Aged 58, Graeme Craig is considering his retirement options. He is a member of a final salary scheme from a previous employment and this is due to start paying out a pension on his 60th birthday.
He explains: “Previously I was considering delaying taking this pension. But last year I was made redundant, so this has forced me to re-evaluate my options.” He is now working as a freelance marketing consultant, but this has reduced his income.
Craig adds: “To be honest I am quite happy not to be working full-time at present. Hopefully, I can continue working in a part-time capacity. This will certainly be easier once my pension starts paying out.”
At the moment, he says there is not too much pressure on living expenses; his mortgage is fairly small and with his wife’s income they have enough to cover essential bills, with a little left over for holidays and savings. However, finances may become more stretched in the next couple of years as their children start university.
Final Salary Pension Options
As part of his financial re-assessment Craig is looking to get advice on whether he should transfer his final salary pension and make the most of the new pension freedom rules.
“The trustees of my final salary pension have written to me and have offered what looks like a significant sum of money. Even if I drawdown the projected pension each year, I’d estimate it would last for about 30 years – even if it was just invested in a savings account with minimal returns,” he said.
“But I need to get more advice on this. My gut instinct is to stick with the guaranteed pension, so at least I can be sure of a reasonable income throughout my retirement. This final salary pension also offers some degree of protection against inflation, and it will pay a spouse’s pension.”
An Extra Workplace Savings Scheme
Although the bulk of his pension savings are in this final salary scheme, he also has a defined contribution scheme with he built up while working for his most recent employer, a large US bank.
“Over the past eight years I’ve built up a reasonable pot of money. Most of this is invested in the two default funds offered by the pension scheme,” Craig said.
“Taking a closer look at my pension statement I realised that the lion’s share of this money is invested in the UK via active and passive funds. While this pension fund has performed well in recent years, perhaps I need to diversify this a bit more in future. This may be something else I need to seek advice on.”
Fund Picks for ISA Investments
Aside from his pensions Craig has some “modest investments” in an ISA. These include investment in Jupiter funds. He says: “I started putting a little bit of money into an ISA in the mid-2000s. The first fund I picked was a Jupiter one, and it performed well initially, so I have tended to stick with this investment house.”
One of his first investments was into Jupiter European. This fund has a five-star rating from Morningstar, reflecting its strong performance in recent years. It is managed by Alexander Darwall, who has been at the helm of this fund since 2001. It has a coveted Gold Rating.
Muna Abu-Habsa, a senior fund analyst at Morningstar says: “This fund has many of the features we like to see: a talented long-standing manager who is part of a highly experienced European equities team, a diligent investment process that has been proven through time, and a consistency of approach on which investors can rely.”
She points out that Darwall adopts a bottom-up approach to stock picking: looking at the fundamentals of company balance sheets, rather than considering the macro outlook.
She continues: “He likes companies with proven track records and clear business plans and where management teams have demonstrated evidence of entrepreneurial endeavour and good stewardship.”
Craig is also pleased with his investment in Jupiter Merlin Growth Portfolio, managed by John Chatfeild-Roberts and Algy Smith-Maxwell. This multi-manager fund has a three-star performance rating from Morningstar and a Silver analyst rating. Morningstar analysts say the managers’ “high conviction approach” has served investors well, “providing them with significant outperformance of its category peers over time”.
Morningstar analyst Randal Goldsmith adds: “They run a concentrated list of underlying managers, typically backing them for many years; for example, Neil Woodford and Findlay Park have featured throughout. The fund has outperformed in the majority of years and consistently in the tougher years like 2008, 2011, and 2015, doing a better job than peers at protecting investors’ capital.”
Craig says that some of his ISA investments have been more volatile, such as a small investment in Jupiter Financial Opportunities. This four-star rated fund is managed by Guy de Blonay. As a more narrowly-focused niche fund Craig says returns have been patchy.
“In recent years I’ve have had more steady returns, but this sector obviously suffered in the aftermath of the financial crash. I bought just before, which in retrospect wasn’t great timing,” he admits.
Craig is keeping these savings invested for the time being; “Hopefully they will continue to perform well. I will add to them, or look to diversify further as and when funds allow. Hopefully this will be a bit of capital to fall back on should we need it in future years.”
