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
Have you tried new the Independent Digital Edition apps?
ebooks
ebookA delicious collection of 50 meaty main courses
Life and Style
ebookNow available in paperback
  • Get to the point
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

    Ashdown Group: Project Manager - Birmingham - up to £40,000 - 12 month FTC

    £35000 - £40000 per annum: Ashdown Group: IT Project Manager - Birmingham - ...

    SThree: Recruitment Consultant - IT

    £25000 - £30000 per annum + Uncapped Commission: SThree: Sthree are looking fo...

    SThree: Trainee Recruitment Consultant - Dublin (based in London)

    £20000 - £25000 per annum + commission: SThree: Real Staffing's Pharmaceutical...

    SThree: Trainee Recruitment Consultant

    £18000 - £25000 per annum + Commission: SThree: Are you great at building rela...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before