Financial Makeover


PAT HAS been working in education for over 20 years and is at the top of her profession. She doesn't expect her salary to increase much but would like to develop her writing and research work. Pat's priorities are to ensure that there is enough money available to support her daughter Kitty, 9, through university and to ensure she has an adequate pension for herself.

She is currently a member of the Universities Superannuation Scheme. She is also concerned about having to take early retirement and is also considering emigrating to Canada at this time. Her income just covers her living expenses and she has not been able to build up any savings.

However, she still has her endowments running even though she has recently switched to a repayment mortgage. Now that the endowments are no longer needed to repay the mortgage she is interested in using them for extra cash in retirement. Her mortgage doesn't finish until she is 62, two years after the date she hopes to retire, although she thinks she may have to work on, perhaps up until the age 65.

The adviser: Fiona Price, managing director, Fiona Price & Partners, 33 Great Queen Street, Covent Garden, London WC2B 5AA (0171 430 0366)

The advice: Pat needs to save an "emergency reserve" for Kitty's university costs and for her own retirement. To do this she needs to find spare money to help build her savings, then decide how much to put towards her future needs.

Initially, Pat should make a note of all her income and outgoings. Then for the next two or three months she should write down everything - and I mean everything - she spends and compare this with her original list

Pat should consider any extra income - from book royalties, or consultancies, for instance - as money to save rather than going into the general cash pot.

Moreover, Pat is currently paying around pounds 150 a month on a home improvements loans. When this finishes next May, she should start saving this amount each month.

Initially, I suggest that Pat concentrates on building up an emergency reserve and savings for Kitty, with perhaps a little extra into her pension. She should build a reserve of say 3-6 months net income.

Then Pat can concentrate on more medium-term savings for Kitty and her own pension. I suggest she puts more into the "pot" than is needed just for Kitty, as there are various reasons why she may require extra money about this time. It may help with her plans to emigrate, or to pay off the mortgage at 60 rather than 62.

Pat's emergency reserve money should go to a bank or building society account, which is best for any money that might be needed quickly. The best rates can usually be found with postal accounts.

Once her home improvement loan is paid off in May, "individual savings accounts", ISAs, will be available, the replacement for PEPs and Tessas. An equity ISA (one that invests in unit trusts for example) will be the best home for her longer term savings.

Pat should also look at her pension a little more closely. and check how much pension and tax-free lump sum would be available if she were to retire at, say 60, 62 and 65.

She is paying into the AVC (additional voluntary contribution) scheme run by her employer which is a benefit to her. This money is managed by Prudential. With-profit funds have provided good, albeit steady, returns. I recommend that when her other savings are up and running she puts a bit extra into this fund for her retirement.

One final area for Pat to look at is whether her daughter will have enough money if Pat were to die. Her mortgage could be paid off with the endowment policies, leaving a house worth pounds 100,000. There would also be a death- in-service lump sum from her pension scheme amounting to around pounds 80,000.

In addition, a children's pension would be payable from the scheme.