At 60, Keith Hart’s focus is turning to his retirement. But despite having a generously funded pension plan he does not know when he will be able to afford to retire – nor what standard of living he can look forward to.
“I’d like to travel more in retirement. But currently I am not sure whether this will be wet weekends in Bognor Regis, city breaks in Barcelona or somewhere further afield like Bangalore,” he said.
Part of the problem he says is that pension planning is “inherently unpredictable” for many his age who do not have the security of defined benefit pension. Over the past decade the financial crisis, volatile stock markets and falling annuity rates have added to this uncertainty. “People ask what my retirement plans are, but to be honest I’m not quite sure yet,” he said.
To further add to this uncertainty, Hart was recently told he will lose his job as an internal communications manager for a large US computer company.
“I don’t know how much more I’ll be able to invest in my pension. I certainly don’t want to retire yet, but realise it may take time to find another position at my age, and it may not be at my current salary.”
Investing in a Diversified Portfolio
In order to get more control over his finances Hart merged a couple of older company pensions and personal pensions into a single retirement plan two years ago. This is run through Old Mutual Wealth and with the help of an adviser he has invested this money in around 25 to 30 funds.
Hart says: “I’m a more cautious investor so this is reflected in the choice of funds. I still want to get a return on my money but I don’t want to take unnecessary risks with it.”
Some of the bigger holdings in his portfolio include Premier Defensive Growth, a targeted absolute return fund, currently unrated by Morningstar. He is also invested in CF Miton UK Value Opportunities, which, as the name suggests, tries to spot investment opportunities in under-valued companies. This tends to give the fund more of a bias towards smaller companies and so appears in the Morningstar small-cap category. Morningstar gives this fund a four-star rating reflecting in relatively strong performance in recent years.
He also invests in a range of bond funds, including M&G UK Inflation-Linked Bond Fund. This has a one-star rating from Morningstar, and aims to protect the value of capital and income from inflation by generating a returns that are in line with inflation over a rolling three- to five-year period.
Hart also has a slice of his money in various money market funds run by Henderson and Premier. These ultra-cautious funds aim to provide a return in line with money market rates. They actively invest in a diversified portfolio of UK deposits and short dated money market instruments.
Hart says: “To be honest the names don’t mean a lot to me. I am not particularly interested in the nuts and bolts of financial planning: I don’t read the financial papers or follow what stocks are going up or down. To me it makes sense to pay an adviser to keep an eye on my investments for me.”
However, he says he has been happy with the performance since he merged his various pension pots: “Most months it has increased in value overall.”
Will Brexit Volatility Be Short-Term?
Hart says he has regular meetings with his adviser where they discuss the performance of his investments and where necessary the portfolio is re-calibrated.
“Before the Brexit vote I spoke to them about the implications for my holdings. In the end we didn’t make any switches. I am more invested in bonds than equities, and the advice was that volatility in markets was likely to be short term. We will see whether this turns out to be correct. But it was reassuring to talk the options through. My adviser is always easy to get hold of and doesn’t charge for these impromptu calls.”
‘Property Has Provided Me with a Degree of Financial Security’
Hart says the majority of his wealth is tied up in his pension and the family home. He says him and his wife may consider downsizing the family home in Dorset now that his daughter has left home. “She is now starting her working life, renting in London. If we downsized over the next decade or so it would obviously be great to use some of it to help her get on the housing ladder. But we may need to use this money ourselves to help fund our retirement. Hopefully we will be able to do a little of both.”
Hart adds: “I realise we are fortunate that the value of our home has increased substantially, and this gives us some security.
“I understand why the old pension system was unsustainable but the reality of the current system is that there are many people like us unsure quite what their financial future holds.”
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