave up work when her son, Ian, was born. Ian, now 18, is an apprentice painter and decorator and still lives at home.

Tom, too, will have only a small pension because he did not start saving for retirement until he was 40: 'I just didn't think about it.' He is now contributing £443 a month to several Prudential pensions with no contributions from his employer. Tom is an administrator for a local building company and would like to stop work at 60.

Christine is not sure whether they will be able to afford this and she herself may continue working part- time after 60.

She is confused about what she should do with the Equitable Life AVC. The local authority has told her she can add the accumulated money to her occupational pension but, she says: 'It is not worth very much so I don't know if it is worth doing.'

The with-profits fund stands at £4,784, after Equitable Life cut with-profits values by 16 per cent. She also has a unit-linked fund worth £3,889. They have £1,500 of rainy day money. Christine says they should have several hundred pounds left over at the end of each month, but usually bills wipe it out.

They need to run three cars, including one for Ian, because they live in a rural area where there is no public transport.

Adviser 1: James Dalby

The Forbes should save surplus cash in an easy
access deposit account until they have three
times their net monthly income. The Local
Government Pension Scheme is good but should
not form their only retirement planning.

Christine should ask exactly what her scheme
means by allowing her to add the Equitable Life
AVC to her pension. If she can add it to the main
scheme, as opposed to the new Standard Life
AVC, she should establish what benefits she
would get and take this into account before
deciding to move her Equitable pension fund.
There is likely to be a further reduction in her
with-profits fund value if she switches away from
Equitable Life. Standard Life is a good pensions
provider but Christine should look at a
stakeholder pension, possibly with Standard Life,
as opposed to an AVC. Under stakeholder rules
you can take up to 25 per cent of the accumulated
fund as a tax-free lump sum on retirement, which
is no longer an option with AVCs.

Personal pensions provide a wide choice of
funds, and Tom should check that he is using the
most suitable one given his short time to
retirement. A solid choice for low- to medium-risk
investors could be a with-profits fund, as it
provides smooth investment returns.

The Forbes should consider regular-savings Isas
for flexibility.

James Dalby is head of research at Bates
Investment Services.

Adviser 2: Anna Bowes

Christine is sensible to redirect AVC
contributions to Standard Life, as it is an
excellent pension company. Given her age and
the 10 per cent penalty applying to transfers from
the with- profits fund, it is questionable whether
the penalty would be made up from any new
scheme. So it is probably sensible to leave the
AVC as it is and continue to make future
contributions to Standard Life. The 10 per cent
penalty will not apply to the unit-linked portion,
but there may still be some penalties and this
should be clarified before making any transfers.

As Tom has started to make pension contributions
later in life, it is important that he contributes as
much as he can. As he is a higher- rate taxpayer,
he can take advantage of higher-rate tax relief on
his pension contributions. In reality, it is unlikely
that he will be able to afford to retire early
without alternative sources of income or living on
a reduced income.

They can redirect any spare income into pension
savings or, if they are happy to take risk, they
could save in a unit trust or investment trust. For
the longer term, they could build up a portfolio of
investments with funds such as Jupiter Income
Fund, HSBC European Growth and Credit Suisse
Transatlantic or invest in a global fund such as
Fidelity International.

Anna Bowes works for Chase de Vere Investments.

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