Jazz man seeks return to harmony

Vital statistics

KEN DUCKERS

AGE: 60

LIVES IN: Warrington

OCCUPATION: Retired

EARNS: Pension plus investment income

MORTGAGE: None

DEBTS: None

INVESTMENTS: £35,000 in GAN Millennium Bond; £10,000 in Prudence Bond; Halifax shares in Pep

PENSIONS: Receives £600 a month

AIMS: To use investments to boost income

Ken Duckers was a lab technician with Eli Lilley until he retired five years ago - 'I was made an offer I could not refuse.' He stopped work happily as he felt he was 'becoming less flexible in my dotage'.

Initially this gave him more time for playing in the traditional jazz band for which he has been semi-professional saxophonist for 27 years. But now he has made way for younger talent. He still plays occasionally, and has taken up wood turning.

His finances have gone less smoothly. His savings have shrunk in value in the past six months, making him wary of equity-linked investments. He explains: 'Disastrously, I lost about £1,500 on a Scottish Mutual offshore bond which cost me £15,000. I cashed it in early because it was losing money, but I had already paid the upfront charges, and had to pay a penalty because I had held it for only three years. I had bought the bond because the previous year it had risen 28 per cent.'

He also saw his Halifax Share Pep fall from £3,200 to £1,800 over six months. And he had a Perpetual High Income Bond which lost £500 in two months.

Ken asks: How can I stop the rot?'

He took comfort from his setbacks, spending the money from the Perpetual bond on a new three-piece suite and settling his credit card bills. And the Scottish Mutual bond cash went on a motor caravan, which, with his wife Lyn, he is about to take for two months touring France.

His main concern is supplementing his income now, as he still has five years to wait before receiving the state pension. Lyn, a non-taxpayer, has three years to go. 'My pension is £600 a month. I would like an extra £250 or so.'

He plans to use money from other investments, just maturing, to provide this: 'I have a GAN Millennium Bond which matured for £35,000 in March. This was paying income of £280 a month after tax. I also have a Prudential Prudence Bond of £10,000, which now gives us about £58 a month and which I can take out from March.' Their £70,000 three-bedroom detached house is paid for. As their grown-up sons do not want to inherit, Ken wonders whether they can use the equity to boost their income.

Whatever he invests in, he wants to know: 'What can I do to guarantee that I do not lose any more money and have it available, within a week or two, if I decide to spend big quite suddenly?'

Adviser 1: Ian Williams

The Prudential Prudence Bond should be retained, but taking income above the 5 per cent tax-free threshold will hinder capital growth. Bank shares will come back strongly, so I recommend holding the Halifax shares.

Mr and Mrs Duckers should both invest their £7,000 allowance in an Isa. I recommend a corporate bond fund for regular income and possibly capital growth, such as the Mercury High Income Bond Fund. This pays 8 per cent a month, so £14,000 will earn £93 a month tax free.

The remaining £21,000 should be invested in another income-producing unit trust, perhaps the Foreign & Colonial Higher Income Plan fund. This also pays 8 per cent but, outside an Isa, the income is 6.4 per cent net or £112 a month. This gives a total income of £863 a month net, but with slower capital growth than with a growth fund.

One way to release a cash sum from their property is the Norwich Union Flexible Cash Release Plan. It is a loan, maximum 18 per cent, with interest fixed currently at 8.25 per cent, but there are no repayments during their lifetime unless the property is sold. They retain ownership of their home. This could release up to £12,600.

• Ian Williams is a financial adviser with Bath-based Chartwell Investments.

Adviser 2: Joanne Cox

Mr Duckers' need for immediate access and capital security narrows his choices to bank and building society accounts or National Savings.

As Mrs Duckers is a non-taxpayer, they should put some money in her name. She can earn up to her personal allowance of £4,385 a year before paying tax, which would cover their additional income needs.

Many monthly interest accounts pay over 6 per cent with instant access, and £35,000 in Mrs Duckers' name provides £175 a month. National Savings Income Bonds attract 6.25 per cent at three months' notice.

However, deposit-based accounts do not provide capital growth. If the Duckers draw all the interest earned, inflation will eat into capital and income, so they should invest for capital growth. As the Prudential Prudence Bond is producing £696 a year, it is worth holding. If they are uncomfortable with the Halifax Share Pep fluctuating in value, selling may be the best option - but it could be worth keeping as the shares may rise.

There are many schemes to realise capital or income from property, but annuity rates are low and their income needs can be met elsewhere. I recommend putting this idea on the back burner. Any plan that allows them to build up debt against property can be restrictive if they should want to move.

• Joanne Cox is a financial adviser with Co-operative Bank.

Advice is for guidance only.