"My Cautious Approach Has Paid Off"

Investor Views: Private investor Mark Chadwick has made good returns from Standard Life shares, Premium Bonds and with profits policies, but is keeping his pension in cash for now

Emma Simon 10 March, 2021 | 11:12AM
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investor views

While many investors are ploughing money into racy fintech start-ups or emerging market shares, recently retired Mark Chadwick prefers a cautious approach.

While Mark, admits he has hasn’t made “astonishing returns”, he believes his slow and steady strategy has stood him in good stead over the years. “I do have some regrets – I lived and worked in London in the 80s but didn’t get on the housing ladder there – but being risk averse means I haven’t had any disasters.”

Mark, who worked as a property and facilities manager in the insurance industry, has benefited from some generous pensions during his working life, and has two defined benefit (final salary) pension schemes from previous jobs as well as two defined contribution plans.

After retiring, Mark, who lives near Hebden Bridge in Yorkshire with his wife, wanted to consolidate these schemes to provide an income. He initially sought advice from a wealth management company, but was concerned with their recommendation to merge all of these four pensions pots into a single plan.

He says: “I am lucky that my brother-in-law is a retired actuary so we sat down together and went through the figures. We decided that the benefits paid through the final salary pension were too good to give up, so I’ve kept those pensions where they are and merged the two DC pensions together.”

I'm Keeping my Money in Cash

Mark consolidated these latter two in a self-invested personal pension (Sipp) through AJ Bell. He liked that the company offered flexible drawdown and relatively low fees (particularly compared to the wealth manager). This drawdown facility allows Mark to take cash withdrawals when he needs the money.

However, the transfer wasn’t as smooth as he hoped: “I was just about to move these plans when the Covid-19 crisis hit and the value of these pensions fell by about 20% as stock markets plunged. I decided this wasn’t a good time to move so delayed the transfer.”

Mark moved his money when markets recovered later in the year but is leaving the plans in cash for the time being. “I will look to move this money back into shares at some point, but markets seem volatile at present, so I am happier leaving my money where it is for now.”

He has also taken the 25% tax-free lump sum from these pots, which you are able to do upon reaching retirement age, which has provided an income for the meantime. He is keeping his withdrawals under the personal allowance threshold to avoid paying tax on this income. Mark adds: “Until I am able to get a regular income from my State Pension, this will hopefully provide some additional funds should we need them, if we need to change the car or for holidays, for example.”

While most of Mark’s savings are tied up in his pension, he does have other investments. These include shares in the insurance company Standard Life, which now known as Standard Life Aberdeen (SLA) after a merger with Aberdeen Asset Management. Mark says: “I had been a customer with Standard Life, via a couple of endowment policies, so was entitled to buy shares at a preferential rate when it floated on the stock exchange in 2006.”

These have proved to be a good investment over the year. As well as buying the shares at a discount, Mark has been able to buy bonus shares – an opportunity that came along after he was made redundant and had some spare money to invest. He received a further bonus when the firm merged with Aberdeen and rather than taking the dividends, he has used this money to buy more shares.

Data from Morningstar shows that SLA shares have delivered total annualised returns of 6.59% over the past 10 years, comfortably beating returns from the FTSE 100 over this period. Over the past year the company has delivered an impressive 28.92%, compared to a 6.94% return from the FTSE 100.

Premium Bonds and With Profits

Mark has also held Premium Bonds and, while he hasn’t nabbed the top prize of £1 million, did make more than £2,000 in the first two years he was invested. National Savings & Investments, which runs Premium Bonds, has cut the prize rate more recently, making the odds of winning slimmer. However, Mark estimates he has received about £3,250 from the bonds over the 15 years he has held them.

He adds: “I built up my holdings and at one point had the maximum invested, but I have also taken money out when I needed it. This time last year, I had to cash in my Premium Bonds as I was not working.”

Mark has also made good returns from a series of with-profits savings plans. His father was a teacher, and when Mark started work, he was eligible as a relative to take out a 10-year savings plan with the Teachers Assurance Company [now owned by LV]. Initially he invested less than £20 and after 10 years received a sizeable payout.

He and his wife then took out a series of these 10-year savings plans, the last of which is due to mature this year. He says: “Some payouts were better than others and it depends what the final bonus is but with one of these plans I was paid around £53,000. These are the kind of sums that can make a real difference and it comes from just putting away small amounts each month.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk