‘Should I ditch my £638k final salary pension?’

Katherine Dean wants to travel and is considering taking financial matters into her own hands. By Howard Mustoe

After spending 32 years flying around the world with British Airways, it is time for Katherine Dean to prepare for landing. Ms Dean, 55, is retiring this month following a long-haul career as a flight attendant. The plan is to stay grounded and hit the road in a camper van with her partner, Geoff, a police officer, who is also retiring. First stop: Scotland.

To fund their lifestyle Ms Dean said she needed £30,000 a year. Her long tenure with the airline will do her well. A generous final salary pension will pay out close to £15,000 a year for life – and grow with inflation each year. She can withdraw a lump sum of £221,000, something under consideration, but this would cut the annual income by £5,000.

She said: “If I invested the lump sum, I could earn more than the £5,000 a year I would otherwise get.”

She also has two smaller pensions worth £ 65,000 and two buy- to-let investments. The properties generate £ 6,600 a year and are worth £385,000 but have outstanding mortgages of £224,000. There is also a holiday home in Nice, which is worth £150,000 and has no mortgage.

However, there are outgoings to cover beyond the cost of their travels. The couple’s £650,000 home has £150,000 of debt remaining on it and there is credit card debt of £9,000 at 0pc interest until November. In terms of cash, there is an emergency fund of £10,000.

One solution is to take ake all matters into her own hands, transfer the money out of the final salary pension, worth £638,000, , and invest it. “I’m a medium- risk sk investor,” she said. “I would ld like a basic fixed amount each month but would also like to invest in stocks cks and shares.”

Phil Billingham

Chartered financial planner at Perceptive Planning After helping others to see the world, Ms Dean’s plan to retire and travel is absolutely understandable. She has done well and has created enough wealth

Katherine Dean and her partner, Geoff, have their camper van ready to explore Scotland to make her dream come true. But this new phase requires new thinking.

At 55, Ms Dean should expect to live another 32 years and she has a one in four chance of reaching 94. So she should plan for at least 40 years – which is longer than she worked for British Airways.

A successful retirement involves three things: a debt-free home to live in, guaranteed income that covers basic expenses, and investments that provide a buffer for emergencies and to spend on the fun things.

Even with the £15,000 pension, she is £15,000 short of her target. The good news is that in 12 years’ time her state pension will start, worth £9,000 at the current value.

Ms Dean is therefore very dependent on her pension scheme, so it is unlikely that a transfer would be suitable. It would mean ditching the security of a large pension scheme – where inflation, longevity and a choppy stock market are risks she does not need to worry about. A transfer would increase her financial vulnerability and it is unlikely we would recommend this route.

She can, however, draw around £ 92,000 in tax- free cash from her smaller pension pots. After putting aside an emergency fund, the rest should be used to reduce her debt, especially on her home.

Laura McLean Chartered financial planner at The Private Office

Ms Dean’s buy-to-let buy-toportfolio has provided a strong income in thus far, typically with inflation inflati protection. That said, it accounts ac for a large chunk of her wealth, which can be risky. ri A spread spr of assets, including sh shares, would provide diversification, not only from an investment perspective pers but also for tax planning. It is impossible to predict where tax legislation will go in the coming years, but those with more than one home could be a target. There are other risks that can arise with buy- to- lets, such as void periods or difficult tenants. Furthermore, managing a buy-to-let portfolio could be a burden if she is travelling.

Selling the two buy- to-lets would provide £ 161,000, before tax, once mortgages are repaid. The sales could be used to repay the mortgage on her primary residence for peace of mind.

I would also recommend earmarking funds to pay off her £9,000 credit card debt when the interest-free period ends in November. Any remaining proceeds, and anything withdrawn from her pension savings, should be directed to a well- diversified portfolio of stocks, bonds and cash. This would make her more financially secure and provide all- important easy access to cash in retirement.

A stocks and shares Isa is the most popular tax wrapper for investments. It is free from all forms of personal taxation and could sit alongside her pension to provide a tax-free income.

There is a £20,000 limit on contributions per tax year, so she could also use a general investment account, although dividends and capital gains would be taxed. However, Ms Dean would be able to offset some of this against her annual dividend and CGT allowances (£2,000 and £12,300 respectively), neither of which is being used at present.

She can drip-feed money into her Isa each year from the investment account and make use of the allowances. The personal pensions, which are typically free of inheritance tax, could then be accessed at a later date.

As her wealth is mainly in property, it is difficult to access cash if she needs it, for example, to fund larger holidays. As a medium- risk investor, Ms Dean should have a portfolio of easy-to-sell investment funds that own a mixture of stocks and bonds, but also unconventional assets such as precious metals.

I typically recommend a portfolio of 15 funds to spread risk. If Ms Dean prefers a one-stop shop, two funds I like are Liontrust Sustainable Future Defensive Managed and Troy Trojan.

The French holiday home provides some geographic diversification from her main residence and, as her objective is to travel, this might be one to keep.