Personal Finance: Financial Makeover - Saving for a grey day

NAMES STEPHEN AND LINDA WILKINSON AGES 33 AND 32 OCCUPATIONS RAF SERVICEMAN AND HEALTH AND SAFETY MANAGER

ONE OF Linda Wilkinson's worst fears is the thought of a poverty- stricken retirement. And if this has been the driving force towards sensible financial planning it has clearly worked. Linda and her husband Stephen have been squirreling away their savings for a number of years.

Stephen is an engineer with the RAF. Linda also works for the RAF but as a civilian worker. They both enjoy good salaries with Stephen being on the higher-rate tax borderline, while Linda is a basic rate taxpayer. With no children to worry about and secure incomes, the Wilkinsons say they are not risk-averse and are quite happy to take a long-term view with their investments. This is perhaps just a well given the current turmoil that we are experiencing across world stock markets.

The adviser: Graham Bates is chairman at Bates Investment Services, a national firm of independent financial advisers (01132955 955) or e- mail: infoatbatespic.co.uk.

The advice: The couple are quite right not to concern themselves too much with short-term stock market movements: share prices will fall and rise but the long-term benefits of equity investment are not in question.

One of the benefits of Stephen's employment with the Royal Air Force is that accommodation goes with the job and the couple live in quarters on the RAF base. The flipside of this particular coin is that Linda and Stephen have yet to buy their own home, something they plan to do in about five years from now.

Saving a large deposit is one of the Wilkinsons' main financial objectives over the next five years, as they hope to have at least pounds 60,000 to put towards the right property. A significant proportion of this capital is likely to come from savings, which Linda and Stephen have been salting away in PEPs over the past few years. One of the benefits of using PEPs is the flexibility they offer, which means they can realise the value of their investments at a time to suit them both.

However, it is important to be clear that equity-based PEPs are designed for a minimum of five years and should not be used as a home for short- term savings.

Linda has fully-funded her general PEPs for the past four years, at pounds 6,000 a year, including this one. She has UK and European investments with St James Place and a Gartmore PEP invested equally between its UK Smaller Companies and European Select Opportunities unit trusts.

Given the present economic outlook, it would be sensible for Linda to keep her investment strategy focused on the UK and European markets, rather than trying to look further afield. Stephen has invested in PEPs using regular monthly savings as well as lump sums. But he has picked only one fund manager, Perpetual, to look after his capital in each of the past five years.

Although his investment is spread across a range of funds (Income & Growth, High income, UK smaller Companies and European Growth) and despite the fact that the Perpetual is a highly respected PEP manager, Stephen should nevertheless choose another company for any future capital as it is generally unwise to rely too heavily on any one fund management group.

When ISAs are introduced next April, Linda and Stephen will be able to invest pounds 7,000 each in year one and pounds 5,000 thereafter. As with a PEP, an ISA will be simply the "wrapper" that provides the tax benefits. The majority of PEP managers will be offering ISAs using exactly the same funds as before.

As well as his PEP investments, Stephen also took a bit of a flyer buying shares to the value of pounds 2,000 in the Schroder Asia Pacific investment trust. Unfortunately, on a short- term view, the fund performance has been disastrous but to dump the stock now would be closing the door after the horse has bolted.

Stephen also has some "warrants" added to the Schroder Investment Trust. Warrants convey the right to buy a share in a company, at some future time, at a fixed "exercise price". The option may be taken up on specific "exercise dates", up to a final date when the option lapses and the warrant loses its value. Exercising the option becomes worthwhile when the exercise price plus the original cost of the warrant add up to less than the current market price of the share.

Saving for a secure retirement is very important to the Wilkinsons. Stephen is well catered for through his RAF scheme, but Linda has had to give the matter a little more thought.

Wisely, she has started to soak up her unused tax relief by making contributions against her earnings over the past six years (known as "carry forward") using a range of Equitable Life funds. However, the performance of several funds selected has not been good and Linda should seek advice on re-arranging the investment split.

This month she begins contributions to a new personal pension to which her employer will also add 2 per cent of her salary. There has been some discussion that the employer's contribution might rise to as much as 5 per cent if she was also to subscribe the same amount and Linda should accept such an arrangement if it is offered.

The couple have around pounds 10,000 in easy-access funds for holidays, bills and the unexpected. This might be a little on the high side, although it's better to be safe than sorry

In addition, both have TESSAs - another good move to keep returns out of reach of the taxman! On maturity, the capital from the TESSAs can be transferred to a TESSA-only ISA. However Linda and Stephen might wish to use this cash towards their first house purchase.

In many ways, Linda and Stephen are model financial planners with plenty of savings to fall back on. They have a well thought-out strategy based partly on advice taken, as well as using their own judgement. There is little doubt that if they are able to continue as they have been doing over the past few years, a poverty-stricken retirement will be the last thing Linda needs to worry about!

PROMOTED VIDEO
News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
News
Lane Del Rey performing on the Pyramid Stage at Glastonbury 2014
people... but none of them helped me get a record deal, insists Lana Del Rey
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
News
i100
Arts and Entertainment
British author Howard Jacobson has been long-listed for the Man Booker Prize
books
Life and Style
tech
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Sport
Louis van Gaal watches over Nani
transfers
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
transfersColombian World Cup star completes £63m move to Spain
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Finacial products from our partners
Property search
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

    Insight Analyst – Permanent – Up to £40k – North London

    £35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

    Test Lead - London - Investment Banking

    £475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

    Business Analyst - Banking - Scotland - £380-£480

    £380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...

    Risk Analyst - (Multi Asset class) £70k - £80k

    £70000 - £80000 per annum: Harrington Starr: My client is a leading financial ...

    Day In a Page

    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn