Save now or pay the price later

FINANCIAL MAKEOVER

Trisha Cochrane is 35 and a freelance occupational psychologist. She is in her third year of self-employment, having earned pounds 25,000 before tax in year one, just pounds 12,000 in year two, but pounds 14,000 to date in the first half of her third year.

She lives in west London with her partner, who works full-time. She pays pounds 200 a month on her mortgage, which is for pounds 30,000, and also has around pounds 90,000 of equity in her home. She has an endowment policy - presently worth pounds 12,000 - to cover the home loan. Trisha also puts pounds 450 a month into a joint account for bills, house improvements, going out and the like.

Trisha has pounds 7,000 in PEPs, another pounds 1,500 in Norwich Union shares, and pounds 2,000 in premium bonds. She also tries to put pounds 100 a month into a postal account with Buckinghamshire building society, although in practice this seems to get spent.

Trisha has never been in a company pension scheme, but while she was working full-time she started a personal pension, which also included contracting out of the earnings-related state pension (Serps). Contributions into this have been variable and total around pounds 11,000 to date, and at present she is saving pounds 175 (including tax relief) a month.

Trisha is concerned about whether she is saving enough for her pension and making the most of her savings.

What a financial adviser recommends:

Trisha does need to think about saving more for her pension. Based on what she has put into her personal pension so far and even assuming she continues saving at the present rate of pounds 175 a month for the next 25 years, she could be due a pension of just pounds 4,200 (state pension aside and with annual increases of 5 per cent built in). If growth is higher, say 9 per cent a year, the pension could be around pounds 10,500 a year. But even assuming the higher figure, this does not take into account how inflation will have eaten away at the spending power of that money by the time Trisha retires aged 60.

To get a better idea of the likely shortfall, Trisha should ask each of her three pension companies - Scottish Provident, Scottish Widows and Scottish Amicable - as well as the DSS (for the state pension), for forecasts of the different pensions she will be due at retirement.

Scottish Amicable is in the process of being taken over by Prudential and Trisha will be due a windfall in October. The other two insurers may yet be taken over or convert into companies quoted on the stock market. Trisha should check whether she is in the with-profits funds of these insurers or, if not, consider putting at least some money in those fund options. By being in these funds she will maximise her chance of benefiting from any windfalls.

With the three companies she should also check she has "waiver of premium" cover. This will ensure her contributions continue to be paid should she be unable to work through ill health.

The pension plans she has are good ones in that they allow her to stop, increase or decrease contributions or retire early without penalty. But, realistically, getting a decent retirement income from them will depend on her ability and willingness to save more.

She should consider cashing in her premium bonds and switching to a building society. Premium bonds are most attractive to higher-rate taxpayers because prizes are tax-free. The money should be put in a postal account, preferably of a building society that might yet produce a windfall. It could also be used to pay Trisha's approaching tax bill.

Trisha has a James Capel PEP which allows her to choose her own investments - a "self-select" plan - but she is not interested in choosing her own shares and believes the stock market is at a dangerously high level. She should consider switching to a PEP that offers some downside protection. Plans offered by Scottish Widows and Govett both offer growth but lock in gains as they go along.

Similarly, she might consider swapping her Norwich Union shares for a unit trust PEP holding or otherwise switch them into a PEP - if she wants to keep them.

q Trisha Cochrane was talking to Paul Grant, director of Master Adviser, which is based in central London and is a member of Financial Options Group, a network of independent financial advisers.

If you would like to be considered for a financial makeover for publication, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293 2096 or 2098; e-mail: S.Lodge@independent.co.uk. Please include details of your current financial situation, a daytime telephone number, and state why you think you need a makeover.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

Simon Read: Frozen in time - the expat British pensioners who deserve a better deal

I had dinner with the pensions minister Steve Webb this week. There was a wide-ranging discussion about the new pensions freedoms starting in April, and changes to the state pension. Crucially, I also got to ask Mr Webb whether he had any plans to have another look at the injustice that is frozen pensions.

Number of serially under-performing investment funds has increased by a fifth, survey reveals

The new Spot the Dog survey shows that even famous fund managers, holding billions of pounds of our money, can make mistakes

Mark Dampier: We always bring down Britain. But there's plenty in the tank

While the health of the economy is not insignificant, Mark Dampier finds it incredibly unpredictable in terms of its impact on the stock market

If you haven’t switched supplier or tariff in the last 12 months then you could almost certainly save money by doing so

There are easier ways to save hundreds on your energy bills

A new free app is aimed at the three-fifths of Brits who have never switched supplier

Worse hit are loyal customers with long-standing accounts – their loyalty is rewarded with lower interest rates than more recently-launched accounts

Savers are being let down by banks and building societies, says Financial Conduct Authority

Regulator’s investigation into the market found that around £160bn was held in easy access savings accounts that pay interest lower or equal to BoE base rate

What to do if you're facing repossession: However far you fall, you're not on your own

Helen Fisher had to become a 24-hour carer, and then she faced repossession. But going to the right places for help changed everything, writes Simon Read

Simon Read: Information is power. And it's in the wrong hands when people are cold-called by companies that know they're in debt

In debt? You're likely to be targeted by unscrupulous companies that hope to profit from your misfortune. They may try to pretend to be your friend by offering what they call "help" – but almost certainly that help will come with a cost and leave you worse off than you were before they got in touch.

Mark Dampier: So you've got pension freedom... will it end up as a cold shower?

In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.

The move marks the culmination of a long campaign by debt charities and insolvency firms and follows a call for evidence launched by the Minister last August

Bankruptcy rules to change, Business Minister announces

The minimum amount for which you can be forced into bankruptcy is being raised from £750 to £5,000

Three-quarters of parents say being unable to afford to heat their home adequately is hitting the health of their children

Family well-being and health hit by heating costs

A shock report reveals that fuel poverty is affecting desperate families – and their children

Many people have no understanding of pensions

Are you ready for pensions reforms?

Most people are too confused to know how to use their pensions for a secure income

At a rate of 7.5 per cent, the wind is blowing behind ethical investors

A new initiative has financial and ethical virtues, says Simon Read
Ticket to cry: many passengers have been penalised with exorbitant and unnecessary rises

Simon Read: Inflation is riding the slow train. So why have we been given a one-way ticket to travel on the fares express?

I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.

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

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Guru Careers: In-House / Internal Recruiter

    £25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

    Recruitment Genius: Tax Assistant

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

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    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