Despite having worked in finance since the mid-1980s, Geoff admits he didn’t actually start thinking about investing for his future seriously until the mid-1990s.

After returning to the UK following a secondment in Europe, he was surprised to receive a cheque from HMRC for the overpayment of income tax while he was abroad.

‘It was only £3,000, but I was 31 and at the time that was a decent chunk of money. I opened a PEP (a Personal Equity Plan, the precursor to the ISA or Individual Savings Account, which was introduced in 1999) and put the whole lot in, as £3,000 was the annual limit.’

EYES ON THE PRIZE

Geoff worked for several banks during his career, and each time he was enrolled in the company’s DB (defined benefit) pension scheme as well as save-as-you-earn share-ownership and profit-sharing schemes which enabled him to amass a considerable ‘pot’.

Keen to stay up to date with the latest developments in markets, and aware that professional qualifications tended to lead to higher-paid jobs, he studied throughout his career, focusing on corporate finance and investment, gaining his FPC (Financial Planning Certificate) from the Chartered Insurance Institute, various professional qualifications and an MBA for his efforts.

Although he no longer needs to study, Geoff enjoys reading finance books and includes One Up On Wall Street, by legendary US mutual fund manager Peter Lynch, and The DIY Investor, by AJ Bell (AJB) founder Andy Bell, among his recommendations.

‘Having built up my investment portfolio to a stage when I thought we had enough for me to retire, I took the plunge seven years ago at the age of 53,’ says Geoff.

Meanwhile, his wife Louise, who also enjoyed a career in finance, is working in the property sector on a seasonal freelance basis until such time as she decides to fully retire.

TAKING A TAX-FREE RETIREMENT INCOME

As he is still some years away from receiving a full state pension, Geoff funds his retirement almost exclusively through dividends received in his ISAs and SIPPs (self-invested personal pensions), meaning he doesn’t have to dip into his capital.

‘We all know SIPPs have tax advantages when you’re building up a retirement fund, but ISAs are important too as they give you an added degree of flexibility and withdrawals are tax-free,’ adds Geoff.

Using the uncrystallised funds pension lump sum (UFPLS) option, which allows pension holders to withdraw some or all of their money with 25% being tax-free, he takes an annual payment of up to £16,760 from one of his SIPPs.

After taking the 25% tax-free allowance into account, that means the remaining £12,570 comes within the standard personal income tax allowance, so is also free of tax.

He generates this SIPP income through holdings in 19 investment trusts, spread across a wide range of sectors and asset classes, some of which are shown in the table, with the amount of each holding varying so that each is set to pay £1,000 in annual dividends giving him what he refers to as ‘an embarrassment of income’.

Most of Geoff’s investments are in sterling-denominated trusts, although he bought Tufton Oceanic Assets (SHIP) and rather than go through the rigmarole of converting his dividends from dollars into pounds he has let them accumulate, with some of the proceeds used to buy shares in Round Hill Music (RHM), which was acquired at a 67% premium in September 2023 by publishing firm Concord.

His biggest overweight currently is in commercial property, which he holds indirectly through TR Property Investment Trust (TRY).

Not being a property expert, he would rather entrust the stock-picking to Marcus Phayre-Mudge, who has run the fund for most of the 20 years Geoff has owned the shares and who he believes is one of the best managers in the sector.

His investment in Scottish Mortgage Investment Trust (SMT) dates back many years and is pure profit, as he took all his original investment off the table in 2021 after the shares had a huge run and his holding became excessively large compared to the rest of his portfolio.

That said, he tends not to deal very frequently, other than reinvesting his copious dividends, and when he does, he ensures the cost of the trade including stamp duty is less than 1% of the value of the investment. ‘Having some sort of methodology is a good way to avoid over-trading,’ he adds.

THE BENEFITS OF DIVERSIFICATION

Another important aspect of Geoff’s portfolio is income protection, which is provided by National Savings index-linked savings certificates bought on a monthly basis many years ago.

‘These products aren’t available now, so I was lucky to buy them when I did. To begin with the index-linked increase was hardly noticeable, but in the last couple of years it has soared in line with inflation. The capital value of my holdings is probably two and half times what I originally invested and could provide another annuity income stream’.

In addition to his ISA and SIPP income, tax-free VCT (venture capital trust) dividends are left to accrue and when they reach a given level they are used to pay bills and for day-to-day spending.

He only looks at his portfolio once a month, usually halfway through, and at the start of each month he tots up the previous month’s dividend income and compares it with the previous year, making sure it continues to grow.

Having spent decades diligently building his ‘pot’, Geoffrey admits the decumulation phase felt ‘very strange’ to start with and has taken time to get used to.

‘I know if the experts read this they will look at my portfolio and say I’m over-diversified,’ he says. ‘But there’s a good reason for it. It’s all well and good generating income, but it needs to be broadly spread to be truly reliable. By having a wide range of investments across different asset classes, I know I can sleep at night.’

Looking ahead, he and his wife are already making plans for her retirement.

‘When Louise’s defined benefit pension kicks in in a couple of years, we’re thinking of taking the maximum 25% tax-free lump sum and putting it straight into ISAs. In due course she should get the state pension as well, so any income from her company scheme would take her over the £12,570 personal tax allowance.’

DISCLAIMER: Please note, we do not provide financial advice in case study articles, and we are unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA and pension rules apply.  Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (Tom Sieber) own shares in AJ Bell.

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