Ages: 49 and 39
Occupation: Michael is a Methodist minister, Elizabeth is a social services manager.
Background: Michael and Elizabeth are married. They have two sons, aged 13 and 11. They live in tied church accommodation, and have recently purchased a cottage in the parish, valued at pounds 33,500 and linked to a fixed-rate mortgage of pounds 29,000.
Michael has just accepted a job as area co-ordinator with Christian Aid, starting next February with a salary of pounds 19,000. Elizabeth is employed with a local authority on a permanent but part-time contract with a salary of pounds 14,000, but she is currently acting as full-time social services manager with a corresponding salary of pounds 21,000. It is hoped this post will become permanent.
When Michael starts his new job both partners will be based in Durham City and the children will move to a school near where they plan to live. After viewing property in the area they have made an offer on a house valued at pounds 65,000, on which they would need another mortgage of pounds 57,000.
They have about pounds 20,000 in savings in bank and building society accounts including a Tessa. They also have two endowment policies with a current value of about pounds 17,300, and life assurance policies which together cost them about pounds 44 a month. Michael has about pounds 12,000 worth of life assurance and Elizabeth pounds 78,000 worth.
Michael pays 6 per cent of his salary into his occupational pension scheme and a further pounds 200 a quarter in additional voluntary contributions (AVCs). Elizabeth also pays 6 per cent of her salary into her occupational pension scheme.
The problem: Michael and Elizabeth would like, if possible, to keep the cottage, while accepting that it is too small to be used as a permanent family home. Michael also intends to return to the Methodist ministry after his stint with Christian Aid. They need to know whether it would be possible or prudent to take on a second mortgage in order to keep the cottage; how their pensions plans would be affected by the change; and how they should best plan for their sons, who they hope will go on to university.
The adviser: John Dresser is a partner with Hennessey & Partners, independent financial advisers, at 73, Duke Street, Darlington (01325 488556). Hennesseys are a member company of the DBS Financial Management network.
The advice: The mortgage on the new home in Durham gives Michael and Elizabeth the option to take out a mortgage protection policy to maintain payments if they are unable to work in future. We strongly advise them to take out a policy.
The cottage needs some improvements, which will cost an estimated pounds 4,000. They also need to find pounds 8,000 deposit on the property in Durham. This will run down the capital they have in their bank and building society accounts. Added to the cost of the second mortgage we believe this will put a strain on the family accounts and we think they should seriously consider selling the cottage.
Both Michael and Elizabeth are contributing to their occupational pension schemes. Christian Aid will provide a valuation if he wants to consider moving the contributions in his current pension fund to them, but we have established from the trustees of the Methodist Ministers' scheme and Christian Aid that he would not be allowed simply to transfer his pension on a like-for-like basis when he starts his new post.
Elizabeth has about five years' worth of benefits in the County Council Pension, having taken time out to raise the children, although she has worked for them intermittently since 1980.
We recommend that Michael takes up the valuation offer and seeks advice on its findings. We also recommend he continues paying into AVCs or possible FSAVCs, which may be more appropriate given his intentions to return to the Ministry in the future. We also think Elizabeth should consider starting AVCs and maximise her contributions in line with the family budget.
It is difficult at this precise moment, when they are changing house and changing jobs, to make a precise assessment of what surplus of income over expenditure they will have.
At the appropriate time we recommend a regular monthly amount should be invested in a good quality, low-risk personal equity plan (PEP), to build up capital to provide for their sons to go to university. The Government's consultation paper last week makes it clear that they will be able to transfer their tax-free savings into an individual savings account (ISA) in April 1999.
Once their new financial circumstances become clearer we think that they should consider other financial issues such as income protection policy and additional life assurance for Michael.