Name: Eric Hamilton
Occupation: Mechanical engineer
The problem: His principal concerns are the adequacy of income in retirement for himself and his wife, whether his wife should join the NHS Pension Scheme, planning for the possibility of long-term care, putting a money aside for grandchildren, and a PEP for his wife.
The advice: Eric's wife should join the NHS scheme and also set up a corporate-bond PEP. The couple should also consider investing half their current building society balance in a distribution bond.
Eric Hamilton works for General Accident, the insurer about to merge with Commercial Union (CU). His wife, 50, is a part-time nursing assistant. The couple, who are in good health, have a married daughter, 23, a 21- year-old son at university and one grandchild.
Eric is a member of a non-contributory final salary pension scheme and, because of his very long service, at normal retirement at 60 he will be entitled to a full two-thirds pension. He has death-in-service benefits worth four-times salary, plus 50 per cent spouse's pension on his death. His wife, as a part-timer, has recently become eligible to join the NHS pension scheme, but they are not sure if it is worth while. The NHS scheme pays one-eightieth of final salary per year of service, plus tax- free cash, and requires a member's contribution of 6 per cent.
The adviser: David Holland, managing director at RK Harrison, independent financial advisers with offices throughout the UK. Head office: 19/21 Great Tower Street, London EC3R 5AQ, 0171-929 9300.
The advice: Eric and his wife jointly own a house worth pounds 150,000, which has an outstanding Abbey National mortgage of pounds 28,000. The loan is on an interest-only basis and Eric pays around pounds 150 per month interest, but this is reduced by an employer's mortgage subsidy to around pounds 90 per month, plus the cost of four General Accident (GA) policies for terms ranging from 30 to 10 years. The estimated maturity value of the combined policies, maturing between 2000 and 2004, will be around pounds 100,000, leaving him with pounds 72,000 after he has cleared his mortgage debt.
Eric is investing pounds 100 per month into a CU corporate-bond personal equity plan (PEP), currently worth pounds 7,000, and has just started a Halifax tax-exempt special savings account (Tessa) with a pounds 3,000 payment. He intends to maintain maximum Tessa payments, putting pounds 9,000 in over five years.
He and his wife own a small number of shares, comprising GA, Halifax and utilities, worth around pounds 20,000, of which pounds 10,000 is represented by GA.
He and his wife have building society accounts with Bradford & Bingley and Britannia building societies, with a current value of around pounds 10,000.
He also has a GA Portfolio Bond, into which he invested pounds 10,000 in the with-profit fund, which has grown to pounds 13,000. The couple's attitude to risk is in the middle, assuming cash deposits at one end and very high risk at the other.
Eric has spare income which would enable him to save pounds 200 per month. Assuming he maintains his investments of pounds 100 per month into the corporate- bond PEP and continues to make maximum payments into the Tessa, by 60 it is estimated he will have a fund of around pounds 170,000, allowing for the surplus under the four maturing endowment policies. If applied to current annuity rates for a male aged 60, this will provide an initial gross pension of pounds 10,080 plus 50 per cent widow's pension.
His wife should join the NHS scheme at the earliest opportunity, which will take 6 per cent of her salary. The employer is probably paying at least a further 7 or 8 per cent to the scheme as an average funding rate and, because she is above the average age for the NHS scheme, she will receive disproportionately greater value from it.
She should also contribute the maximum additional voluntary contributions (AVCs) of 9 per cent of her salary and explore the various options which are available. If there is a fixed-pension option, or even added years, this would generally be preferable to money purchase, due to current, very low annuity rates.
On the basis that Eric is happy to continue contributing to his corporate- bond PEP, we would recommend his wife considers a corporate-bond PEP with Aberdeen Prolific Unit Trust Managers, which has marginally lower charges than CU's similar product, but significantly better performance.
While the current share portfolio is small, some of the shares have performed very well. Records were unavailable to enable calculations to be made for potential capital gains tax (CGT), but these could easily be housed in the pounds 6,800 allowance from 6 April.
Eric, however, does not wish to sell his portfolio and, since bed and- breakfasting is no longer viable following the Budget, he could consider a new manoeuvre which has been given the inelegant title of "bed and spousing", where one married partner sells shares and the other buys them back. Transfers between spouses are deemed not to have yielded either a profit or loss for CGT purposes. Alternatively, it would be possible to "bed and PEP", in effect selling the shares and then buying them back through a PEP.
With regard to the pounds 10,000 in the two building societies, I would recommend at least pounds 5,000 be invested in the Sun Life distribution bond, to maximise medium to long-term capital growth on a tax-efficient basis, with the prospect of taking a regular rising income at any stage in the future.
The highest instant access account on offer is through Northern Rock under its Save Direct Instant Postal Account, which currently offers 7.8 per cent, including a 0.25 per cent bonus.
For his grandchild, and possible future grandchildren, Eric could consider a friendly society investment where amounts up to pounds 25 per month, or pounds 270 per year, qualify for full tax exemption. Tunbridge Wells Equitable Friendly Society Bond offers reasonable charges, with good fund performance.
Should ill health strike before retirement, Eric would probably have good protection through his pension scheme but he should check the rules.
If Eric and his wife wish to consider cover of, say pounds 1,500 per month long-term care benefit, PPP Lifetime Care would cost pounds 63.28, or a single premium of pounds 13,074, for Eric and pounds 71.46 per month, or pounds 21,455 single premium, for a similar benefit for his wife.