The Profile
Yash Bhatt, 63, lives in Tooting, South London, and works on a temporary basis while he looks for full-time work. Yash has two grown-up daughters who no longer live at home; one is a GP and the other a solicitor. On average the father of two earns £653 a month.
The former finance officer pays £232 a month towards his 6.49% variable-rate mortgage with the Nationwide
Building Society. Aside from the £4,000 he has left to pay on his £160,000 two-bedroom flat, he has no debts and plenty of money stored away in cash and investments.
Yash has £2,076 in a savings account with Icesave, plus £1,250 in an Alliance & Leicester savings account. He also has a number of cash ISAs: £8,402 saved in a Scarborough Building Society cash ISA and a bundle of savings products with Hargreaves Lansdown: a former maxi ISA holding £24,952, £46,120 in a former PEPs and £65,042 in a SIPP.
As well as the considerable amount of savings in cash, Yash also owns 750 BT Group shares, has a Scottish Widow's personal stakeholder pension worth £30,500 into which he pays £160 a month, a Winterthur with-profits policy worth £7,337, and an endowment policy with Scottish Provident which will be worth approximately £30,000 when it matures in 2011.
Yash's overall aim of the makeover is to see how he can get the most capital growth and income from his investments and saving products.
"I want to see if I've made the correct finance decisions, especially regarding the money I have in PEPs, SIPPs and personal pensions," he says.
Expert's advice
Independent
financial adviser Caroline Anstee divides her time between offices at Paramount Group's office in West Yorkshire and meeting clients in London, and met up with Yash on a trip down south.
Anstee is impressed with the amount of investments Yash has, but thinks he should reconsider just how much risk he is willing to take.
"The most important factor when considering investments is the asset allocation, which ensures that your own risk level is maintained at all times. If investments do well you can take the profit, reinvesting it in other areas so that the asset allocation does not get too out of line," Anstee explains.
But because Yash is close to retirement and will need to live off his investments when he stops working, Anstee believes he should employ a more structured strategy that would be of lower risk to him. This is often recommended to clients who are approaching retirement.
Although Yash enjoys reading the financial pages, his portfolio is high-risk and could suffer if one particular part of the market were to go through a rough spell.
Anstee believes Yash's Hargreaves Lansdown SIPP poses the biggest risk to his portfolio, and is therefore the first investment he should look at moving into lower-risk
funds. In order to do this, she thinks he should start by placing his portfolio into an actively-managed fund.
"My recommendation would be to select a company to provide the wrapper and then invest in a multi-manager fund, giving greater diversity to the portfolio and thereby reducing the risk," she says.
Storing up enough cash to support living costs for at least three to six months is standard financial advice and Yash certainly has enough to keep him going. With £85,757 stored away in savings accounts and cash ISAs he's proven himself to be a mean saver, making the most of the tax breaks that ISAs have to offer.
"To a certain extent, his cash balance makes up for having high-risk investments in stocks and shares ISAs," says Anstee.
However, the adviser still doesn't think that Yash needs that large a chunk of savings sitting in cash alone, and recommends he has a thorough review of his savings accounts to get the investment ball rolling.
"Overall, Yash has been very good at saving his money and using tax allowances. However, I would suggest a complete investment review taking into consideration his cash savings and look at transferring some of the cash ISAs he currently holds into his stocks and shares ones. If he were to move the investments into a less volatile type of arrangement there would be no need to keep this level of cash," she concludes.
The former finance officer has already done this to a degree, moving his £14,232 HSBC Performance ISA into the bank's Guaranteed Capital Account ISA investment.
Anstee also recommends that Yash opts for a provider who can eventually move his funds into a pension drawdown plan or unsecured pension. By transferring all his pension funds into one plan, drawdown will give him access to up to 25% of cash tax-free, after which it invests the rest in a variety of funds managed by the provider, as well as external funds such as
unit trusts. It would also delay the need for him to buy an
annuity.
Getting the contributions right
Next, Anstee looks at the option of Yash increasing his pension contributions, and even though the 63-year-old could pay more into his pension fund he enjoys having more freedom with his money to invest outside of this, and would prefer to keep his contributions the same.
"Although the pension drawdown rules allow Yash to take up to a maximum of 25% in cash, his investments give him total flexibility for income or growth." Nevertheless, Anstee recommends contacting the Department of Work and Pensions to fill out a BR19 form to find out what his state pension will be when he turns 65.
One way of getting some extra money into his pension pot would be to surrender his Scottish Provident endowment policy, into which he pays £56 a month. By doing this he could put the £22,504 surrender value and regular payments he was making each month into his pension. As he hasn't received any bonuses from his Winterthur with-profits policy for the last six years, he could also cash this in for £7,337 and add this to his pension pot too.
Because Yash has no dependents and only a small mortgage, Anstee also doesn't think it's necessary to get a life insurance policy or any other protection cover. "If he was to be taken ill he would be able to live on the income generated from his investments and pensions. His only liability is the small mortgage of £4,000 which would be paid off from investments should Yash die."
As a keen investor, Yash appreciated the chance to talk through his finances with an expert. "I read lots of financial magazines to see what funds are recommended and I really enjoy investing in the different areas but over the last six months, they haven't been doing so well so it was good to get advice - especially on my SIPP as it's so complicated," he says.
