Mortgage fears as retirement nears


Jean Riley is a 53-year-old administrator with Barnardo's, the children's charity, and has been employed full-time for three years. She has brought up her 23-year-old student son alone.

She currently earns pounds 11,500 a year and has a pounds 21,000 repayment mortgage on her council house in Whitminster, Gloucestershire, which still has 22 years to run. The mortgage payments are pounds 152 a month.

Jean has pounds 2,000 in her bank account but no other savings, and is a member of her employer's pension scheme. This pays a pension related to service - accruing one-sixtieth of her final salary for each year of service. When she retires aged 60 she will have accrued a pension worth ten-sixtieths of her final salary - less than pounds 2,000 a year in today's terms. Jean's pension contributions cost her pounds 58 a month. If she should die, her estate will also be entitled to a payout equivalent to 2.5 times her salary by virtue of her membership of the pension scheme.

Jean says her monthly bills (mortgage, utilities etc) amount to pounds 285 and that she spends the rest of her income. She is worried about how she will pay her mortgage once she retires.

What a financial adviser recommends:

Jean is not untypical of many mothers without partners who have career breaks or start work late in life and then struggle to provide a home and pension.

For at least some peace of mind that there is more money due to come in she should get an estimate of her state pension entitlement - by calling 0191-225 5240 and filling in a form BR19. But her national insurance contributions and income have been such that she will be entitled to significantly less than the maximum (currently around pounds 9,000 a year, including the earnings- related Serps element).

Jean should do a full budget of all her outgoings to see if there is any room for savings. As with all too many people, Jean's income "just seems to disappear" but given the limited number of years she has left working and the burden of her mortgage she should look to make savings.

It seems little thought was given at outset to how Jean would pay her mortgage beyond retirement. She should contact her lender, the C&G, and get quotes on the level of repayments required to reduce the term - say by five, ten and 15 years. But with mortgage rates rising she should be wary of tying herself into higher repayments which then rise further because of interest rate increases. Jean might be better off making occasional extra repayments as and when she can afford it.

This money could also be used to enhance what is set to be a pretty modest pension. She may have to consider moving to a smaller property to reduce her mortgage while at the same time squeezing expenditure to build up retirement savings.

Additional voluntary contributions (AVCs) to her pension scheme are the obvious way of enhancing her pension, but a tax-free PEP would give more flexibility on putting money in and taking it out early if needs be.

Finally, Jean also needs to make her limited savings work harder. She could put pounds 1,000 of her current account money into a savings account, perhaps even a tax-free Tessa, leaving pounds 1,000 to meet day-to-day spending.

q Jean Riley was talking to Bob Brown of Chatterton-Bennett Life and Financial Services, a Stroud-based independent financial adviser and member of DBS, a leading national network of IFAs.

If you would like to be considered for a financial makeover for publication, 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, a daytime telephone number, and state why you think you need a makeover.

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