The full State Pension currently stands at £164.35 per week. If you’re a single person with no dependents and you own your home with no mortgage, you can probably keep body and soul together reasonably well on that — but there won’t be much left for luxuries. And if you still have mortgage or rental outgoings, you could struggle.
I’m fortunate in that I have a couple of company pensions which I have transferred out to SIPPs. I say fortunate, because when I started work at a UK engineering company in the 80s I had no idea of long-term financial management, but what was then a final-salary scheme has provided a decent sum after I went for the provider’s offer to buy me out.
I now have to decide what shares to invest in, and I’m essentially looking at the biggest in the FTSE 100, most of which I think are currently undervalued for weak reasons.
Essential oil
BP (LSE: BP) is big on my list of candidates (as is Royal Dutch Shell, which I also like a lot). My Fool colleague Harvey Jones has suggested that the BP and Shell share price slump might be the buying opportunity of the year, and I agree with him 100%.
BP has multiple attractions for me. Firstly, it provides a commodity that the world simply can not do without. Forget renewable energy sources — that’s an aim that I think is essential if we want future generations to have somewhere habitable to live, but oil is not going to go out of fashion in my lifetime.
Forget Brexit. BP might be listed on the FTSE 100 in London, but its business will barely notice what happens on these relatively insignificant isles.
Forget Trump vs China. Trade wars might hurt in the short term, but a short period of economic idiocy will pass and free markets will prevail.
Forget the oil price. Long-term, demand will keep the price profitable, and BP has already come through a dreadful time while still providing shareholders with handsome returns.
Instead, look at those lovely forecast dividend yields of more than 6% per year, and low P/E multiples of around 10 to 11.
BP and Shell shares are top of my pension shopping list, and it’s going to be hard to choose between them.
Financial giant
Which is the biggest bank listed on the FTSE 100? Far and away it’s HSBC Holdings (LSE: HSBA), with a market capitalisation of more than three times that of Lloyds Banking Group, its closest rival.
Why shouldn’t I buy HSBC shares? Not because of the historical banking crisis, which left HSBC largely unscathed as it really wasn’t exposed to the sub-prime lending crisis in the US that led to the near-collapse, and wasn’t overstretched in its lending the way UK banks were.
Brexit is pretty meaningless too, as HSBC’s business is massively biased towards China and its Far East zone of economic influence.
HSBC might take a short-term hit if trade sanctions should hurt Chinese companies, but I really don’t see that fear as justifying forward P/E multiples of under 11, especially not when analysts are forecasting dividend yields of more than 6% (which I find astonishing for a bank).
Those dividends should be well covered by forecast earnings too, and HSBC is firmly on my pension list.