Denise Leach is hopeful
that her retirement
savings will last because
she can pull money
from different pots
when she needs to.
The 62-year-old from
Bishop’s Stortford in
Hertfordshire has cash
savings, an investment
account with the online
platform Nutmeg, a
stocks and shares Isa
and a small private
pension. She owns two
rental properties with
a friend and her
husband.“It’s good we’re not
relying on one thing,”
she said. “They say you
shouldn’t put all your
eggs in one basket.”
She was never
enrolled in a workplace
pension so has built up
her savings herself, but
she is one of the women
who was affected when
the state pension age
went up from 60 to 65.
She keeps two years’
worth of spending —
about £30,000 — in her
cash savings most of the
time and lives off this asan income, bolstered by
the money she gets from
the rental properties,
and sells investments to
top up the cash account
when she needs to.
“It means we don’t
need to sell investments
when markets are
down,” she said. “I’m
pretty confident we will
have enough. We won’t
be world cruising or
super-rich, but we will be
able to eat — the most
we will have to do is
spend less rather than
completely go without.”I’M HOPING MY MIX OF SAVINGS WILL SEE ME THROUGH
HOW SPENDING CHANGES
Help in the home
Food inside the homeHolidays
Motoring£40 a week302010
65
Age
Source: IFS70 75 80 85heated to 22.5 degrees at all times.
But even I have been forced to change
my energy-squandering ways as I’ve
been forced to acknowledge how
complacent I had become about
switching everything on.
With most of my other life expenses,
I was very aware of exactly how much I
was shelling out. But that wasn’t true for
energy, so I decided to find out.
I bought myself an electricity power
consumption energy monitor from eBay
(cost £10.83, using cashback which made
me the princely sum of 11 pence) and set
to finding out what everything cost me.
This is how I now know for sure how
much the fish tanks are costing me. I
plugged the filter into the energy reader
(which was plugged into the wall), left it
on for 16 hours so I could wake up and
read the display, which said how much
energy the tank had used in kWHs.
Each tank uses 0.006 kWh every
hour, and because we are on a variable
tariff set by the price cap (28p per kWh),
this is costing me 0.17p an hour. That’s
just under £15 a year per tank.
This is good news for Blackie and
Goldie and makes me feel relieved. It’s
good to know that the cost of a fish not
being bullied until it reaches the big fish
bowl in the sky is one I can afford.
Next I may take my electricity reading
gadget to our local restaurant owner, so
he can see the cost of that outside light.I
was out for a meal for the first time
in a long time last week, and the
restaurant owner turned the lights
on outside. I felt a spike of anxiety.
The cost! Why is he worrying about
lighting up the outside of the restaurant
when it is already costing a fortune to
keep the lights on inside?
It’s much the same at home. I pace
around wondering how much
everything costs. What about the kettle
boiling? My hairdryer? Those hot baths
my youngest enjoys. “Right to the top,”
he orders as I start running them.
I’ve even started wondering how
much I’m paying to run the filter for our
fish tanks. We have two tanks bubbling
away because we had to separate our
fish because they were constantly
fighting. Goldie, who is fat, was
constantly picking on Blackie, who is
thin and stressed, and, oh God... I’m
now worrying about my goldfish’s
mental health.
Then there is that light in my
youngest’s room which he has because
he’s scared of the dark. I turned it off
shortly after he nodded off last night,
rather than keep it on all night as we
usually do, only to regret the decision
at 2am when a shriek echoed through
the home.
My husband and I used to argue quite
a bit about my energy squandering, but
now we don’t. It only took a once-in-a-lifetime black swan energy event — the
limit on supplies caused by the war in
Ukraine which excerbated an already
bad situation as countries starting using
more gas after the pandemic — to unite
us on the issue.
He has always been vigilant of all
plug sockets, making sure nothing is
on standby, nothing with a light is
allowed to remain on, the dishwasher
and washing machine are on their
coldest, shortest cycles and the heating
does not go on unless a child produces
a frostbitten toe to convince him
otherwise.
Me? I’m very different. I just like to
be warm, is that so bad?
I love my blankets on the sofa, my
electric blanket in bed, my bath
steaming and ideally I want our homeI now know
exactly
how much
energy thetank uses
Not a tax evader, your honour,
just chronically disorganised...
Phew, I can afford the cost ofkeeping my angry fish apart
Jessie Hewitson
accountants documents or
receipts.”
Dougan provided evidence
to show that he usually paid
his tax on an ad hoc basis
when faced with late
payment demands from
HMRC, which included
penalties — and that, when he
received the demands, he
always paid them in full.
