Pull the plug on your Liquid Gold account

Life is pretty tumultuous for Peter and Kathryn Robertshaw. Their first child is due in the next few days, their house is up for sale and Peter has recently left teaching to retrain as an NHS manager.

The patients

Peter Robertshaw, 30, and his wife, Kathryn, 29, from Langsett, near Sheffield

Jobs: Peter is an NHS trainee financial manager, Kathryn an NHS project manager

Joint income: normally £46,500 but Kathryn is currently on maternity leave

Savings: £4,500 in bank account

Investments: none

Goal: to survive financially after the birth of their first baby

The problem

Life is pretty tumultuous for Peter and Kathryn Robertshaw. Their first child is due in the next few days, their house is up for sale and Peter has recently left teaching to retrain as an NHS manager.

To cope with the upheaval, they want to be sure they have enough money put by.

"Our short-term financial goal is to survive the next few years while allowing Kathryn to take a full year off to care for our new baby," Peter says.

"We'd like Kathryn then to be able to return to work three days a week, and for us to be able to meet the childcare costs."

For the next two years, Peter will be on a salary of £18,500 until he qualifies; he should then receive a £10,000 pay rise. Kathryn, who also works for the NHS, is on maternity leave; she will benefit from three months on full pay, to be followed by three months on half pay. However, if she wishes to stay at home with her child for a further six months, she will have to take this as unpaid leave.

The Robertshaws have £4,500 in savings, held in a Halifax Liquid Gold account, a notorious low payer which returns just 0.95 per cent interest.

The couple, who live near Sheffield, have a £99,000 repayment mortgage fixed for five years with HSBC at 3.99 per cent. Their home is currently on the market for £165,000.

Their plan is to move to a smaller house and, in the process, bank up to £20,000 in cash to help pay their way through the leaner times.

Their mortgage repayments are backed by life insurance, including what Peter says is "some sort of income protection scheme" from HSBC. The policies cost a total of £50 a month.

As a teacher, Peter accrued a £12,500 pension pot over five years and has transferred it to the NHS scheme (he pays 6 per cent of his annual salary into this). Kathryn has paid the same proportion of her salary into the same NHS scheme for six years.

Longer term, the couple want to have sufficient savings to see their child through university.

Interview by Sam Dunn

The cure

The Robertshaws should withdraw their £4,500 from the Halifax account straight away, says Nick McBreen of independent financial adviser (IFA) Worldwide Financial Planning. The money should be put into a mini cash individual savings account (ISA) for tax-free growth.

They may have no investments but because their finances are so tight, every spare pound should be in cash deposits for instant access until Kathryn returns to work, advises Kevin Anderson of IFA Budge & Co.

Staying in their house and remortgaging could be a better idea than moving to a cheaper property, says Justin Modray of IFA Bestinvest.

Savings

Peter and Kathryn need to close their Halifax account, divide up the savings and deposit £2,250 each in a mini cash ISA. Abbey offers 5.35 per cent with instant access, says Mr McBreen.

Property

Downsizing will "certainly help to fund the income shortfall" and increase the couple's disposable income through lower mortgage payments, says Mr Modray.

"However, it could end up costing them several thousand pounds in estate agent's and legal fees, stamp duty and removal costs."

Mr Anderson warns that this could make moving a false economy: "I would dissuade the couple from selling - they should be able to live in the property and maximise their saving [into mini cash ISAs] over the next six months."

Mr Modray suggests Peter and Kathryn stay in their home, remortgage and release some equity.

They could borrow as much as £26,000 on their mortgage, "although repayments would rise by about £2,000 a year", he says. This may sound daunting, but some of the money borrowed could be used to cover the bigger mortgage, as well as providing extra funds until Peter qualifies in two years' time.

Pension

Both Peter and Kathryn are in sound final salary schemes and, rather than upping their contributions, should simply keep them at their present level, says Mr Anderson.

But Kathryn should note that working part-time and taking unpaid maternity leave will affect her pension when she retires. This is because her final salary will reflect lower pension payments made during her working life.

Mr Anderson adds: "In the longer term, Kathryn may wish to consider saving more for her pension by raising the amount she contributes"

Tax credits

With the birth of their baby, the couple should be entitled to the child tax credit, which will increase once Kathryn stops getting a full-time salary, Mr Anderson explains. She should also qualify for the working tax credit, says Mr McBreen, who warns: "The Robertshaws must not allow these benefits to disappear into the general expenses."

Protection

In the past few years, the life insurance market has become more competitive, drastically reducing the cost of cover. It shouldn't be necessary to pay more than £10 a month for £100,000 worth of protection, says Mr Modray, so the couple may want to review their current arrangements.

Both Peter and Kathryn are likely to qualify for NHS death-in-service benefits, paying a sum equal to twice their salary if either were to die, he adds.

Despite this, their income protection policy needs scrutiny, Mr McBreen says: "As members of the NHS pension scheme they should, in the event of sickness or accident, be entitled to six months' full salary followed by six months on half salary."

They may find they already have enough cover provided by their employer, and should make sure the HSBC plan isn't just duplicating this, he adds.

If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email m.bien@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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