‘My business is frozen. Can I still semi-retire?’

A reader has 11 months before she can take money from her pension. Jessica Beard helps her to plug the income gap

Millions have taken a pay cut during the pandemic, including Jackie Ward, 54, who has had all her income wiped out since she shut her business to comply with the rules.

Ms Ward, from Newcastle, has been in the midst of her own financial crisis after her small barber shop was forced to close its doors for most of 2020 under lockdown restrictions.

Blocked from receiving furlough, she has relied on £388 a month in Universal Credit. But this falls far short of the £1,300 she said she needed to make ends meet.

Ms Ward said she had had no choice but to dip into her savings and now she fears they will soon be exhausted. She has £6,000 left.

“My business is struggling badly post-lockdown and may have to close for good if this goes on much longer. I can’t see through the mud,” she said.

Ms Ward has £80,000 in her private pension but cannot get access to the money until her 55th birthday in December. She had hoped to retire partially this year, as she suffers from chronic back pain. However, she is increasingly concerned that she will not be able to afford it.

She owns a £ 500,000 home and said she would consider freeing up some money via an equity release plan. She said: “I don’t want to move but I have no cash coming in until the shop starts running again. I’m sitting on a pile of money that I can’t touch.”

Ideally, Ms Ward would draw out £50,000 to last a decade, which would allow her to fulfil her dream of travelling around Britain and France in her camper van with her dogs.

Her elderly parents have multiple properties that she stands to inherit alongside her sister when the time comes.

Andy Wilson

Equity release specialist at Andy Wilson Financial Services, an advice firm: I would firstly advise that as Ms Ward is currently under the age of 55, the minimum for an equity release plan, she could not take up such finance on her home at the moment. She could however do so at the end of this year.

The income shortfall would appear to be potentially temporary, given that her earnings could at least par

Jackie Ward wants to raise £50,000 to fund a once-in-a-lifetime road trip around Europe and Britain tially return once lockdowns end. The maximum funding required would be around £ 1,300 times 12 months, so £ 15,600, but less if she returned to work.

Advisers are required to consider alternative methods of funding before they look at an equity release plan. In this case, with no assets she would wish to sell and no desire to downsize, I would ask whether the parents might have savings they could temporarily lend to Ms Ward to fund her income shortfall for a year, after which she could repay them from a new equity release plan of her own.

If not, we could consider instead the possible involvement of the parents using their property for a lifetime mortgage. They could raise an initial sum for the first year but have access to further smaller lump sums using a pre-agreed “drawdown” facility. Interest is charged only on the money that is actually drawn. The interest rate is currently around 2.3pc.

With the hope of semi-retirement, Ms Ward feels £ 50,000 in total may meet her needs for up to 10 years. She could easily raise this sum via equity release once she is 55.

Indeed, she may also like to include a further drawdown reserve, although it is likely she will at some point inherit. To keep the debt constant, she is allowed to pay the interest each month rather than compound it, although no payments are actually required at any time.

‘I am sitting on a pile of money that I can’t touch – is equity release the answer?’

Simon Torry

Financial planner at SRC Wealth Management, an advice firm: Ms Ward’s financial difficulties would appear to be short- term and should lessen once Covid-19 restrictions start to lift. It’s entirely possible that she could be back at work by the spring, which would improve her financial situation considerably.

There are many discretionary grants currently available and Ms Ward should first check with her local authority to see if she is eligible for any of them.

One option to bridge her income gap would be to see if her parents could lend her some money. It could be repaid when she returns to work.

Alternatively Ms Ward can access her pension later this year and could at that point make a withdrawal to repay them.

She has said she would like to start drawing money from her birthday in December. Releasing tax-free cash via a drawdown plan would be an option at that point. However, a pot of £80,000 is unlikely to provide her with sufficient income to meet her spending needs throughout retirement.

It may be very tempting to access her pension pot at 55, but if she were to draw out £1,300 a month or anything close to that figure she could run out of money before she reaches her mid-60s.

At this point Ms Ward risks being 10 years older and with no pension may be forced to fall back on her property. In theory she could draw £8,000 a year for the next 10 years from her pension and then downsize at age 65.

Moving to a property with a value of say £300,000 would unlock enough money to last her for another 20 years. If Ms Ward did continue to work, she would be free to continue saving into a pension.

At age 67 Ms Ward will receive her state pension. A full contribution record will entitle her to an annual income of £ 9,110. She should request a forecast to confirm what she may receive.

Many people would like to retire at 55 but for the majority this is not a reality. Ms Ward is therefore faced with some tough choices and will need to decide what her priorities are.

Downsizing either now or in the future may be her only realistic option if she really wants to semi-retire soon. If she wants to keep her current home, however, it is likely that she will need to continue working.

Although on paper she is set to receive a sizeable inheritance, Ms Ward has no way to know when this will be or how much she will receive.

If her parents go into care there is a possibility that her inheritance could be significantly diminished. She should not rely on it.

Ultimately Ms Ward’s dream of partial retirement may be unrealistic; the disruption caused by the pandemic may mean she needs to rethink her plans and consider working longer than she intended.

Unfortunately she will not be alone in this regard.