Mortgage fears as retirement nears
Sunday 08 June 1997
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.
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
- 4 Loch Ness Monster found on Apple Maps?
- 5 How We Met: Alison Moyet & Emma Kennedy: 'I knew we'd be friends because she was happy to make a prat of herself'
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
Abdullah Deghayes: My son was the martyr of a just cause, says father of British teenager killed in Syria conflict
Ukraine crisis: Helicopter gunships take country closer to all-out war
iJobs Money & Business
Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...
£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...
£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...
£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...
Day In a Page
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds