Personal finance: Financial Makeover - Money without tears

Financial Makeover: NAME: PETER LORD AGE: 48 OCCUPATION: SELF- EMPLOYED COMPUTER CONSULTANT

Peter is divorced and has a 17-year-old son who lives with his mother nearby. His income is variable but averages approximately pounds 50,000 per annum.

His home has no outstanding mortgage. Peter has managed to save and build up capital in various building-society accounts. The majority is held in the Cheltenham and Gloucester Instant Transfer Account, which pays a competitive interest rate with instant access.

Some of the remaining accounts were opened to benefit from carpetbagging. In addition to this, Peter has a Tessa with Birmingham Midshires; this account has been earmarked for a future project.

He also has pounds 2,500 invested in National Savings Premium bonds, but returns have been disappointing. His only investment into equities is 167 shares in Eurotunnel, his reason being that he was born in Folkestone.

In the past, Peter's experience in investment has been disastrous. In 1983 he bought 14 Krugerrands at about pounds 290 each, and eventually sold them 10 years later for about the same price. In August 1988 he purchased a share in a flat for pounds 15,000 and subsequently sold it in August 1991 for pounds 8,000, a loss of some pounds 7,000.

Peter wants to improve on the returns he is currently receiving from his building society, and to maximise his future retirement income.

The adviser

Bryan Bull is an associate director with the Aitchison and Colegrave Group, independent financial advisers, Suite One, Berkeley House, 15 Hay Hill, Mayfair, London W1X 7LG (0171-499 0990).

The advice

Peter opened a regular contribution personal pension contract in 1984 with Sun Alliance, now Royal and Sun Alliance, investing in the traditional with-profits fund. In 1987 he invested a single contribution of pounds 2,000. These contracts are the old-style "retirement annuity contracts" and have a guaranteed fund value at normal retirement age of 65 and also a guaranteed annuity rate.

With current annuity rates at an all-time low and interest rates looking as though they will fall further, this is a valuable option.

The existing pension contract should be maintained at its current funding level (pounds 450 per month) in order to take advantage of the valuable guaranteed future fund values and the guaranteed annuity rates (pounds 10.93p per annum per pounds 1,000).

Additional single premiums should be made annually to take advantage of personal pension legislation allowing higher contributions to be made. At Peter's age, 48, up to 25 per cent of net relevant earnings can be paid in, as opposed to 17.5 per cent under his existing retirement annuity contracts. This will offer Peter the opportunity to diversify his investment and offer greater flexibility in the future.

I recommend a single contribution of pounds 7,000 gross to the Scottish Equitable Personal Pension contract selecting the Global fun, which invests in a wide range of world-wide equities, predominately in the UK and Europe. As Peter is a higher-rate taxpayer this will reduce his tax bill by pounds 2,800. He could also utilise carry back/carry forward provisions for underpaid contributions in previous years, further cutting his tax bill.

Peter's Tessa was set up three years ago with Birmingham Midshires Building Society, making maximum contributions, and these should be maintained until maturity.

With regard to Peter's building society deposits, many should be maintained in order not to prejudice any potential windfalls. However, interest rates continue to fall, and we have already seen bank base rates fall from 7.25 per cent to 6 per cent per annum over the course of the last few months. Accounts with societies that are not likely to demutualise should be closed and the proceeds reinvested.

Peter has indicated that he would be prepared to invest a proportion of his capital into asset-backed investments adopting a balanced attitude to risk. He is also interested in an exposure to Europe.

As Peter has no other equity investments (apart from Eurotunnel) my recommendation would be to invest pounds 6,000 into a unit trust personal equity plan with Jupiter. The money should be split equally, placing pounds 3,000 in the Income fund and a further pounds 3,000 in the European fund.

The Jupiter fund invests in a wide range of UK equities and since its launch in 1987 has achieved consistent first-quartile ranking, which means that it has always been within the top quarter of funds in its sector. The European fund invests in a wide range of equities from the European community, and has also managed to achieve consistent first-quartile ranking.

As personal equity plans will be replaced by Individual Savings Plans (ISAs) on 6 April 1999, Peter should consider a further investment of up to pounds 7,000 in three months' time, to achieve greater diversification.

Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
  • 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: Practice Accountant - Bournemouth - £38,000

    £32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + Uncapped commission: SThree: Does earning a 6 figu...

    Recruitment Genius: SEO Executive

    £18000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: New Lift Sales Executive - Lift and Elevators

    £35000 - £40000 per annum: Recruitment Genius: A challenging opportunity for a...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss