Money Makeover: A family's funds feel the tread of tiny feet

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The Independent Online

The birth of their daughter Lily in September has thrown the finances of Andrew Martin, 40, and his wife Sandra, 39, up in the air. They are keen for Lily to go to university but find it difficult to save. "We can no longer keep putting money aside as often as we used to," says Andrew, a Bupa healthcare manager.

Sandra, a Britannia Airways flight attendant, is currently on maternity leave.

For the past two years, they have invested £100 a month into Nationwide's FTSE 100 Tracker fund ISA. Occasionally, they also make lump-sum payments into Nationwide's mini cash ISA, which pays 4 per cent interest. They have a small portfolio of shares: 250 in Friends Provident and a similar number in HBOS.

Their home in Westbury on Trym, one of Bristol's most desirable suburbs, is their best investment. They paid £105,000 for it in April 1999 and it has since doubled in value. They have a Woolwich OpenPlan mortgage fixed for five years at 5.34 per cent. This deal ends in April and they are keen to reduce their repayments.

The current mortgage is part repayment, part endowment. Andrew is "pretty sure" this means he has life insurance.

Retirement plans feature high on the couple's list of priorities. Andrew pays 5 per cent of his salary into a final salary pension fund. He has a second final salary scheme from his previous employer, Bristol airport, and an armed forces pension. "Years ago, I was advised to take my index-linked services pension - which I had for nine years - and put it into a private pension with the Prudential," he says. "It's just been there for some time now."

Sandra also has a final salary pension from her employer and has been making contributions since 1996.


The period after the birth of a child is often a time of great financial uncertainty. To start with, Andrew and Sandra should ensure they have adequate accessible savings. The Nationwide mini cash ISA may provide these; if not, they should start building a cash reserve.

Over the longer term, they are likely to get better returns investing in equities. They shouldn't take on too much risk, though, and while their FTSE tracker is a reasonable choice, I would recommend a more diversified fund such as the Threadneedle Global Equity & Bond fund. This will spread risk through different asset classes, countries and investment sectors. I suggest investing within an ISA wrapper.

I assume the Friends Provident and HBOS shares were distributed as windfalls. It is risky holding individual shares so I suggest they sell them, using the proceeds to top up their savings or to invest in a collective fund.

Advice given by Patrick Connolly at independent financial adviser (IFA) John Scott & Partners. Contact 01628 480000 or


Andrew and Sandra seem fairly well off in this respect, but they should still contact the scheme administrators of their final salary schemes to get a clearer idea of what level of pension they can expect at retirement. It will then be possible to determine what additional savings, if any, they require.

Andrew's armed forces pension is interesting; there may be a case for mis-selling here, as it will be a tall order for the Prudential arrangement to deliver a better pension than he would have got if he'd left the money in the services scheme. That issue aside, Andrew should check where his money is invested and make sure the risk profile is suitable.

Andrew and Sandra may not need to save any more in their pensions. If, after reviewing their existing schemes, they decide they do want to increase their contributions, they should check out their employers' schemes before looking at alternatives such as a stakeholder or self-invested personal pension.

Advice given by Tom McPhail


Even though Andrew and Sandra are tied to their current mortgage until April, many lenders hold offers open for up to six months, so it might be possible for them to take advantage of some current deals. But they should ensure a new mortgage isn't completed before their existing penalty period has expired.

They must decide whether they want the lowest repayments they can get - with the risk that these might increase - or whether they are happy to pay a higher rate for stability. If they simply want a cheap deal, Alliance & Leicester's two-year discount is an attractive option; it has a pay rate of 3.74 per cent and no set-up costs. A fixed rate gives more security, but at a price. The lowest two-year fix is Portman's 4.25 per cent, but this has a £295 arrangement fee, a valuation fee (around £250) and legal fees (around £350). Derbyshire is offering 4.85 per cent fixed for two years with no set-up fees; again, significantly higher than the A&L discount.

Andrew and Sandra's current mortgage is still at an attractive rate for a five-year fix; similar deals won't reduce their payments by very much. Cumberland building society has a 4.99 per cent five-year fix, but there is a fee of £545 and it would save them only £10 to £15 a month.

Finally, the couple urgently need to look at their income protection. Although the endowment carries life insurance, it will cover only the interest-only part of the mortgage. The repayment part also needs to be covered.

Advice given by Peter Gettins at mortgage broker London & Country. Contact: 01225 408000 or

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