The judges wrote off the
demands for which HMRC
had to prove deliberate
evasion, but ordered Dougan
to pay £88,852 covering the
tax year 2006-07, because it
was within the six-year
window where the taxman
only had to prove careless
behaviour.
“The facts in this case are
that Mr Dougan did not
address his tax
responsibilities and that his
focus was on his new wine
business, young family and
litigation in relation to his
music business,” they said.
John Hood, a tax partner
with Moore Kingston Smith,
an accountancy firm, said:
“If HMRC had been better
organised it would have
recovered all the tax owed for
2004-05 and 2005-06.”
HMRC said it was
considering whether to
appeal against the verdict.A composer who wrote music
for The Matrix film has
escaped paying more than
£280,000 in tax and penalties
after proving that he was
“disorganised” because he
was distracted by learning to
run a French vineyard.
Robert Dougan, 52, wrote
a number of songs used in the
franchise, including Clubbed
to Death, which featured in
the original 1999 blockbuster
that pitted Keanu Reeves
against machines that had
imprisoned humanity in a
virtual reality world.
Dougan’s enemy in real life,
however, turned out to be
HMRC.
He was sent a hefty bill
from the taxman in 2013 for
the profits he made between
2004 and 2006.
HMRC hit Dougan, who is
an Australian citizen based in
London, with a demand for
£155,000 in unpaid tax and
£125,000 in penalties.
As these demands, known
as discovery assessments,
covered a period so far in the
past, HMRC had to prove in
court that Dougan had
deliberately evaded tax.
Discovery assessments rules
state that the taxman onlyhas to prove “careless”
behaviour on tax evasion for
the past six years but must
prove “deliberate” evasion if
it wants to reclaim money
owed for more than six years.
After 20 years has elapsed the
taxman cannot reclaim
anything.
Dougan argued in court
that he had failed to pay tax
because he was disorganised
and careless rather than
guilty of deliberate
behaviour.
At a first-tier tax tribunal,the judges Victoria Nicholl
and Noel Barrett said that he
failed to file the tax returns
because he was distracted by
learning to run a vineyard,
which he had bought in the
Languedoc region in 2004
with his French wife.
They were told he had
bought his £200,000 plot
with “no practical
knowledge” of how to run it.
“Mr Dougan has a history
of filing his personal tax
returns late. He met with
accountants once or
twice a year, but he
felt that he was always
behind with his
paperwork and that
he was always
being asked to
send hisDavid ByersRobert
Dougan,
left, wrote
music for
The Matrix,
starring
Keanu
ReevesAre you saving enough to avoid
the retirement spending trap?
S
avers expecting that they will
spend less by the time they
are in their eighties could be
underestimating how much
they need in their pension
pot by nearly 30 per cent.
Many people expect their
retirement spending to
shrink as their activity levels
decrease — that while the
early years of their retirement may be
filled with holidays and days out, this will
become less regular the older they get.
However, research from the Institute of
Fiscal Studies (IFS) contradicts this belief.
On average retired people’s spending
increased to a small degree throughout
their sixties and seventies, and declined
only slightly once they were in their eight-
ies. The IFS recommends that savers plan
for fairly steady spending throughout
retirement. “If these spending patterns
are a good guide, planning pension with-
drawals on the basis of reduced spending
needs in later retirement may not be
wise, and may result in unexpected
shortfalls in living standards,” said Heidi
Karjalainen from the IFS.The worry
An overhaul of pensions rules in 2015 and
the decline of defined benefit pensions
(which pay a set income for life) haveDon’t assume that you
will need less money
in your eighties, or youcould easily run out,
warns Imogen Tew
meant that more people are responsible
for their own pension planning. The rule
changes allow those with defined contri-
bution pensions (where the amount you
get in retirement depends solely on the
amount saved and the performance of
your investments) to access their pen-
sions however they please from the age of- Before this, most people had to swap
their pot for an annuity, which pays a set
income for life.
Savers are increasingly opting for what
are known as drawdown pension prod-
ucts, which allow you to leave your pen-
sion invested but take out a regular
income, or individual cash withdrawals,
from it whenever you like. There is no
guaranteed payout, so making sure your
pension pot lasts throughout retirement
is down to you.
“Hundreds of thousands of newly
retired people every year must try to
predict what they are likely to spend,”
said Becky O’Connor from the invest-
ment platform Interactive Investor.
“There’s a risk that many assume they
won’t spend as much as they enter their
seventies and eighties, but they could
exhaust their pension pots too soon.”
The platform AJ Bell said that those
who based their retirement plans on a
steadily declining income could need a
pot almost 30 per cent bigger if they end
up spending the same.
