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

News
newsGlobal index has ranked the quality of life for OAPs - but the UK didn't even make it into the top 10
News
people
News
people
News
peopleStella McCartney apologises over controversial Instagram picture
PROMOTED VIDEO
Life and Style
Laid bare: the Good2Go app ensures people have a chance to make their intentions clear about having sex
techCould Good2Go end disputes about sexual consent - without being a passion-killer?
Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
News
i100
Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
people
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsA Welsh town has changed its name - and a prize if you can notice how
Arts and Entertainment
Kristen Scott Thomas in Electra at the Old Vic
theatreReview: Kristin Scott Thomas is magnificent in a five-star performance of ‘Electra’
News
Destructive discourse: Jewish boys look at anti-Semitic graffiti sprayed on to the walls of the synagogue in March 2006, near Tel Aviv
peopleAt the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Life and Style
Couples who boast about their relationship have been condemned as the most annoying Facebook users
tech
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
News
i100
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

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Italian couples fake UK divorce scam on an ‘industrial scale’

    Welcome to Maidenhead, the divorce capital of... Italy

    A look at the the legal tourists who exploited our liberal dissolution rules
    Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

    Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

    The vintage series has often been criticised for racial stereotyping
    An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

    An app for the amorous

    Could Good2Go end disputes about sexual consent - without being a passion-killer?
    Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

    Llansanffraid is now Llansantffraid

    Welsh town changes its name, but can you spot the difference?
    Charlotte Riley: At the peak of her powers

    Charlotte Riley: At the peak of her powers

    After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
    She's having a laugh: Britain's female comedians have never had it so good

    She's having a laugh

    Britain's female comedians have never had it so good, says stand-up Natalie Haynes
    Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

    Let there be light

    Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
    Great British Bake Off, semi-final, review: Richard remains the baker to beat

    Tensions rise in Bake Off's pastry week

    Richard remains the baker to beat as Chetna begins to flake
    Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

    A look to the future

    It's time travel fashion at Louis Vuitton in Paris
    The 10 best bedspreads

    The 10 best bedspreads

    Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
    Arsenal vs Galatasaray: Five things we learnt from the Emirates

    Arsenal vs Galatasaray

    Five things we learnt from the Gunners' Champions League victory at the Emirates
    Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

    Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

    This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?