Status: Divorced, with two grown-up children, aged 24 and 26.
Occupation: Civil servant and nurse
The problem: Yvonne knows that if she is to get the best from her savings the time has come to put her personal finances under the microscope. Planning for a secure retirement is high on her list of priorities.
A qualified nurse, now working as a civil servant, Yvonne does have the benefit of a sizeable salary of pounds 40,000 a year, which means she can put aside a reasonable amount each month. Her fixed outgoings account for about half her net monthly income, in addition to which she needs to pay for the running of her car, as well as holidays, clothes and other social expenditure.
Last year she bought a new home for pounds 70,000 with a pounds 47,000 interest-only mortgage over 10 years from Bradford & Bingley. She was offered a discounted rate, 1.5 per cent below the standard variable rate for the first five years. She was advised to set up a personal equity plan (PEP) as a repayment vehicle for the loan and is presently putting pounds 287 a month into a Schroder UK Enterprise Unit Trust PEP. She also has a tax-exempt special savings account (Tessa) and a number of endowment policies.
Yvonne estimates she can salt away about pounds 500 a month to help build up her retirement nest-egg and, with a permanent contract of employment, she expects to be able to continue with this level of saving until she gives up work.
The adviser: Graham Bates of Bates & Partners, Capital House, 151, Otley Old Road, Leeds, LS16 6HN. Telephone: 0113-2955955.
The advice: The PEP fund she has selected concentrates on capital growth from investment in smaller and medium-sized companies. It has an excellent track record, and achieved a total return of 131.78 per cent over the five years to last November. It would make sense for her to increase her plan contribution up to pounds 500 a month, the maximum an individual can put into a PEP in each tax year.
Although PEP investments will no longer be available after April 1999, it will still be possible to put up to pounds 5,000 a year into an unit-linked Individual Savings Account (ISA) and her mortgage is less than the proposed lifetime limit of pounds 50,000 for investment in an ISA.
Yvonne does have several other investments already in place, including a second-generation Tessa with Nationwide. This is a secure investment and, although the return on capital is likely to be conservative, the tax concession is well worth having, bearing in mind Yvonne's status as a higher rate taxpayer.
She also has about pounds 2,000 in a Postal Account with Nationwide and a fixed-term bond, also for about pounds 2,000, due to mature next month. For everyday purposes she keeps a minimum balance of about pounds 200 in a current account with Midland Bank.
Some time ago Yvonne took out four separate endowment savings plans with the Royal National Pension Fund for Nurses, to which she contributes pounds 115 each month. One of these policies is due to mature in just over five years and is expected to realise about pounds 1,800. The other three mature just before her 60th birthday and show projected benefits of pounds 8,900.
She would like to keep a few thousand available for ready access in case the need arises to help out either of her two children. In fact, later this year she is expecting repayment of pounds 2,000 which she lent her daughter for a trip to New Zealand and one of her objectives is to invest this money for growth.
Although her primary objective is for capital growth now, she does feel that once she has retired it would be nice to benefit from some investment income to help top up her pension. In particular, she needs to know what to do with the pounds 4,000 in capital she will have when her daughter has repaid the loan and the Nationwide bond matures. And if she decides to top up her PEP to pounds 500 a month this will still leave pounds 213 available for regular savings.
She is happy to take a balanced risk approach but she has a strong interest in ethical matters and would not be comfortable investing in either individual companies or funds unless they could demonstrate an ethical approach.
Given the sums involved and the relatively short period until retirement, one sensible option would be to invest the pounds 4,000 in a low-risk with-profits bond, where it will not be exposed to the day-to-day volatility of the stock market but there is a good chance the capital will perform better than if it is left languishing in a deposit account. It will also be more tax-efficient as there is no personal liability to basic income tax and higher-rate taxpayers can take withdrawals of up to 5 per cent a year without triggering additional tax.
Friends Provident, a company well-known for its Quaker roots and ethical investments, has a with-profits fund worth looking at. The declared annual bonus is currently 6.5 per cent, in addition to which there is potential for a terminal bonus after five years. When looking for the right home for Yvonne's regular monthly savings, the Credit Suisse Fellowship Trust is a well-established ethical fund, which over 10 years has grown by 153.05 per cent.
Making sure she has adequate pension is also high on her list of priorities. Until six months ago she was a member of the NHS pension scheme but is now in the process of switching to the Principal Civil Service Pension Fund. This involves no penalties and means that Yvonne will have to contribute only 1.5 per cent of her annual salary instead of 6 per cent with the NHS scheme.
She does not have enough years of service left to get a maximum pension and, with this in mind, she has already started a free-standing additional voluntary contribution (FSAVC) plan with Friends Provident. Although she has been advised to make regular monthly payments to her FSAVC, she is likely to fare better by adding single contributions as and when spare cash is available.
Finally, Yvonne wonders if she should try to sell an endowment policy she took out with Scottish Amicable five years ago. Unfortunately, it is a 25-year policy and has not been in place long enough for this to be an option. The monthly payment of pounds 60 is not a problem and, since she would lose out by simply encashing the policy, the best course is to keep the plan going.
With everything considered she should end up with a good spread of investments helping to pay off her mortgage and providing a nest egg for a happy and comfortable retirement.
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