Cash clinic: Flexibility vital as pension regulations continue to change

Published on Friday 6 November 2009 19:19

Q I AM in my early thirties and want to start investing in funds with a view to saving money for retirement. I have a two-year-old son and have just returned to work full time, so I thought that now would be a good time to consider my future, although I'm not sure where to start and how to go about it. My annual salary is £35,000, which is half of the total family income.

Our monthly outgoings are about 3,000 by the time we pay the mortgage, car loan, nursery fees and general living expenses.

DP, Glasgow

A You would be wise to look at establishing a regular savings plan as soon as you can. Over time this should grow to become a significant sum of money.

There are several issues which you need to consider:

&#149 At what age do you think you will retire?

How much income might you require in retirement?

&#149 What is your combined income and how much combined disposable income is available once all regular monthly expenditure is met?

&#149 What existing pension arrangements do you both have in place?

&#149 What are your expectations in terms of investment returns and what is your attitude to investment risk?

&#149 Do you have any plans to have more children and/or anticipate any significant additional capital expenditure?

It's important to make use of your annual individual savings account (Isa) allowances. This is 7,200 a year per person at present, increasing in April 2010 to 10,200 each. This can be invested entirely in shares or it could be split between cash and shares. By making use of your Isa allowance you can retain control of the investment in a tax-efficient environment rather than committing fully to a pension plan which you cannot access until your 50th birthday (55th birthday from next April).

There continues to be great uncertainty about the rules surrounding pensions and also how long we might have to work until we can access our pensions. Pension rules could change yet again and we might see the earliest age at which you can access your pension increase.

Flexibility is critical. You should try to retain control of your savings and investments as much as possible. Regularly review the position and possibly make pension contributions with some, but not all of your funds. As you approach retirement age, and assuming you are confident that the rules will not change to your detriment, you could commit more funds to pensions at that time.

Complete a risk assessment questionnaire and decide how much risk you want to take now and in the future and consider the level of income you might require and when you might retire. Then work with a financial adviser to formulate a plan which both meets your risk profile and requirements.

In summary, I would suggest investing in a multi-asset manner with a spread of investments across shares, fixed interest, property and cash. Before you do that, consult an independent financial adviser for guidance on pension planning.

&#149 Gregor Munro, Financial Advisor, HBJ Gateley Wareing

If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [e-mail].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.