Wealth Check: 'What should I do now about my pension?'

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Matthew Collom has lived in London for four years and has worked as an advertising sales account manager for the financial website ADVFN for three years.

Matthew Collom has lived in London for four years and has worked as an advertising sales account manager for the financial website ADVFN for three years.

He enjoys an active social life with friends in London and further afield, and is also a keen sports fan, especially of football.

He would like to start a pension soon, and would like advice on the type of investments that would suit him best. Matthew is currently renting with another person, and would like to buy next year when his tenancy expires. He is also interested in making a lump sum investment of £5,000, with monthly contributions of £100 after that.

We put his case to Juliet Schooling at Chelsea Financial Services, Anna Bowes at Chase de Vere and Vivienne Starkey at Equal Partners.


Salary: £45,000.

Education: BA Hons

Debt: Graduate loan £555 at 7 per cent; M&S loan £6,000 at 9.9 per cent; student loan £2,500.

Property: Renting.

Savings: £50 a month into cash Isa.

Investments: Work-share option scheme.

Pension: None.

Monthly outgoings: Rent £875; cigarettes £100; loans £500; bills £100; gym £70; Sky £50; going out £600-£800.


Mr Collom's employer has set up a Stakeholder pension plan, but does not contribute to it. According to Ms Starkey, he should check the details of this plan, as some schemes charge no commission at all. If the scheme is not to his liking, she recommends either Norwich Union or Legal & General.

Ms Bowes suggests an equity-based pension, as Mr Collom has a long way to go before retirement. As well as agreeing with Ms Starkey's choices, she says Standard Life has a good choice of funds available. Juliet Schooling suggests looking at Scottish Widows, which allows access to three external funds through its Stakeholder plan. But Ms Bowes cautions that Mr Collom might want to pay off his main debts before arranging his pension.


Mr Collom's debt repayments cost him £500 a month, money that could go towards the deposit on a house, Ms Schooling says. The student loan is not too much of a burden, due to the low interest rate, but she recommends Mr Collom pays off his Marks & Spencer loan, perhaps using some of the money he has set aside to invest.

Ms Starkey cautions that there might be penalties for paying off the M&S loan straight away, although it might be possible to reduce it. He should certainly consider this as a higher-rate tax payer, the effective interest rate he pays is 16.5 per cent.

When it comes to savings, Mr Collom will need his money to work hard if it is to provide a deposit on a London property. He should top up his cash Isa, if he has not already used up this year's allowance. Abbey National's postal Isa, at 5.35 per cent, is a good bet according to Ms Starkey.

He should then channel the remainder of his cash savings into a market-leading account, says Ms Bowes. Birmingham Midshires pays 5.4 per cent before tax on its internet savings account although this does include a first-year bonus of 0.45 per cent. Alternatively the AA has a savings account paying 5.36 per cent, says Ms Schooling.


Although Mr Collom has an above-average income, this will not take him as far on the property ladder as he might hope. His pay is part-basic salary and part commission, and not all lenders will take all of his commission into account when it comes to arranging a mortgage. Moreover, Mr Collom's existing loans will also affect the amount he can borrow.

Ms Bowes calculates Mr Collom will be able to borrow about £134,000, based on his current earnings. But he will also need to allow for mortgage fees and other costs. A mortgage broker will be able to help Mr Collom find a lender with a package that suits his circumstances. In the meantime, he needs to build up his savings, in order to provide a deposit. It might make sense for him to pay off his debts first, but he should also try to save a regular monthly amount, as he will need as large a deposit as possible for a London property.

The good news is that based on the amount he can borrow now, Ms Bowes says Mr Collom will have lower outgoings than he does now from renting, even if he opts for a repayment mortgage.

Ms Starkey suggests that Mr Collom should opt for a repayment mortgage, even though the monthly cost is higher than for interest-only loans, as it is the only risk-free option.

* If you would like a financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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