I attended a recent presentation at work about stakeholder pensions and
would like to start investing in one. However, although I am 30 years old
and a higher-rate taxpayer, I feel that I cannot afford to pay in anything
in at present as I would have to cut back on my current non-essential
expenditure in order to be able to do so. I spend about £3,000 a year
on family holidays but am very reluctant to give this up as it is something
that we, as a family, enjoy very much. What can I do?
I have a great deal of sympathy for you and can assure you that you are
not alone in feeling this way.
Stakeholder pensions were introduced last month to encourage more people
to start making their own provision for their retirement. Yet many people
feel this is not something they can afford to do at present. Retirement
seems a long way off and many people would prefer to live for today than
plan for the future.
Recent research from the Million Dollar Round Table supports this view. Of
1,000 people surveyed in the UK, two-thirds of working respondents said
they were more concerned about their current needs than saving for the
future. The survey also found that 53 per cent of retirees would see the
world if they had enough money.
Figures published in the latest Family Expenditure Survey, issued by the
Office for National Statistics, show that leisure goods and services
accounted for 17 per cent of the annual expenditure of UK households in
1997/98. In fact, in 1998/99, average weekly expenditure on leisure goods
and services was the biggest single area of household expenditure. This
trend is expected to continue in future years.
Your current annual expenditure is not out of the ordinary. Last year, in
a survey of 1,000 people, Taylor Nelson Sofres found that young people
spend on average £3,000 each year on holidays. For many people in
their 20s, passion for travel is so great that they take three holidays a
year. So it is clear to see you are not alone in your desire to continue
enjoying at least one annual family holiday.
The cost, however, is significant. Assuming you continue with your current
holiday expenditure, over a 30-year period you would have spent a total of
£168,254, assuming an inflation rate of 4 per cent a year. As a 40 per
cent taxpayer, you would have had to earn in excess of £280,000 to
fund this luxury item.
But all is not lost, as it is now possible to do something about this dilemma.
There are products on the market which allow you to continue to enjoy
annual holidays and build a pension fund at the same time. The concept is
simple. You make a single investment into a traditional unit-linked
investment bond which secures you the right to enjoy holiday accommodation
each year, rent-free, for the rest of your life. This will remove one very
expensive element of the holiday cost – the cost of accommodation.
Let us imagine that, by making a £3,000 investment into the bond, you
reduced your annual holiday expenditure by, say, £1,635 a year. This
would still allow £1,365 for flights and car hire. Even after
deducting the annual management fee for the bond, you would still be
approximately £1,200 a year better off.
By applying this saving of £1,200 as a regular contribution to a
pension plan and increasing it each year in line with inflation, assumed to
be 4 per cent a year, you would build a fund of £153,000 over a
You will be able to continue enjoying an annual family holiday each year
and also build a pension fund of £153,000 by age 60, effectively for
It is a simple matter of turning a current annual expense into an
investment and investing the increased net disposable income that has been
released by this financial planning exercise.