Wealth Check: Cash overboard. 'How can I get saving?'
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 21 November 2004
Most of Shelley Jory's spare cash is scattered on the waters. A successful businesswoman, she is also one of Britain's foremost female powerboat racers and a record-holder who came third in the Honda Championships earlier this year.
Although she devotes her time and money to this exhilarating pursuit, she has kept herself debt free. But she worries her finances are not in as good working order as her boats.
Her only "rainy day" funds are £1,500 in a Halifax instant savers account earning 2.52 per cent. A £5,000 investment put in a Threadneedle equity individual savings account (ISA) four years ago has been "disappointing, to say the least": it is worth no more today than it was then.
Of greater concern still is her mortgage. Her £193,000 loan with Bristol & West on a four-bedroom house is interest-only; she plans to pay off the capital using a chunk of her future pension fund. It's an unusual arrangement, and she is aware that the fund will have to grow considerably for this to happen.
Shelley is midway through the four-year deal, at a pay rate of 6.5 per cent, and while any switch to a rival lender would incur a 5 per cent penalty, she wonders if it would be better to take a financial hit now, since the home/pension plan carries a high element of risk. "With the bridalwear business doing well, I wonder if it's time to switch."
She has paid into a Zurich personal pension for 13 years, making the maximum annual con- tributions allowed by the Inland Revenue. She has £190,000 life cover with Bristol & West and a critical illness protection policy with Zurich that will pay out if she is injured powerboat racing. "I feel I should probably start saving properly," she adds.
Shelley "won't be powerboating for ever" and so will have more disposable income in around five years' time.
Interview by Sam Dunn
Shelley Jory, 34, from Southampton.
Job: partner in family bridalwear business.
Income: £45,000 to £50,000.
Savings: £1,500 in a bank account.
Investments: £5,000 in an equity ISA.
Goal: to secure her long-term future.
Remortgaging is probably not the best option at the moment, says Danny Cox of independent financial adviser (IFA) Hargreaves Lansdown.
Shelley needs to put her pension arrangement under the microscope, says Jennifer Storrow at IFA Gee and Co.
Switching to a repayment deal would take the pressure off the pension planning and chip away at the outstanding capital sum. Doing so with her existing provider Bristol & West should not cost more than an administration fee, says Gillian Cardy of IFA Professional Partnerships.
However, depending on the deal Shelley secures, the monthly sums will probably rise to about £1,200 a month, says Mr Cox (she currently pays about £900). "Shelley should grin and bear it for the next two years and then remortgage with an eye on moving to a half-interest, half-repayment deal," he adds.
If she decided to stick with the interest-only arrangement, her pension pot would have to grow to nearly £800,000 to be able to pay off the £193,000 loan on her home in 25 years' time, say Mr Cox and Ms Cardy. This is a huge sum and by no means guaranteed.
Mr Cox also suggests that Shelley check the Zurich pension fund charges to see if they are particularly high compared with those available now in stakeholder or self-invested personal pension (Sipp) plans. If they are, it may be worth moving the money to a rival provider even if she has to pay a transfer fee, as she has 25 years of pension provision in which to make this up.
It might also be worth consulting a specialist pensions IFA to consider a small self-administered scheme (SSAS). As a partner in a family firm, Shelley can use the funds in a SSAS for business investment and as security for commercial loans.
Shelley should move her cash out of the Halifax to earn more interest, advises Ms Cardy. Accounts offering instant access and better rates include the AA's Telephone Savings (5.36 per cent but including a 0.7 bonus for 12 months) and Yorkshire Building Society's e-Saver online account, paying 5.2 per cent.
For regular saving, Abbey's mini cash ISA at 5.35 per cent is still one of the best around, says Ms Storrow.
Shelley is not alone in her disappointment at her equity ISA's performance. Many who bought into these funds at that time piled in at the top of the market, only to lose money as stock indices fell.
However, Ms Cardy says: "She needs to keep her money invested and keep on investing even when markets are down, because if and when they turn, she will benefit from the rises."
Alternatively, Ms Storrow suggests Shelley re-register the Threadneedle ISA with an online fund supermarket, to spread her money across a number of different funds.
If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email firstname.lastname@example.org
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