No more gambling on the future

Nimat Jacob
Age: 55
Lives in: Hastings
Occupation: Guest house proprietor
Earns: About ?18,000
Mortgage: None
Debts: None
Investments: Shares, Isa, building society account
Pension: Personal pension
Aims: To find the best way to provide for his retirement
in five years

Nimat is hoping to retire when he is 60, by which time he will have been running his guest house in Hastings for 30 years. He has lived in the UK since he came here from Baghdad with his father when he was 19. He is very proud of his father, who had worked in the British Embassy in Iraq and was awarded an MBE for his services there.

Initially, Nimat was employed in the catering trade and became a branch manager for Berni Inns, but when he was 30 he inherited some money from his father and decided to go it alone. He bought his business in 1977. It was an established family-run guest house that had been open since the 1920s. Its capacity is 17 people, but there are normally no more than 10 or 12 guests there at any one time. He estimates he has an average occupancy over the year of around 40 per cent. Most of his guests are British tourists. He says 'I used to have more German and Italian guests, but the pound is too strong for them nowadays.'

When Nimat retires, he is planning to sell his business as a going concern. He says: 'By then the house should be worth around £135,000.' He will use the proceeds to buy a smaller property to live in.

At present, his average annual income is around £18,000. He has been paying into a Norwich Union personal pension since 1986 and says: 'Hopefully, by the time I am60, I will have accumulated a fund of around £75,000.'

He has around £20,000 in bank and building society accounts. His bank savings are in an e-savings account earning about 4 per cent. In addition he has £9,000 in a Guaranteed Equity Bond with Bristol & West, which will mature when he is 60.

He has also been dabbling in the stock market over the years. He says he has spent around £20,000 buying shares, such as Marks & Spencer, BSkyB and others, which he bought after reading press reports. 'I have always been interested in the financial pages,' he says. He doesn't know what they are currently worth - he plans to ignore them in the hope the stock market will bounce back by the time he retires.

He also invested £7,000 in an Aberdeen Technology Isa in 2000; this is now worth about £2,750. But he says the poor performance of the stock market has cured him of his interest in shares. 'I am not going to gamble anymore!'

He wants to use his assets to provide the best possible pension. He is not in terribly good health -he suffers from an arthritis-type condition - but is still able to ride a bike. When he retires, he hopes to visit relations in Australia and the US.

Adviser 1: Darryl Connor

My first recommendation would be for Nimat to
forecast his expenditure once he has fully retired
and moved. This will give an idea of how much
income is needed to achieve the retirement he
desires.

Pension funds are generally a very tax-efficient
way of saving, in that you receive tax relief at
your marginal rate on each contribution, and the
fund also benefits from tax concessions while it
remains invested. At his age, Nimat can
contribute up to 30 per cent of his earnings to his
personal pension; this appears to be substantially
in excess of his current contributions.

He should consider putting more away to
maximise his pension income. It is also important
to know how much state pension he is entitled to,
which can be achieved by completing a form
BR19 from the Department of Work & Pensions.

Regarding his cash deposits, although he is using
an e-savers account and these generally operate
the best returns, I would recommend that he
considers a mini cash-Isa in addition.

In his share portfolio, he should consider
transferring his money to a collective investment
such as a equity unit trust. A major benefit would
be that the fund manager would sell and buy
holdings when appropriate and the trust would
also provide much greater diversity, as it would
normally be invested in 50 to 150 shares.

He could consider equity income funds to provide
an income in retirement, as well as property,
corporate bonds and fixed interest funds. The
technology horse has bolted, so he should retain
this investment until the sector recovers -
although this could be years away.

Darryl Connor works for financial adviser Towry
Law.

Adviser 2: Andrew Jones

To maximise the price he gets for the sale of his
business, Nimat should make sure that the
occupancy rates and physical condition of his
property do not decline as he approaches
retirement: this would make it harder to sell.

He expects his pension to be worth around
?75,000 when he is 60. At today's rates, this would
generate an annual pension income of around
?6,375 before tax, payable for life and without
increase. An increasing pension would mean
accepting a lower initial income. He does not say
which fund his pension is invested in, but if it is
an equity-linked fund, he should consider moving
it progressively to a fixed- interest or cash fund
within the plan, so his investment is protected
from sudden stock market falls.

His share and Isa buying have not proved a
success, and he has taken much more risk than
would nor mally be appropriate for an
inexperienced investor. It is not clear how much
his investments are worth in total, but he should
consider transferring them to a safer form of
investment. He could consider a corporate bond
fund within an Isa framework, where the risk
would be lower, but the investment would
produce a useful income.

If Nimat wants to remain invested in shares, he
could consider an equity income fund as an
alternative. This would be more volatile than a
corporate bond fund, but still offer an income
yield.

If he does decide to transfer his Isa away from
technology shares, he should ensure that he
transfers from Isa to Isa, rather than selling his
existing Isa directly, or he will lose a year's Isa
allowance.

Andrew Jones works for financial adviser Clarity.

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