Planning life in a mild climate

Frank and Freda Parker
Ages: 59 and 55
Live: in Goole
Occupations: Engineer and laundress
Earn: ?22,000 and ?6,000
Mortgage: ?43,000
Debts: Car loan, repayments ?128 a month
Investments: Halifax Pep and Isa, three SAYE share option schemes
Pensions: From past employers and personal pensions
Aims: To make best use of occupational pension due in November

Frank Parker works as a planning engineer in the aircraft industry. He has no plans to retire early - and needs to keep working in order to complete his mortgage repayments at 65.

He will, however, start receiving a £6,000-a-year pension - from his former employers, Courtaulds (now Akzo) - when he reaches 60 in November. This was agreed when he took voluntary redundancy some years ago; as part of his compensation, 18 years' pensionable service would be made up to 20 and his pension age brought down to 60.

Frank would like to know the best way of boosting his future income with this money. 'I want to invest this additional income in the most tax-efficient way, with the aim of increasing my final pension income' he says. 'I understand that contributing to a stakeholder scheme may be an option.'

Since leaving Courtaulds, Frank has worked for a number of other employers. Along the way he has acquired two personal pensions to which he no longer contributes, and membership of another company scheme with his current employer. By the time he retires from his present job, at age 65, he will have nine years' pensionable service in the scheme.

His wife, Freda also has a small personal pension, with the Prudential. Frank feels that in order to be no worse off in retirement than they are now, they would ideally need a joint income of £18-£20,000.

Their mortgage is covered by an endowment with the Prudential, which appears on course to repay it.

His other main outgoing is a car loan - a personal contract purchase with two years to run. His previous car was bought on the same basis and - as he was charged no extra at the end of the contract, despite being above the agreed mileage - he is happy with the arrangement.

Frank and Freda's current savings consist of £4,700 in a Halifax Pep (invested in a spread of the bank's unit trusts), plus £3,000 in a Halifax cash Isa. Frank also pays £20 a month into each of three SAYE share-option schemes with his employer, BAE Systems. These mature in 2004, 2005 and 2006; if the shares make a profit, he will sell immediately.

Although Frank and Freda have no burning ambitions for retirement, they are considering a move to the south coast because of its mild climate.

But house prices are relatively low where they now live, so they may need extra cash to make up the difference if they do move.

Adviser 1: Gordon Wilson

Although tax efficient, I would discourage Frank from investing in a stakeholder pension for this short period. He will have a number of good sources of pension income at 65, which should be complemented by a cash lump sum - to be used for either house purchase or investment to boost income.

The income requirement is likely to be greater in the early years of retirement, so I'd advise a combination of investments and pension income; Individual Savings Accounts would be a good option. Isas are less tax efficient than pensions in that there's no up-front tax relief - but any income from them is tax-free.

Frank could invest in a mixture of mini cash Isas and mini equity Isas. In each he can invest up to ?3,000 a tax year. The mini cash Isa is low risk, the money is accessible and it should attract a good rate of tax-free interest. The mini equity Isa invests in stocks and shares, but brings greater risk with its higher growth potential.

In five years, this money could be transferred to an income Isa for possible investment in corporate bonds. This would build Frank's reserve fund for house purchase while providing growth potential, flexibility and tax efficiency.

Frank could also put more into the SAYE schemes, which effectively secure shares at a discount. They need only be paid for if a profit has been made.

Gordon Wilson works for independent financial advisers Thomson & Shepherd Investors

Adviser 2: Gary Morris

Frank believes he needs ?18-?20,000 a year in retirement to maintain his standard of living. His current job will provide a maximum pension of ?4,950 without allowing for salary increases. This, added to the ?6,000 per annum from his Courtaulds scheme, totals ?10,950 a year with up to ?350 a year from his frozen personal pensions.

So his total private pension provision adds up to ?11,300 a year. The current state pension for a married couple would add another ?6,026 (on 2001/02 rates). The grand total is ?17,326, which falls just under ?3,000 short of his top target.

I would not recommend investing for additional pension income using a stakeholder pension plan. This would probably not have time to accumulate sufficient value.

My advice would be to invest the ?6,000 into a growth Isa on a monthly basis. (But don't automatically opt for a high street Isa: they may be easy to buy, but their collective investment track record is not amongst the best, so always take advice.)

Frank would be free to withdraw his capital tax-free at any time, not just the 25 per cent allowed by the stakeholder plan. Also, he would not be tied in to an annuity at low rates fixed for the rest of his life.

Before Frank and Freda move to the coast, they should consider all aspects, not just the financial ones.

Gary Morris works for Towry Law Financial Services, an IFA

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