Wealth Check: 'Help me save to fund my children's university years'

A road planner hopes to be able to provide his son and daughter with enough cash for their degrees, while putting enough away to retire at 60
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The Independent Online

The patient

Adrian Lingard is keen to start saving more so he can send his son and daughter to university in a few years' time; he would also like to retire early.

The 49-year-old lives in Shepshed, near Loughborough, with his wife, Tereza, and their two children, Owen, 12, and Isobel, seven.

For the past 11 years, Adrian has worked as a traffic planner, and is on a salary of £32,000.

He has tried hard to build up his savings and has £7,000 in an individual savings account (ISA) with Newcastle building society, and £4,000 in a savings account with Nationwide building society.

He also has around £45,000 worth of shares in Next PLC and £15,000 worth of shares in Arian Silver.

Adrian has accumulated around £30,000 in pension schemes with previous employers, and is a member of his current work pension scheme. He pays in around £206 a month and his employer also contributes.

"I would love to be able to retire once I turn 60," he says. "But this will depend on what level of pension income I could expect in retirement, as I don't want to be struggling financially in my later years."

He owes around £6,000 on a credit card; this is an interest-free deal for two years with Barclaycard.

"I'd like to clear these debts so I can focus on saving more to help pay university costs for our children," he says.

The Lingards purchased their home in 1990 for £64,000, and since then, have had two extensions.

"With the first, we enlarged the kitchen and added an extra bedroom above the garage," he says. "With the second, we added a family room, another bedroom, and a new family bathroom. We now have five bedrooms altogether."

The mortgage is a repayment deal with HSBC at a rate of 2.99 per cent; this is for £80,000.

Adrian has no protection policies in place.

The cure

Our panel of independent financial advisers (IFAs) agree that if Adrian wants to provide for his children's university costs, he needs to start saving as soon as possible. They also urge him to look at getting protection policies in place to cover his young family and ensure university is still an option should anything happen to him in the meantime.

Start saving

Dominic Basilea from KDW Associates says Adrian should focus on setting up an emergency fund equivalent to between three and six months' of net income.

"It's worth using ISAs for this as they are very tax-efficient," he says. "In the current tax year Adrian can squirrel away £5,340 in a cash ISA."

Plan for university costs

Matthew Rich from Alan Seward Financial Solutions warns university costs are rising at an alarming rate.

"The cap is currently £9,000 a year, but this looks likely to increase," he says. "Living costs are likely to be a further £10,000 – meaning total costs for a four-year course in today's money will be around £80,000."

When the time comes, he suggests Owen and Isobel check if they qualify for a non-repayable grant due to household income.

"Additional costs can be funded by student loans which are repaid once they are working and their income reaches a certain level," he adds.

One option which Mr Rich suggests is that Adrian and Tereza focus on their retirement, rather than their children's education.

"Owen and Isobel will have 50 years to repay their university debts, whereas Adrian and Tereza only have 17 years to plan their retirement," he says. "That said, if they are absolutely set on helping their children, they should consider paying into ISAs each year in a medium-risk investment."

Rethink share investments

Mr Rich warns that having £60,000 invested in just two shares is extremely high risk.

"If one of those companies were to fail, the impact would be significant," he says. "I suggest they sell the shares and spread their risk over a broader range of holdings – although they need to be aware of capital gains tax (CGT) before selling,"

Mr Rich suggests Adrian may need to move some shares into Tereza's name and do some selling on both sides of the tax year so as not to pay any CGT.

Review pension planning

Adrian should review his older pension schemes to ensure they are invested in accordance with his risk tolerance, according to Mike Pendergast from Zen Financial Services.

"This will also enable you to check whether the performance and charging structure is acceptable," he says.

Mr Rich says he should also check his existing pension plans.

"If he is serious about retiring in 11 years' time, Adrian will need to get forecasts on his current schemes, as £30,000 is pretty miniscule in pension fund terms," he says. "A 60-year-old male in good health with a dependant spouse and no other income would need £800,000 in a pension fund to produce an inflation-proof annuity income of £22,000."

He suggests it is more likely Adrian will have to work until he is 66 when he will receive his state pension.

Mr Rich says Adrian may also gain from consolidating his pensions into one pot, and particularly if his employer has a scheme with low charges.

"Getting serious about retirement planning now will make retiring at a reasonable age on a reasonable income more feasible," he says.

"A further option is downsizing to a smaller property once the children have left home. This could release capital to fund their retirement."

Keep an eye on your card

Adrian needs to note down when the 0 per cent period expires on his credit card, according to Mr Pendergast.

"Be sure to review the card at this point, as if not, you may find it is rolled over to a much higher rate," he says.

Mr Basilea adds that he should aim to pay it off as soon as he can.

"Even though it's interest-free, paying off debt is the first stepping stone to financial planning," he says.

Check the mortgage

Mr Pendergast urges Adrian to check whether the interest rate on his mortgage is fixed or variable.

"He may wish to fix the rate to ensure the mortgage remains affordable when rates eventually do rise," he says. "He should also check the term to ensure it will be repaid before he retires."

Put protection in place

With a young family, it is crucial Adrian has adequate protection in place, says Mr Rich.

"He should start by asking his employer about death-in-service benefits and income protection," he says.

"I would suggest he has his mortgage covered with a decreasing term life insurance policy in the event either he or Tereza dies prematurely. As the main breadwinner, Adrian should also ensure his income is protected if he can't work through illness."

Mr Pendergast suggests critical illness cover may also be an option.

"This pays out if you contract a serious illness, and could be used to put towards university costs if required."

Mr Basilea adds Adrian could also consider setting up family income benefit for a term long enough to see his youngest through university.

"This would pay out an annual amount tax-free and could also fund the children's education."

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