Wealth check: What should I do about my pension?

In these risk-averse times, a 46-year-old woman with two children wants to know how to prepare for the long-term future. Harriet Meyer reports


The patient


Beverley Williams, 46, a self-employed marketing consultant, is concerned about her lack of a long-term pension. "I can afford to start saving around £300 to £500 a month, but don't know where to put this in current market conditions, and I don't have access to a company pension scheme," she says. "Should I be adding this to a pension or putting it in another investment entirely?"

The divorcee from Alton, Hampshire, is already paying 4 per cent of her salary into an AXA personal pension plan, which is currently valued at about £69,000. "But this only gives a small annual pension according to estimates," she says.

Beverley is also anxious to continue to set money aside to meet the cost of looking after her two children: Henry, 11, and Isabel, nine. "This makes my monthly expenditure pretty high," she says.

Yet with a salary of approximately £60,000 a year, she has still managed to slot away some savings for a rainy day. This includes around £10,000 in a stocks and shares individual savings account (ISA) with Prudential. "I also have about £3,500 in my basic current account which I'm not sure what to do with," she says.

For her four-bedroom house, she pays £260 a month for a £70,000 part-interest-only, part-repayment mortgage with Virgin's One Account at 3.75 per cent. There are nine years left to run. This account pools all her money into one pot, enabling Beverley to offset her salary against her mortgage debt to reduce the sum incurring interest. The property was bought in 1996 for £120,000, and is now worth about £380,000.

Fortunately, she has no other debt. "I am very glad of this in the current environment – particularly as I'm self-employed," she says. "I've never had any debt in my life other than my mortgage. I wouldn't feel comfortable with it."

For protection purposes, she pays £27 a month for her ex-husband's life cover with Scottish Provident. "This is apparently worth about £100,000 if he dies," she says.



The cure

Taking a disciplined approach by saving regular monthly sums into a pension plan is a wise move for somebody in Beverley's stage of life. "And she is debt-free aside from her mortgage, which puts her in a strong position to plan sensibly for the future," says Darius McDermott from independent financial adviser (IFA) Chelsea Financial Services.

However, with two children to look after, she should be considering other aspects of her financial planning beside retirement, such as protection, stresses our panel of IFAs.



Protection

As Beverley is a parent, a financial priority should be ensuring her children will be provided for in the event of her death or a serious illness meaning she is unable to work. "The family would really struggle if this were to happen," says Flora Maudsley-Barton from IFA Parsonage.

An income protection policy that would pay out about £2,000 a month, inflation-proofed, if she became too ill to work for six months or more would cost about £40 a month. This would pay out until Beverley retires. She could also consider a life policy for herself.



Retirement

Beverley's main concern is investing now in the hope of getting a decent income stream from her pension pot at retirement. As a starting point, she should check that the funds in the AXA pension suit her attitude to risk, and that she is happy with their performance, says Tony Catt from The IFA Centre.

"As she already has a pension in place, she could use a stocks and shares ISA to diversify her retirement investments," says Mr McDermott. "This is a more flexible arrangement which she could eventually draw an income from."

As she already has a stocks and shares ISA with Prudential, she should review this for performance and charges. However, using a fund supermarket such as Fidelity's Fund Network would give access to a diverse range of funds and providers, and offer discounts off initial charges to reduce the cost of her investments.

"She could start with two solid UK equity funds that have good track records and experienced managers, such as Invesco perpetual high income and the M&G recovery funds," says Mr McDermott. "And later build on the portfolio to get a more global exposure and a mix of asset classes."



Property

Beverley's use of an offset mortgage is a tax-efficient and effective way to pay off a loan early, says Ms Maudsley-Barton. The sums of cash flowing through the account will reduce the sum on which they pay interest, and shorten the term of the mortgage. She can also overpay and make lump-sum reductions on the mortgage when it suits her.

"An alternative strategy would be to divert some of her excess cash into reducing her mortgage as quickly as possible," says Mr Catt. "There is no investment risk in this and once she has tackled her mortgage, she can really concentrate on other investment strategies."

She has substantial equity in the house, which should afford her a level of financial security, agree the advisers. "And she should not do anything with this unless there is an emergency," adds Mr McDermott.

However, Ms Maudsley-Barton expressed concern about how Beverley will repay the interest-only half of her mortgage in nine years' time. "I would want to put in place a way to pay off that debt by the end of the term," she says.

Beverley has to find £35,000 in nine years to repay the interest-only part of her mortgage. Increasing her monthly repayments or using her pension lump sum to repay the mortgage are at the end of its term are two possible solutions, say the advisers.

Independent Partners: 10 top tips for retirement. Get your free guide here

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
    Michael Calvin: How we need more Eric Cantonas to knock some sense into us

    Michael Calvin's Last Word

    How we need more Eric Cantonas to knock some sense into us