Please help with my retirement strategy!

pamaris

Hi I have a couple of questions, and would be grateful for a response to any of them. First of all, DH is 38 (I am 30) and he is the sole wage earner in the family.

1. DH has a Scottish Life Talisman PP with a value of £6100. It is in "paid up" status and has been closed for 5 years. We cannot add any more money to the fund but we can rearrange what is already in there to maximize the growth. Currently the fund is invested under the "Balanced" investment strategy described here:

http://www.scottishlife.co.uk/scotlife/Web/Site/Consumer/Investment/OurProposition/Lifestyling/BRISCO.asp

He could change it to the "Opportunity" Investment Strategy, described here:

http://www.scottishlife.co.uk/scotlife/Web/Site/Consumer/Investment/OurProposition/Lifestyling/ORISCO.asp

Alternatively, he can choose the funds himself... the choices are

Managed
Global Managed
Defensive Managed, Worldwide
UK Equity
American
Pacific
European
Fixed Interest
Index Linked
Deposit
Property
With Profits
Secure Account
Security 98
Security 100

http://www.scottishlife.co.uk/scotlife/web/site/Consumer/Investment/FundInformation/ContractLists/FundfactsheetsCO.asp?bSubmitForm=&ae_bae=T&pagename=FundfactsheetsCO&btnAll=Display+All+Factsheets&sContractSuite=&sContractType=

At least half of those look like bonds/ cautious funds and not appropriate for us at this time. The others... well I can't tell which of the funds are "good" (if any). It would be easiest to use one of the lifestyling options but I don't know if that would be best. Any general input about the direction this account should take?

2. I am not a wage earner; I have given up work to look after the kids... and I have nothing as far as pensions go. DH is eligible for a (defined contribution) pension through work in 3 months. His employer will contribute 5% of his wage (30k), and he will contribute at least 6%. Whenever his pension pot matures, we will have to buy a joint life annuity anyway, since I will most likely outlive him. ... What I was wondering is... Would there be any particular benefit to me taking out a SIPP or other PP? Essentially the contributions would be coming from the same source (DH's wage) regardless of whose name is on the account. We view all the money as "our money" anyway. Do I need something with my name on it?

Thanks in advance!

dunstonh

The Talisman plans dont offer a great range of funds but many of these plans have guaranteed annuity rates so the ability to have unit linked funds and a guarantee is very attractive.

It isnt so much a case of picking from the good and bad but just making sure you have the appropriate spread. Remember that 90% of investment return is not the fund you use but where you are invested (i.e. Sector; as in American, European, Property etc). There are enough funds there to achieve that spread. The amounts you put into each would depend on your risk profile.

The lifestyling option is simple. It may not result in the best returns over the long run but simple rarely does. However, picking the wrong sector allocation for your risk profile could do more damage so if you are not experienced on invesmtents, then picking a lifestyling option may be the safest bet.

ould there be any particular benefit to me taking out a SIPP or other PP? Essentially the contributions would be coming from the same source (DH's wage) regardless of whose name is on the account. We view all the money as "our money" anyway. Do I need something with my name on it?

retirement planning should be split between you. You will have around 10k in real terms you can earn tax free from 65. If you dont use that and have it all in your husbands name, you will pay £2000 a year more in tax than if you had it in your name. Thats a lot of money when the contribution is no different.

However, your husband will be getting 5% "free money" from the employer if its in his name and you will get nothing if its in yours. So, you should take the free money from the employer and anything above that should go into your own pension.

I'm not sure a SIPP would be a good move for you as if you cannot answer the first question regarding which sectors to invest in and how much, then that would indicate that the more expensive SIPP option would be a waste of money. There is no point paying extra in charges if you are not going to utilise the features.

EdInvestor

First you should check your situation with the 2 state pensions.Make sure you are receiving Home Responsibilities Credits. Also check how much you both have in entitlement to the second one,S2P, so far.

Bear in mind that the two state pensions are taxable, and will eat up much of the 10k tax free allowance when you retire, especially if you return to work and start accruing more S2P. So it may be better to accumulate extra retiurement savings in your investment ISA (this is the ISA where you invest in shares or funds, not the cash ISA), which is much more flexible.Income from the ISA will not be taxable when you retire and you won;t lose the capital as with a pension.

pamaris

Thank you guys! Just the kind of info I was after. I was asking about sector allocations in a different thread, so I might see what I can arrange according to the suggestions given.

So we will pay less tax if I receive money from a pension in my own name. As far as the SIPP goes, I am actually pretty comfortable with doing my own research and trying to choose the most consistent performers. It was the Scottish Life funds that I was having trouble with evaluating, since they just seem to wallow in the middle. But if sector allocation is more important than the specific fund, that makes things easier.

I'll investigate what my options are as far as PP's go.

I am doing the ISA thing as well... but we are in the income bracket where the more we contribute to a pension, the more tax credits we get, so we get an extra boost that way. Being that for the next year or so we do not have any bills (living with MIL) I am going to use the opportunity to boost the pension pot and make up for lost time.

You guys are so helpful!

pamaris

OK... I am back. Currently the entire Scottish Life fund is in the UK Equity fund (which has done fine). However I have the form here to change my allocations... how does this look:

Global Managed 10%
UK Equity 45%
American 10%
Pacific 10%
European 15%
Fixed Interest 5%
Index Linked 5%

Does this reflect someone with a moderately high risk tolerance and plenty of time on their hands?

Thanks

EdInvestor

It's always worth putting money into insurance company (commercial) Property funds - often a better bet than gilts and bonds IMHO.

Are overseas equities worth the extra (currency) risk? There's no real evidence they offer any premium to account for it and you get loads of exposure to foreign markets via the FTSE because it has so many large multinationals listed on it.

pamaris

I am unsure about property just because of the whole house price situation... and possible impending correction. I am just not sure what the impact of a correction would be on a pension "property" fund... any thoughts?

Also, TBH I am a little uncomfortable with investing any money in America... I am from the US and I just know that the country is built on massive pools of debt. It is even worse after all the billions GW has spent recently. That, plus currency issues that I don't understand put me off the USA.

I am OK with the European fund though... since it is only a matter of time before we join the euro it probably won't make any difference in the end (sorry, that was probably a very naive statement.)

It does seem to make sense to spread the funds between Eastern and Western nations though, and have a more global outlook.

EdInvestor

Property investment funds are invested in commercial property - office blocks, shopping malls and such.It's a different asset class from the housing market.