Personal Finance: Financial Makeover - Make the money work

Financial Makeover NAME Charmayne Beddowes AGE 32 OCCUPATION Journalist

Charmayne is single, with no dependants. She works full time for a newspaper and is also a freelance journalist. Her hobbies include Thai kick-boxing and working out in the gym.

She has shares, PEPs, deposit accounts and three different pension schemes. In addition, she has surplus income of pounds 100 per month which she wishes to invest. Charmayne expects a pounds 15,000 loan made to a relative to be repaid shortly. She would not mind taking a slightly higher investment risk with some of her savings, but would prefer the majority to reflect a fairly balanced and conservative portfolio.

The adviser: David Holland, managing director at RK Harrison Financial Services, independent financial advisers, with offices throughout the UK (0171 929 9300).

The advice: There are a number of issues to address. First, Charmayne needs to look at her pension planning. Currently she puts pounds 170 per month into her pension plans, with a further pounds 80 per month being contributed by her employer into a company scheme in respect of her non-freelance earnings. This is 7.5 per cent of her total income.

If we project forward at reasonable growth rates for both her existing pension funds and continuing contributions, Charmayne's pension fund would be approximately pounds 275,563 at age 55, or pounds 445,911 at age 60. Using these funds to buy a single life annuity, with payments made monthly in advance, guaranteed for five years and escalating in line with the retail price index up to a maximum of 5 per cent per annum, would provide her with a pension worth about 14.26 per cent of her income prior to retirement at 55 or 19.88 per cent at 60.

She needs to contribute more towards her pension. Someone of her age is allowed to contribute up to 17.5 per cent of net relevant earnings in the current tax year into a personal pension and 15 per cent into the company scheme. She should think about doing so.

When the pounds 15,000 loan that she has made to a member of her family is repaid, we would recommend that she makes a pounds 2,195 contribution to a pension policy. Once the provider has reclaimed basic rate tax from the Inland Revenue she will have a gross contribution of pounds 2,850 invested. She would also receive higher rate tax relief on the full contribution amount resulting in a further refund of pounds 484.50.

Charmayne has already invested pounds 1,000 in a 1998/99 general PEP with Perpetual, and we would recommend that she uses the remaining pounds 5,000. Perpetual has a range of funds to choose from, but now that the UK stockmarket represents slightly better value we would recommend the Perpetual High Income fund which invests in UK equities and fixed interest securities. Over the past three years it has grown by 19.02 per cent per annum, while the average fund which has grown by only 16.13 per cent.

The remaining pounds 7,805 should be split between the Close UK Escalator unit trust and the Fleming Claverhouse investment trust. The Escalator fund aims to track the performance of the UK market and to provide a capital guarantee equal to 95 per cent of the value of the investment each quarter. This means that your investment cannot fall by more than 5 per cent during a quarter. Gains made during the quarter are locked in at the end of the quarter and the new 95 per cent level set.

Over the past year the Claverhouse fund has grown by 40.30 per cent, compared to the average fund which has grown by 28.33 per cent. Over the past three years it has grown by 29.01 a year, compared to the average fund which has grown by only 17.5 per cent.

Charmayne could add to these savings by putting pounds 60 per month into the Henderson Investors Electric & General Investment trust. This fund has a broad spread of international investments and would allow her to invest money regularly into the stock market, while reducing risk by "pound-cost averaging". Over the past year Electric & General has grown by 28.75 per cent, compared to the average fund which has grown by 15.33 per cent.

Charmayne has just over pounds 12,000 invested in the shares of BT, Lloyds, Hyder, Northern Electric and National Grid. They reflect a moderate- risk portfolio. The three utilities are a safe haven against the strong pound and weakness of the Asian markets and are good defensive stocks. They are still trading near all-time highs.

Lloyds is a preferred share within the banking sector and has shown a market-leading return on equity and excellence in controlling costs. We consider them to be a core holding for most portfolios. We are also very keen on BT shares, particularly since the announcement of its joint venture with AT&T.

We would not recommend any changes other than to sell pounds 3,000 of BT shares and reinvest the proceeds into a single company PEP. This will shelter future income and gains from tax. The single company PEP offered by Killik and Co is competitive with no initial charge and, importantly, no management charge.

When Individual Savings Accounts (ISAs) become available next year, Charmayne could consider investing some of the remaining shares into these accounts in order to continue to protect her investments from tax.

As a single person, Charmayne relies upon her own income to meet the cost of her living. We therefore believe it is sensible to obtain private medical insurance which would allow her access to any medical treatment should it be needed. The Prime Care Super Saver policy offered by Primehealth would provide comprehensive in-patient treatment for pounds 20.64 per month.

As for Charmayne's instant-access cash savings, the best rate of interest currently paid by First Direct, with whom she has pounds 3,000 invested, is 5.25 per cent gross. We suggest she switches to the Cheltenham & Gloucester's Instant Transfer telephone-operated account which pays 7.5 per cent gross for balances above pounds 1,000. It has remained competitive and is simple to use.

Suggested Topics
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookA wonderful selection of salads, starters and mains featuring venison, grouse and other game
Life and Style
fashionHealth concerns and 'pornified' perceptions have made women more conscious at the beach
Arts and Entertainment
tv
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
News
media
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmHe was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
footballA colourful discussion on tactics, the merits of the English footballer and rebuilding Manchester United
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
Travel
The shipping news: a typical Snoozebox construction
travelSpending the night in a shipping container doesn't sound appealing, but mobile crash pads are popping up at the summer's biggest events
Arts and Entertainment
'Old Fashioned' will be a different kind of love story to '50 Shades'
film
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Arts and Entertainment
Smart mover: Peter Bazalgette
filmHow live cinema screenings can boost arts audiences
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs General

    Account Manager, London

    £18000 - £22000 per annum, Benefits: Excellent Uncapped Commission Structure: ...

    Sales Executive, London

    £18000 - £22000 per annum: Charter Selection: This exciting entertainment comp...

    Retail Business Analyst

    £300 - £350 per day + competitive: Progressive Recruitment: Ecommerce/Retail/E...

    Project Coordinator

    Competitive: The Green Recruitment Company: The Organisation: The Green Recrui...

    Day In a Page

    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
    How live cinema screenings can boost arts audiences

    How live cinema screenings can boost arts audiences

    Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
    Shipping container hotels: Pop-up hotels filling a niche

    Pop-up hotels filling a niche

    Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
    Native American headdresses are not fashion accessories

    Feather dust-up

    A Canadian festival has banned Native American headwear. Haven't we been here before?
    Boris Johnson's war on diesel

    Boris Johnson's war on diesel

    11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
    5 best waterproof cameras

    Splash and flash: 5 best waterproof cameras

    Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
    Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

    Louis van Gaal interview

    Manchester United manager discusses tactics and rebuilding after the David Moyes era
    Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

    Will Gore: Outside Edge

    The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz