FINANCIAL MAKEOVER: In sickness and in health: plans for happy couples

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Julia Boyce is 33, unmarried, and earns pounds 26,300 a year as a finance manager for the NHS Oxfordshire Community Health Trust. She is two years into a fixed-rate repayment mortgage with NatWest, paying pounds 300 a month. The debt remaining is pounds 43,500 on a house in Oxfordshire worth pounds 66,000.

She also has a pounds 5,000 interest-free loan from her father which was borrowed to help with the deposit on her house. She is repaying pounds 500 every six months.

She has savings with the Halifax and is due to get some free windfall shares when the society becomes a bank in the summer. She also has a tax- free Tessa and shares in two privatised electricity companies.

Ms Boyce is in the NHS superannuation scheme, which is a contributory final-salary pension scheme that also includes some life insurance cover. She puts 6 per cent of her pay into the plan.

Ms Boyce may be an accountant but she still reckons she needs advice with her own money. She is looking to buy a home with her boyfriend, whom she plans to marry next year. But she would also like to put more money aside for her pension and thinks she should take the plunge and put more savings in the stock market.

What a financial adviser recommends:

As a single person with no dependants, Ms Boyce has no need of life insurance, especially since her house is worth much more than the outstanding mortgage. But she might consider protecting her income in case she should lose her job or is unable to work through long-term illness or accident. The cost of covering her pounds 300 mortgage payment through an Accident, Sickness and Unemployment (ASU) insurance policy would be pounds 15.22 a month, from a company called Bennett Gould & Partners. If she becomes unemployed the payouts only start after six months, otherwise it is after 30 days.

Any good employer should already have a sick pay scheme offering full pay for the first six months and half pay for the next six, with nothing thereafter. Ms Boyce might regard this as enough. But if she did want to top it up she might consider what is called permanent health insurance. A policy paying pounds 600 a month but with the payments starting only after she had been ill for a year (when her other sick pay would have stopped) would cost pounds 17.78 from Zurich Life.

If she was really pessimistic she could even take out critical illness insurance, which pays out a lump sum should you contract one of a number of serious conditions. This might cost another pounds 15 a month.

Of course all of this is hardly cheery when she is thinking of setting up a joint home and marrying her boyfriend. The couple are both working and want to pay half each towards their new home. To this end, and to save on potential cancellation costs on their existing mortgages and set- up costs on the new one, when the couple have found a suitable home they should approach NatWest and see if it will allow Ms Boyce to transfer her existing 6 per cent fixed-rate loan to the new property without charge. Likewise, her boyfriend could bring his existing endowment policy to their new home.

Important life changes such as marriage may well involve cost, so Ms Boyce should beware of tying up her savings too much. The strong rise in the stock market and its recent jitters may also add to her caution about putting money in stocks and shares.

That said, when she does feel happy for more financial commitment, a tax-free PEP is probably the best bet. Because they invest in the stock market a decent PEP should mean higher returns than the building society over the longer term (although in the shorter term you must be prepared to lose money). The tax-free nature of a PEP is a further potential boost to returns.

Importantly, they also allow savers to put aside as little as pounds 50 every month and stop, restart or increase payments without cost. PEPs with good past performance records include Schroder UK Enterprise, Schroder Income, Jupiter Income and Jupiter UK Growth.

The proceeds of PEPs can be used for anything but many advisers now see them as ways of making additional pension provision, particularly for younger people who might need their savings back before retirement, say to help bring up a family.

The obvious alternative for enhancing her pension is to make additional voluntary contributions (AVCs). These have the advantage over a PEP of attracting upfront tax-relief, but the disadvantage of being tied up until retirement.

q Julia Boyce was talking to Liz Lyke, managing director of Harrison Beaumont Financial Services, an independent financial adviser.

If you would like to be considered for a financial makeover, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Please include details of your current financial situation and state why you think you need a makeover.

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