Midweek Money: Cover girl

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The Independent Culture
JENNY CAME to us through a seminar we had organised. She was working for ITN as an editor, but wanted to be self-employed. Her income was about pounds 30,000 a year, but Jenny expects this to be a little lower until she is established. She is single and owns her own home, with a repayment mortgage of pounds 50,000, and has pounds 4,500 in an Abbey National Instant Saver account.

Jenny has mortgage cover and income protection policy in the form of permanent health insurance (PHI), providing pounds 9,000 a year if she were unable to work due to accident or illness. Her main concerns were her pension, and income protection in the event of illness. There were two issues on the pension front. The ITN scheme provides guaranteed benefits and these are increased each year until retirement. Her options are to keep the benefits where they are, or transfer them to a private pension. A transfer would mean the loss of the guarantees, but with good performance a higher pension may be possible.

For Jenny's new pension, a plan with the right "style" of charges was essential. As her earnings are initially uncertain, a "flat-costed" plan would be most appropriate, as Jenny would not be penalised if she had to stop or reduce contributions. She should, if possible, try to maintain her savings for emergencies, such as work drying up.

I recommended a different building society account for her savings. It was a postal account with instant access and the rates were considerably higher. The transfer analysis on her ITN pension said that only a moderate level of investment returns would be needed to better the existing scheme. I will need to look into this in more detail to consider whether it would be advisable to transfer.

I recommended a new personal pension that was flat-costed and had excellent funds. The plan also had useful options such as waiver benefit, whereby the contributions are paid by the insurance company if Jenny cannot work owing to accident or illness. I recommended a low level of contribution at this stage - just pounds 100 a month rather than the pounds 200-pounds 300 that Jenny had suggested. I suggested that she also save the extra pounds 100-pounds 200 in the bank and pay it in as a single contribution at the end of the tax year.

Her PHI policy turned out to be a good one - the cover was good and the company was happy to increase the sum assured slightly, even though she didn't know yet what her earnings would be. It was also able to change the deferred period (the time you have to wait when claiming before getting benefit) from six months to three months.

The mortgage protection policy proved expensive, as I expected. I was able to arrange a replacement policy providing the same level of cover at a much lower premium. In addition, I suggested that Jenny meet our tax adviser. So, Jenny can now concentrate on her job and leave the planning of her finances to me.

Fiona Price

Fiona Price is the proprietor of Fiona Price & Partners, independent financial advisers, 33 Great Queen Street, London WC2 (0171-430 0366)