Bloomsbury Financial Planning

You are in real difficulty because the now-outdated Ssas format is too rigid for what you want to achieve. There is, however, an escape route.

Cash accounts for pensions are rarely as competitive as those available for private investors. Short-dated gilts (government bonds) are an alternative, but no more attractive than a good cash account at the moment. The three-year benchmark gilt rate is only 2%.

Long-dated gilts may tie you in for too long and put you at the mercy of the expected upturn in interest rates — bad news for gilt prices. If you want to lock in until maturity, though, the 10-year gilt rate is 3.65%, the 30-year 4.52%.

Corporate bonds pay more but with higher risk than you may want for a pension fund. According to ValuBond, AAA three-year bonds pay 3.01%, 10-year yields are at 4.53%.

However, there is another approach: step back and consider whether a Ssas is the right type of pension in the first place. Since April 2006, there have been virtually no differences between a Ssas and a Sipp (self-invested personal pension), except that Sipps are almost always cheaper and easier to administer. Sipp providers may also get better deals on cash accounts.

If you do transfer from a Ssas to a Sipp you may be entitled to a lower tax-free cash sum so do consult a pension-transfer specialist.

Lower interest rates mean an elderly female relative has suffered a monthly drop in income of more than £80. She has an NS&I Income Bond paying 0.70% gross [raised to 1.7% last week] and the Coventry Building Society 60-Plus Saver paying 1% gross. What else offers safety and a higher monthly income? PD, Isle of Wight

Jason Butler, investment manager of Bloomsbury Financial Planning, said: “It isn’t possible to have it all: access, no risk and high income. The least worst option might be to move, say, half the existing capital to better-paying savings accounts to benefit if rates improve while retaining access to some capital. The other half could be invested in a purchased life annuity to provide a secure, risk-free boost to income.”

An annuity for an 80-year-old single woman in average health could secure an annual income of £2,500 for a payment of £25,000. Only about 13% of the £2,500 would be taxable because, at her age, about 87% would be deemed return of capital. Although she would lose access to the capital, her estate will be worth less because the annuity purchase cost (but not the income) is immediately removed from her estate.

For the cash element, the ING Direct savings account offers an annual rate of 2.75% paid monthly. Your relative appears to have about £25,000, in which case she could invest in the Investec Bank High 5 account paying 3.12% a year as long as she is willing to give at least three months’ withdrawal notice. It is available by post or phone.

Much has been written about survival in the downturn but I have seen nothing about what do with a Sipp, particularly where the owner is approaching 75. I am 73 and in income draw-down. I am being advised to take an annuity now, rather than wait. My funds were invested in Chartwell’s Strategic Growth Fund in 2006 and 2007, at an average unit price of 103.6p, which by late-2007 had risen to 113p. Now the price is 93.07p. If I convert to an annuity now, I will get an income of some 10% to 20% less than I had hoped. It is tempting to ride out the current market for a few more months yet. BC, West Sussex

I am tempted to tell you that I wouldn’t start from here as far as your investment is concerned. At age 70 you went into a growth fund that has among its biggest holdings Blackrock UK Absolute Alpha and Artemis UK Special Situations — neither of which are for the faint-hearted nor for a short-term pension fund. In the circumstances you have fared quite well, thanks to the Chartwell fund also holding bond funds.

Like everyone else, you basically want to know what is going to happen in the next two years. The worst should be past by then and economic growth should have resumed so, provided there are no other major disasters, the stock market should be higher than it is today. In those conditions the growth aspect of the portfolio could recover at startling speed. However, if interest rates have started to climb by then the bond element may be struggling — but annuity rates may well be rising.

I would wait until your 75th birthday before selling, but if your nerves aren’t that strong, phase in your annuity purchase over the next two years.