Wealth check: Sound advice for a musical high earner

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Nick Gardiner is financially stable at 26. He is a consultancy manager for EMI, the music recording and retailing group, earns £50,000 a year and describes himself and his girlfriend as a "typical yuppie couple from Clapham".

Money net

Nick Gardiner is financially stable at 26. He is a consultancy manager for EMI, the music recording and retailing group, earns £50,000 a year and describes himself and his girlfriend as a "typical yuppie couple from Clapham".

Jessica, whom he met four years ago, is an accounts director for an advertising agency and earns £40,000. They live a comfortable life. They bought a two-bedroom flat in Clapham last year, enjoy socialising and like to travel.

Mr Gardiner gets away for the weekend five or six times a year to see his family, and friends living in Europe, but travelling is in his blood. Born in Bangkok, Thailand, he spent his childhood moving around Asia every two or three years because his father was an international banker. He went to boarding school in England, read social and political sciences at Cambridge and took a masters degree at the School of Oriental and African Studies in London.

His first job was with Merchant International Group, which helps people check on proposed business partners. After a year, he joined the management consultant Boston Consulting Group. Two years later, still working for Boston, Mr Gardiner was assigned to management consultancy for EMI.

He is concerned whether he can get a better mortgage deal. He has an open plan offset deal with the Woolwich and pays 4.75 per cent interest. He also wonders what to do about his pension. At present, he has an occupational pension with his employer, which contributes 15 per cent of basic salary. What would happen if he were to change jobs?

He also has £10,000 in savings and wants an investment port- folio. He has no idea where to start or what to do to lay down the foundations for one. Should he look at Isas, unit trusts, investment trusts, equities, bonds? He is not a risk-taker and is not looking for a quick profit.

Mr Gardiner is considering leaving his job next year to study for an MBA. His employer has guaranteed him his job back when he returns, but he is concerned about the financial implications and how he can maintain his mortgage payments.

We put Mr Gardiner's questions to financial advisers Julian Telling at Falcon Group, Anna Bowes at Chase de Vere Investments, David Hollingworth at London & Country Mortgages and Roderic Rennison at Charcol.


Nick Gardiner, 26

  • Status: Lives with girlfriend, Jessica
  • Occupation: Management consultant at Boston Consulting Group
  • Education: BA in social and political sciences from Cambridge. Masters degree in international politics from the School of Oriental and African Studies, London University
  • Salary: £50,000. Jessica £40,000. Combined: £90,000
  • Property: Two-bedroom flat in Clapham. Bought for £170,000 a year ago
  • Motoring: Nil
  • Outgoings: Mortgage £512.50 (each); utilities £80 (each); mobile phone £30; house phone £20; life insurance £27.50 (each); house and contents insurance £22.50 (each); entertainment £500; food £200; credit card £200; travel £75, gym membership £70. Total: £1,737.50
  • Investments: £10,000 savings with the Woolwich. Employer's scheme pension contribution 15 per cent of basic salary. Life insurance cover £150,000
  • Debts: £130,000 Woolwich mortgage. Natwest credit card is paid as spent

Solution 1: Mortgage

Mr Gardiner has an offset mortgage, which means his savings of £10,000 are offset against his mortgage and therefore he is paying interest only on £120,000 of the £130,000 mortgage.

David Hollingworth says this will give Mr Gardiner a rate of return on his savings at the mortgage rate of 4.75 per cent and he will need a gross rate of 7.92 per cent on a savings account because no tax is paid on the offset account.

Mr Hollingworth also adds that while this mortgage is attractive, the couple are paying for this functionality in the interest rate. He suggests they try a more traditional two-year discounted rate such as Abbey National's 1.05 per cent two-year discount mortgage, which charges 3.95 per cent.

Mr Rennison suggests remortgaging too, and recommends the Mortgage Express two-year tracker at 3.99 per cent. Mr Wheatley says: "This could be an ideal time for him to consider switching to a long-term fixed rate, provided the facility to offset money held on deposit and the flexibility of his existing is retained."

Solution 2: Pension

Mr Wheatley says: "Mr Gardiner's pension is fully funded by his employer and at 15 per cent of salary it should provide him with a reasonable income in retirement. Mr Rennison says: "He should check his pension arrangements to ensure the funds he is invested in suit his risk profile.

"He has a high disposable income so he may be able to afford AVCs (additional voluntary contributions) into his pension. Although this is a long-term, tax-efficient place to put his money, he has to balance the long term with the short to mid term. This will be locking his money away and he may prefer to keep it accessible." Ms Bowes feels he should put as much as possible in his pension, no matter who provides it.

Solution 3: Investment

Before Mr Gardiner thinks about where to invest his money, he should consider leaving some aside as his emergency fund. Ms Bowes recommends he retains at least £3,000 in cash.

"This would leave him with £7,000 to invest into a medium to long term investment (five to 10 years). He has not used his Isa allowance so he could invest the whole £7,000 in a maxi stocks-and-shares one. "He may want to consider a more cautious UK fund with no currency speculation. He could invest in a fund such as HSBC UK Growth & Income, or if he wants geographical exposure the Fidelity Wealthbuilder fund holds approximately 50 per cent overseas."

The remaining £3,000 could be held in a cash mini-Isa in his girlfriend's name. This would shelter it from tax, important because they are both higher-rate taxpayers. The best variable rate account is with Northern Rock paying 4.80 per cent gross, including a 0.55 per cent bonus for the first six months."

Mr Wheatley thinks Mr Gardiner could afford to save up to £800 a month out of income, which can be used with, or aside from, his £10,000 savings. "If he is completely risk-averse he should consider National Savings, cash Isas and unit trusts, because there are usually no costs to invest in cash ISAs and the majority of deposit-based unit trusts only impose a low annual management charge.

"Given Mr Gardiner's age, he could afford to take some risk. Investing on a regular basis will help to reduce the risk and, the capital held in ISAs and unit trusts would remain accessible." Mr Rennison thinks Mr Gardiner's plans to leave employment will affect his investment decisions. "He may wish to keep this £10,000 liquid to provide him with a good cash buffer when he is studying."

Solution 4: Break from work

Mr Gardiner is considering taking time out to study, but has been guaranteed a job with his employer when he returns. All the advisers agree that the answer is to take a mortgage payment holiday.

Mr Wheatley says he can also use his savings to fund a payment holiday, and Mr Rennison suggests his girlfriend handles the payments on her own. He also said Mr Gardiner could take advantage of the flexible features on his mortgage and overpay now while he is still drawing a salary, therefore earning the right to take a payment holiday when he has no regular income.

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