Wealth check: The best use of an empty nest
For a single mother with children at university and a serious medical condition, the family home could prove crucial
Saturday 30 March 2002
Born in Somerset, Helen Lewis, 50, trained as a nurse in London. She has spent most of her life working in healthcare, both for the private sector and the National Health Service, and has worked throughout the East Midlands.
At the age of 37, she stepped out of nursing to study for a degree in social policy at Nottingham University. Three years later she struggled to get back into nursing because the profession was going through the Skillnet review. At the same time, Mrs Lewis separated from her husband, so she took on all sorts of jobs to live, including babysitting, a paper round, and treatment room and hospice nursing. Mrs Lewis eventually moved back into nursing on a full-time basis and still works as a community nurse manager in south Derbyshire. She also does some district nursing, clinical work and manages a relief team. In addition, Mrs Lewis works in primary care and is a lead nurse working with a team of managers, sorting out waiting list appointments, negotiating contracts in hospitals, etc.
Mrs Lewis has two children, both girls, who are away studying at university. Clare, the elder daughter, is in her final year at Brighton and Rachel is in her first year at Bristol. Mrs Lewis funds both girls' tuition and in September will have to pay for Rachel's university fees, which will cost £1,100. Even though Clare graduates later in the year, Mrs Lewis doesn't foresee her returning to the nest and so she will continue to live in their four-bedroom house alone. At the moment Mrs Lewis has a monthly income of £2,730 gross and outgoings totalling £1,033.02. She also has various investments and pays 6 per cent of her wages into an occupational pension scheme.
Mrs Lewis is a keen worker and has never let anything get in the way of her job, even having children, but there will be a time when she may have to give it all up. Unfortunately, Mrs Lewis suffers from a condition called Raynaud's disease, which causes the hands and feet to stop working.
With this and the problems of being a single parent in mind, Mrs Lewis is concerned about the family's financial future. Even though she has numerous investments, she does have her mortgage hanging over her head. She also has a life insurance policy, which has a critical illness clause.
We have put Mrs Lewis's concerns to our board of advisers. This week they are John Churm at Torquil Clark , Tim Eagles at Best Advice Financial Planning, and Roderic Rennison at Charcol.
Name: Helen Lewis
Status: Divorced with two daughters, Clare, 21, Rachel, 19
Occupation: Nurse manager
Education: Degree in social policy
Salary: Basic £26,290, plus £6,468 from Primary Care Trust
Property: Four-bedroom detached house in Nottingham.
Motoring: Leased Fiat Punto
Outgoings: Utilities £177.50, work fees £15, mortgage £285.14, money to children £200, critical illness cover £11, savings £100, life cover £51.38, family insurance £43, car expenses £80, Isa insurance £25, Rachel's car £45. Total: £1,033.02.
Investments: Egg savings £414, Liverpool Victoria Isa £100, life insurance £7,692, Abbey retirement plan £6,602, family bond £.4,400
Debt: Mortgage £32,500, Goldfish credit card £220
'Buying a smaller house could release capital'
Solution 1: Mortgage
Mrs Lewis has a £32,500 five-year fixed rate mortgage with the Halifax. It was taken out in 1999 at a rate of 6.25 per cent with repayments for 15 years. Mrs Lewis wants to know whether she should continue with her current mortgage or change it. She also wants advice on whether she should buy a smaller property.
Mr Rennison says: "Mrs Lewis is in the third year of a five-year fixed period, so she will have early redemption penalties. The only reason to switch would be if Mrs Lewis were able to save enough money over the remainder of her fixed rate period to cover her costs. Although she is paying a relatively high interest rate, it is unlikely that she would be able to save enough money by re-mortgaging. I advise her to wait until her penalties reduce or end."
He adds: "Mrs Lewis indicated that she may move to a smaller house. As this will probably mean she will be looking for a cheaper property, she may be able to pay off her mortgage entirely at this point, which will obviously give her even greater financial security in retirement."
Mr Eagles thinks it is worth investigating re-mortgaging to a new provider. The Woolwich currently has a discounted rate, which comes down to 3.99 per cent, although this will fluctuate with interest rates, but will give discounts for a two-year period. As Woolwich pays for the survey and legal fees, she would not incur any costs in re-mortgaging and should see a decrease in her outgoings. Mr Eagles adds: "At some point between now and retirement, Mrs Lewis should consider selling the property, as her health may make it unsuitable for her long-term needs. Selling the property for a smaller one could release capital and enable her to repay her mortgage early or boost her income at retirement."
Mr Churm says: "Dependent on the position with the children, 2004 could be decision time. She may consider sale of the house for a smaller property. Any surplus money could be used to prepare for probable high medical costs in later years. Or she could decide to sell up and move to a warmer climate. This would involve investigating the medical insurance costs and healthcare facilities."
Solution 2: Life cover
Mrs Lewis and her ex-husband took out life cover for their mortgage. When the couple separated, the policy was transferred to Mrs Lewis, who pays the mortgage. The policy also holds a disability clause, which is not good in light of her health.
"Helen has four options open to her," says Mr Rennison. "She can continue to make contributions, stop making contributions and pay it up so it lies dormant until it matures, surrender it or sell it. It is unlikely that she would find someone willing to buy it at its current value; she is best advised not to surrender it. As Abbey Life's endowments are extremely unlikely to have fared well, it may be that Mrs Lewis would be best to discontinue her payments and use the extra money to increase contributions either into her pension, ISA or cash savings. She should contact Abbey Life to see if she could get her husband removed from the policy as this may reduce the premiums. She should also place the policy in trust so that in the event of her death prior to the policy maturing, it will be paid out to her daughters free of inheritance tax." John Churm says: "Mrs Lewis is still short of life cover, and should continue the policy for at least two years, when Rachel is 21."
Mr Eagles agrees that Mrs Lewis should keep the existing policy going, "as poor health will make it difficult to replace". He adds: "I would advise checking the critical illness policy to see if it has Total Permanent Disability. If she is unable to carry out her normal employment at some point due to disability, she may qualify for the benefit to be paid at that point."
Solution 3: Pension
Mrs Lewis has a pension in the NHS superannuation scheme (there was a break of four years in contributions, while Mrs Lewis worked on a part-time basis) and a small fund in an Abbey Life retirement plan.
"It's important that she requests an undated statement and enquires about her entitlement in the event of her being deemed incapable of work and therefore requiring early retirement," says Mr Rennison. "Mrs Lewis needs to confirm the exact terms for her entitlement, but in this event it is likely that she will receive her full salary for six months, then half payments for six months before being eligible to receive her pension. Mrs Lewis should consider using some of her surplus cash to make additional voluntary contributions (AVCs) into her NHS pension fund." Mr Churm says: "Alternatively she could take out a stakeholder pension, utilising her other earnings, which could offer greater flexibility. Standard Life and Scottish Widows offer competitive plans." Mr Eagle recommends: "She should look at the possibility of transferring from the Abbey Life scheme to a lower charging provider such as Scottish Life."
Solution 4: Savings
"When Rachel finishes university, this will be a good time to review savings," says Mr Eagle, "as expenditure will decrease and this money could be used to build up a cash fund using a Mini Cash Isa." Mr Rennison says: "Mrs Lewis has very little cash savings at the moment and she should aim to build up more in her Egg savings account." Mr Churm thinks Mrs Lewis should take out a Mini Cash Isa, deflecting contributions made to the Egg savings account. This would provide tax-free interest and capital would still be available on demand. He also believes that the current family insurance bond she has should "run until maturity in 2003 at which time she should consider investing the proceeds in a stocks and shares Isa".
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