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A place in the sum

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

30-year period.

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.


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