Wealth Check: A writer in search of a happy ending
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 30 May 2004
Children's author Marcus Sedgwick is aware that writers can't rely on their books enjoying enduring popularity. So he's not giving up his day job and he's keen to ensure financial security.
Book royalties boosted his income last year and were put to good use as penalty-free overpayments on his home loan. "I really want to get this mortgage paid off; anything I can do to reduce my loan will be great,"
However, the money from his books could also feature in his long-term savings plans. "I see my writing as a pension but I don't know whether I'll be getting much in the way of royalties in years to come," he says.
"I think I've made a decent start to a pension scheme but, at 36, I might need to do more."
Although he has invested at least £55 a month into a Standard Life personal pension for the past 10 years, the contributions from a string of employers along the way have not been so regular. Uncertain about how much he has amassed so far in this pension pot - estimates hover around £7,500 - he is also disillusioned with its performance. "It worries me to see a statement telling me I'm going to retire on £3,000 a year."
He plans to join his employer's final salary pension scheme - for every 2 per cent he invests, the firm puts in 5 per cent - but he is unsure whether to transfer his existing pension over.
His home is his only investment. He has a £102,000 repay-ment mortgage with Northern Rock fixed until April 2006 at 4.79 per cent. He bought the property for £141,000 three years ago; it is now worth £200,000.
The £640 monthly mortgage payment includes life insurance and an element of critical illness and income protection. But he is not sure how much cover he actually has and wonders if he may have to review it.
Marcus has £750 in a Northern Rock mini cash individual savings account (ISA) paying 3 per cent interest, and the same amount in a Britannia instant access account paying 2.15 per cent. He also keeps £25,000 in "royalty cheques" in a Co-op business account, but the interest is "practically zero".
"I know it's a lot of money earning next to nothing in interest, but I keep it there to prepare for tax bills. I like the Co-op because of its ethical stance."
Interview by Sam Dunn
Marcus Sedgwick, 36, lives in Horsham, West Sussex.
Job: sales manager for publisher Walker Books and author of children's books including The Book of Dead Days.
Income: up to £60,000.
Savings: £25,000 in a Co-op business banking account; £1,500 split between accounts with Britannia and Northern Rock.
Investments: none, except his home.
Goal: to "get rid" of his mortgage and to fix a clear pension plan.
Marcus needs to factor his irregular royalty income into his financial future, so it would be wise to join his employer's scheme as soon as possible, says Darius McDermott at independent financial adviser (IFA) Chelsea Financial Services.
Marcus's money needs to work harder, says Jennifer Storrow of IFA Gee and Company; switching his £25,000 savings into an account paying a higher rate of interest would be a start.
His protection policies also need an urgent review to ensure he has adequate cover, advises Patrick Connolly of IFA John Scott & Partners.
Marcus may like the Co-op's ethical stance but he could earn much more interest, without sacrificing his principles, by going elsewhere. "The Ecology building society pays 3.05 per cent on a 60-day notice account," says Ms Storrow.
A "green" equity ISA could also encourage him to invest in the stock market, she adds. Typical funds include Isis Stewardship and Jupiter Ecology.
"[Equities] should be considered long-term investments and markets are slowly recovering," says Mr McDermott. A stocks and shares ISA "can help supplement a pension or even pay off a mortgage early". He recommends Liontrust First Income or Cazenove UK Growth & Income.
Marcus should also think about getting a better rate of return from his mini cash ISA, he adds. "Abbey National is offering one of the best no-notice rates at 4.6 per cent."
An emergency savings fund should be a staple in most people's personal finances, he advises, and Marcus should aim for a "rainy day" account of between three and six months' salary.
The overpayments that Marcus has already made on his mortgage represent "a very sensible approach", says Mr Connolly, and the £25,000 in the Co-op account could be put to better use in helping to reduce his home loan still further.
Switching to a flexible mortgage, he adds, would give Marcus more room for manoeuvre. "He could potentially use [these] savings to pay off some of his mortgage and then take the required amount back when his tax bill, or any other expenses, are due."
Ms Storrow is concerned that almost all his money is invested in property; she recommends a better balance by putting some savings in equities and bonds.
Marcus could be paying unnecessarily for Northern Rock's cover, says Mr Connolly. He should check if his employer already provides income protection and critical illness cover.
If Marcus intends to stay with his employer, he should increase the amount he contributes to his new final salary pension, says Ms Storrow.
But before he transfers any money from the Standard Life personal pension, he must consider many elements. These include his attitude to risk - particularly with regard to stock market investment; the projected value of his personal pension in years to come; the cost of any transfer penalties; and the possibility of "buying" extra years in the new scheme using the transferred Standard Life pot. Such a process is highly complicated and Marcus should take professional advice, says Mr Connolly.
If you would like a free financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email firstname.lastname@example.org
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