If you wanted to spend £20,800 a year
in your first five years of retirement (the
amount the Pensions and Lifetime Sav-
ings Association says would give you a
“moderate” retirement), but thought
your spending would reduce by 1 per cent
a year after that, you would need a pen-
sion pot of £245,000 for a 30-year retire-
ment. This assumes 4 per cent investment
growth in drawdown, 2 per cent inflation
and receipt of a full state pension. If your
expenditure did not decrease by 1 per
cent a year, you would need a pot of
£315,000 to generate £20,800 a year.
If you wanted to spend £33,600 in
each of your first five years of retirement
(for a “comfortable” retirement, accord-
ing to the association), but thought your
spending needs would reduce by 1 per
cent a year after that, you would need a
pension pot of £530,000. If your expend-
iture stayed steady, you would need a
£680,000 pot — 28 per cent more.
Changing habits
The IFS found that while weekly spend-
ing largely stayed the same throughoutretirement, the things people spent their
money on changed a lot. Katie Stone from
financial advice firm the Private Office
said: “You may wish to spend more on
the ‘fun stuff ’ in earlier years, but those
niggling bits of DIY in your home may
become unbearable when you spend
more time there.
“And then as you get into the latter
years you may not be able to physically
do the things you wish to do, and you may
have additional costs, such as cleaners,
gardeners and taxis.”
The IFS found that the average amount
spent on food eaten at home fell from
about £35 a week at age 62 to under £30
by age 88, while alcohol spending
dropped from just below £10 to just above
£5 a week. Motoring costs typically went
from £36 a week to £25, falling sharply
after the age of 76.
Spending on fares, such as train tick-
ets, increased from £4 a week at age 62 to
£11 at age 88, and household services,
such as domestic cleaning and home
help, rose from £11 to £34. The amount
that went on household bills and goods
increased fairly steadily throughout
retirement, as did spending on leisure
services, such as clubs.
The amount of money spent on holi-
days and food outside the home — both of
which could be considered luxuries —
rose steadily in the first few decades of
retirement before dropping sharply.
About £12 a week was spent on eating
out by those aged 62, rising to just below
£15 a week at age 82 then dropping to
about £10 by age 88. Holiday costs fol-
lowed a similar pattern, rising from £23 a
week at 62 to nearly £40 a week by 82,
then declining for the remainder of
retirement.Planning your retirement
The first thing is to work out how much
income you will need. Take a look at your
outgoings and any plans you have for
retirement and work from there, remem-
bering that some costs may increase as
you get older. Then check your pensions
— if you have any guaranteed income that
will rise with inflation, or any set pay-
ments (such as the state pension, an
annuity or a defined benefit scheme),
they can form the backbone of your
retirement plans. The rest would need to
be made up by other savings and pension
pots. Will it all be enough?
Graham Nixey’s retirement income
plan revolves around dividends. He usesMONEY
THE COUPON QUEEN WHO
VACUUM-PACKED HER 5P TURKEY
Follow us on Twitter @TimesMoney PAGE 12
the payments he gets from the stocks in
his pension to fund his lifestyle and tries
not to spend a penny more.
Nixey, 64, from Suffolk, has two small
defined benefit pensions that pay a set
income for life from his time working at a
university and in local government, but
he mostly lives off his self-invested per-
sonal pension (Sipp), which he has had
for 20 years.
Nixey mostly invests in stocks that
have large dividend payments, such as
Legal & General, the financial services
company that paid 6.82 per cent last year,
the insurer Aviva, which paid 6.75 per
cent, and Rio Tinto, the mining company
that paid 9.49 per cent.
“I don’t like to draw the capital out of
my Sipp,” said Nixey, who retired from a
career in finance four years ago. “I look at
the dividends and that is what I spend —
roughly £25,000 a year.”
Dividend payments cannot be relied
on to meet surprise extra costs that are
out of your control — such as your energyGraham
Nixey tries
to live off
dividendsbills and the cost of living going up. They
are also unpredictable. Income investors
were left short-changed in 2020 when UK
companies, which typically pay higher
dividends, cut payouts to shareholders
by more than half during the pandemic.
“I wasn’t particularly happy with the
dividend freeze during Covid, but I just
lived off less money,” Nixey said. “I’m
hoping now that dividends will increase
to at least partially offset inflation.”Be adaptable
You can plan as much as you want, but it
is difficult to know how your investments
will fare, what inflation will be (it was
9 per cent in the year to April — the high-
est in decades) and how your spending
will fluctuate. If you can, try to have sav-
ings outside your main pension plan for
worst-case scenarios.
“It is vital to be realistic about your
spending plans and keep track of your
withdrawals,” Tom Selby from AJ Bell
said. “Taking out too much too quickly
could leave you scratching around for
money later.”