Financial Makeover: A healthy outlook


Karen has started a new job, following a period of self-employment since redundancy a few years ago. Her husband, Edmund, is retired on ill health grounds and they are both in receipt of a pension from their previous employers. They jointly own a property, with a very small mortgage and equity of about pounds 250,000, which they rent out. Their own home has no mortgage.

Karen and Edmund have several investments, including a National Savings Investment Account, National Savings Certificates, a plethora of with- profits endowments and some windfall shares.

The couple's priority is to use the pounds 1,000 per month available to them to invest for capital growth and to invest a further pounds 20,000, also for capital growth. Karen's main concern is to be able to afford additional home help should her husband's health deteriorate, and to ensure that she is financially secure should her own health suffer in the future.

The adviser: Martha Catterall is a director at City Independent, independent financial advisers, 35 Paul Street, London EC2 (0171-528 0092)

The advice: First, there is a need for an emergency fund, for use in unforeseen events. I recommend about pounds 6,000 is placed in it and that the pounds 6,000 you have in the National Savings Investment Account, currently paying 4 per cent gross, is moved to Sainsbury's Bank ( paying 5.35 per cent) or Egg (6.0 per cent). Your windfall shares are doing very well and I advise that you simply keep hold of these as "rainy day" money.

You have a number of smallish endowments maturing between 1999 and 2004. The endowment maturing this year is earmarked to pay for a three-year post-graduate doctorate.

As for the others, you must see what both your situation and the products available at the time are. However, there are a number of low- to-medium risk investment vehicles which would be appropriate, including corporate bond funds or tracker funds within an ISA, or even traded endowment policies.

From the pounds 20,000 available, I recommend that you both maximise your ISA allowance of pounds 7,000 each for 1999/2000. Although ISAs are advantageous for higher-rate taxpayers, I feel that it is also appropriate for basic rate taxpayers like your husband to take advantage of tax-free growth. Your fund choice should reflect your attitude to risk, which is fairly cautious: M&G Corporate Bond fund (with income reinvested) or Fidelity's Moneybuilder Growth fund.

However, to create capital over the 10-15 year period you can afford an element of medium risk too: Jupiter's or Invesco's European Growth Fund, or Gartmore's UK Index Fund, are ideal for this. There is no need to rush into ISAs, however, as the market is artificially inflated owing to the "last-minute PEP rush" in my opinion.

Waiting until later in the year and contributing on a monthly basis would be sensible. I would invest the remaining pounds 6,000 into a traded endowment plan, as it fulfils your objectives: a low risk investment you can tailor to your needs (you chose one that matures when you want capital at an appropriate premium level and purchase price). You could also invest your maturing National Savings Certificates into these vehicles, as National Savings per se have failed to maintain their competitiveness.

You are already receiving your main pension, which is indexed each year and has a 50 per cent spouse's benefit built in. However, it is not enough on its own and you are keen to use the next 10 years to build up another pension pot. Your current employer offers a Group Personal Pension Plan after six months of employment and contributes 12 per cent of your basic salary into it.

Contributions into Personal Pension Plans are determined by earnings and age, and once they have put their 12 per cent in you can still pay up to 18 per cent, which is pounds 309.30 net per month. If the full 30 per cent of your salary was paid into a personal pension for the next 10 years, it would create a pension of pounds 10,700 a year, based on present assumptions from Eagle Star. As a higher-rate taxpayer you receive tax relief on your contributions at top rate, which grow in a tax-efficient environment.

All pension plans that need to be "stakeholder friendly" have high early surrender values, so you should check with your employer that this is the case with its Group Personal Pension scheme. However, your earnings are in excess of pounds 18,000 a year, which would, based on current information, indicate that a stakeholder pension would not be appropriate anyway. In addition, you should find out the terms for the Group Personal Pension, as it may be best for you to pay your 18 per cent contribution into it.

Always apply for waiver of premium on a personal pension plan, thus ensuring that if you are unable to work due to illness, the pensions provider will take over your (and your employer's) contributions for you. Complete a BR19 form, available from DSS offices, to find out what State benefits you can expect to receive at State retirement age. I also recommend a critical illness policy, which will pay out tax-free cash on diagnosis of a critical condition.

Of the pounds 1,000 a month available for financial planning purposes, I recommend that pounds 200 is set aside for holidays and general fun, pounds 309.30 for pension planning, pounds 83.59 for pounds 100,000 of critical illness cover with Skandia Life, pounds 300 for investment into low risk unit or investment trusts, earmarked to pay for long-term care, should you need it. This leaves pounds 100 a month to go towards monthly premiums for the traded endowments discussed earlier.

Long-term care is in a state of flux at present and you are too young to be paying insurance premiums for this, though this is advisable once you are 60. You would be better off, at this stage, building up capital.

Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Arts and Entertainment
One of the installations in the Reiner Ruthenbeck exhibition at the Serpentine Gallery
artCritics rally to defend Reiner Ruthenbeck's 'Overturned Furniture'
John Cleese is promoting his new book
A-list actresses such as Deepika Padukone get paid a tenth of what their male counterparts make per film
The Black Friday Vines that will destroy your faith in humanity

Arts and Entertainment
The cast of Downton Abbey in the 2014 Christmas special
Robbie Rogers: US former Leeds United footballer, 25, announced he was gay in February 2013, shortly after he left Elland Road. Rogers 'retired' after writing on his blog: 'I'm a soccer player, I'm Christian, and I'm gay.' Has since signed with Los Angeles Galaxy.
peopleUS footballer said he had hoped Michael Sam and Jason Collins coming out might have helped
Arts and Entertainment
Johnny Depp no longer cares if people criticise his movie flops
Arts and Entertainment
All in a day's work: the players in the forthcoming 'Posh People: Inside Tatler'
TVGrace Dent thinks we should learn to 'hug a Hooray Henry', because poshness is an accident of birth
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)

Presents unwrapped, turkey gobbled... it's time to relax

Arts and Entertainment
Convicted art fraudster John Myatt

The two-year-old said she cut off her fringe because it was getting in her eyes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Opilio Recruitment: UX & Design Specialist

    £40k - 45k per year + Benefits: Opilio Recruitment: A fantastic opportunity ...

    Opilio Recruitment: Publishing Application Support Analyst

    £30k - 35k per year + Benefits: Opilio Recruitment: We’re currently re...

    Opilio Recruitment: Digital Marketing Manager

    £35k - 45k per year + benefits: Opilio Recruitment: A fantastic opportunity ...

    Opilio Recruitment: Sales Manager

    £60k - 80k per year + Benefits: Opilio Recruitment: A fantastic opportunity ...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game