Bloomsbury Financial Planning

With an insurance payout of £50,000 after my husband died in 2005, I was advised to invest in a Skandia Life bond containing 60% property and 40% equities. I made no withdrawals until January 2007, when I started taking the 5% tax-free allowed, £203 a month. I am 68 and my income is below the income-tax threshold. In September 2008, I was so concerned by the falling value I wanted to close the bond and invest in cash but found I would be faced with 8.5% charges. I therefore switched the capital to a cash deposit within the bond. I am thus drawing out more capital than I am accumulating each month. I am a cautious investor and uncomfortable about going back into equities. The capital is now worth £40,000, so should I bite the bullet and close the bond despite the charges? I feel I was badly advised in 2005 since I would need to draw on the capital within a few years. — JP by e-mail

It seems you have been very badly advised. First, as a non-taxpayer, there is no obvious reason for you to own an onshore investment bond. Tax has been deducted at source at the basic rate. If you are a non-taxpayer you cannot reclaim it.

Second, the portfolio was seriously under-diversified, with everything in risky assets and 60% in property. You have been lucky that the bond has fallen only 20%, thanks mainly to your move into cash last year.

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Skandia says that none of its 2005 investment-bond contracts would still have an 8.5% exit charge, so it should be lower now and disappear altogether by 2011.

As you are cautious and do not like equities, now that you have eliminated most of the risk by moving the bond into cash, your simplest course is to stay with it. But if you need £200 a month from this source, you will almost certainly be bound to eat into capital.

However, if you feel confident about living longer than average, you might do better transferring to a lump-sum annuity. The big handicap is that you say goodbye to your capital, but you are gobbling your capital already.

Robert Lockie at Bloomsbury Financial Planning, said: “Your original advice appears to have been so poor that you should write to your adviser’s compliance officer requesting a review. If you are not satisfied with the response, you could take it up with the Financial Ombudsman Service.”