Wealth Check: 'How can I bring order to my savings?'
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 22 August 2004
Years spent ridding herself of student debt, clearing her overdraft and saving for a deposit on a house have taught Anita Quinney the importance of being organised financially.
But in recent months, she has become concerned that she may not have exerted such firm control in one very important area - her pension provision.
Anita has found herself with a mixed bag of pensions: a final salary scheme from her former teaching job; additional voluntary contributions (AVCs) with the insurer Prudential; and her company pension with her current employer, the P&O shipping line. She isn't sure what she should be doing with them all.
"I've heard so much bad news about pensions, and in particular the warning that the money you save will barely buy you a decent pension in the first place," she says.
She is thinking of transferring her £1,900 worth of Prudential AVCs to the P&O fund, but fears this might result in a penalty. She has also considered investing in a stocks and shares individual savings account (ISA) or in the buy-to-let housing market as alternatives to a traditional pension. She says, though, that she doesn't yet have enough capital to purchase a second property.
Anita has £8,000 in a mini cash ISA with Portman building society, which earns 4.5 per cent interest, and £600 in a savings account (also with the Portman) earning 1.05 per cent.
She has a two-bed terraced house in Southampton, valued at £150,000, and an £88,000 two-year discount repayment mortgage with the Portman, on which she currently pays 4.69 per cent interest.
With no dependants, Anita has no need for life cover. She has taken out a Portman Mortgage Care policy to meet her repayments if she is ill and can't work. She clears the balance on her HSBC credit card each month.
Interview by Sam Dunn
Anita Quinney, 32, from Ashurst Bridge, near Southampton. Job: staff manager at P&O. Income: up to £28,000. Savings: £8,000 in a mini cash ISA; £600 in a savings account. Investments: none. Goal: to get a grip on her pensions and earn a better return on her savings.
"There has been a bad press about pensions but it's not fair to tar all of them with the same brush - many offer good benefits," says Benjamin Gibbs of independent financial adviser (IFA) Glazers.
Meera Patel of IFA Hargreaves Lansdown agrees, while Nick McBreen from IFA Worldwide Financial Planning suggests that Anita look beyond the Portman building society to make her savings work harder.
As for purchasing a buy-to-let property, Mr McBreen feels she is right to be cautious. With so many others investing in this market, she may have missed the boat.
Talking through her pension contract with P&O's pension administrator would be a good first step, advises Mr Gibbs.
Anita can find out if her employer more than matches her own 5 per cent contributions and, if so, whether it would be possible to increase her own investment in the fund, Mr McBreen adds.
The Financial Services Authority has a website calculator that will let her compare how much she would like to retire on with what she will need to save each month to pay for this level of income ( www. pensioncalculator.org.uk).
Anita spent only three years in the teaching profession, but in that time "she will have built up a small but important pension in the teachers' superannuation scheme", says Mr Gibbs. Since this is an indexed (inflation-proof) scheme, it is best left alone until her retirement, Mr McBreen adds.
The extra contributions Anita makes to Prudential do need some examination, adds Ms Patel. She should find out what the fund invests in and what the transfer penalty would be if she were to switch the money she has saved to her current pot with P&O.
This information can be obtained by contacting Prudential, but once Anita has done this, she will need help from an IFA specialising in pensions. With professional advice, she can decide whether a transfer would be in her best interests.
Since Anita earns less than £30,000 a year, she could also invest in a stakeholder scheme. "She could contribute [up to] £234 a month [which will be topped up by the government], making £300 via tax relief," says Mr McBreen.
Anita's loyalty to Portman is misplaced. Better rates on cash ISAs are available from Abbey (5.35 per cent from 1 September), for example, says Mr Gibbs. But if she wants to move her cash, she mustn't withdraw it first or she'll be liable for tax. The new bank or building society should organise the transfer.
The interest on her Portman instant access savings account can be bettered too, adds Ms Patel. "Cahoot has an instant access internet account paying 5.5 per cent, and Sainsbury's Bank offers 5 per cent."
If she is prepared to leave her money untouched for 10 years, Anita could benefit from an equity ISA, says Mr McBreen. To reduce risk, she should adopt a "drip-feed" approach, making monthly payments. Investing a lump sum increases the chances of buying when the market is at its peak, and making big losses if it crashes soon afterwards.
"Anita could start by investing up to £3,000 in an equity ISA alongside her cash ISA," suggests Mr Gibbs. He likes Fidelity's MoneyBuilder Growth fund.
Ms Patel recommends Invesco Perpetual Income or Schroder UK Alpha Plus fund.
Anita has enough savings to tide her over for several months in the event of illness, our IFAs agree, but if she were to lose her job through injury or illness, she could be hit hard.
The Portman Mortgage Care policy covers repayments only for 12 months, Mr Gibbs warns.
Anita should check with her employer to see how long - and how much - sick pay will be available, Mr McBreen advises. If this isn't sufficient, income protection may be the answer, although it isn't cheap.
As she clears her credit card balance each month, the rate of interest Anita is charged is immaterial. Instead, she should see what she can earn by switching to a card with a cashback deal. Nationwide offers 1 per cent for six months before dropping to 0.5 per cent, Ms Patel says.
American Express Blue card pays 2 per cent cashback for three months (1 per cent thereafter) but is not as widely accepted as Nationwide's Visa card, Mr Gibbs 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 firstname.lastname@example.org
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