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Spend & Save

Wealth Check: 'How do I keep saving when I have so many pensions?'

Kenneth Knowles lives and works in Edinburgh.

Kenneth Knowles lives and works in Edinburgh. A few years ago, he started a pension with his first employer but discovered he couldn't move it when he changed jobs. However, after beginning a second plan with a new employer, he was made redundant and has not paid anything into a pension for a year and a half.

Kenneth is now working full time with his current employer, which makes him eligible for its company pension scheme. He would like advice on whether to start another pension with this firm or to look at moving his existing plans, and also how much of his salary to pay into a scheme. Moreover, he needs advice on whether or not to opt back in to the state pension. Finally, Kenneth says that his surplus income always disappears and he is keen to start saving more consistently.

We put Kenneth's case to Jonathan Fry at Jonathan Fry & Co, Robert Lockie at Bloomsbury Financial Planning and Alan Adam at Alan Steel Asset Management.


Salary: A surplus of about £500-£600 a month. Not a higher-rate tax payer.

Property: Owns his flat outright so pays no mortgage or rent.

Debt: £3,000 remaining on student loan, £500 overdraft.

Pension: Two job changes have left Kenneth with two pensions and the offer of a third.

Monthly outgoings: £1,100, not including food, socialising and miscellaneous items.


Robert Lockie says that an overdraft is an expensive way to borrow, and Kenneth shouldn't need to do this if he has surplus income. His first step should be to establish a fund of easily accessible cash that can be used to meet emergencies.

Although Lockie would usually advise people to pay off debt as quickly as possible, student loans are an exception. The rate of interest is pegged to inflation so this is a cheap form of borrowing.


Alan Adam advises Kenneth to have a transfer analysis carried out on his existing pensions, to see if the money would be better left where it is. If the best bet is to transfer it, the next question becomes whether or not he transfers his savings into a private pension, or to his new employer's scheme.

Adam says Kenneth should simply pay as much into his pension as he can afford, aiming for about 10 per cent of his earnings at his age. Contracting back into the second state pension, which used to be known as Serps, is something nearly everybody should be doing now, Adam adds. The National Insurance rebates the Government pays to private pensions are outweighed by the estimated benefits from the state.

If there is an employer contribution to the new pension, Jonathan Fry says that Kenneth is very likely to be better off joining the scheme. Fry recommends www.pensioncalculator.org as a good way for Kenneth to estimate of how much he needs to be contributing to his pensions to reach his target retirement income. As a rough guide, the overall percentage, including any contribution from an employer, needs to be a minimum of half his current age.

Lockie warns that whether to be contracted in or out of the second state pension is a complex decision. As well as the National Insurance rebates on offer, your age, attitude to investment risk and the costs of the private scheme that you would use instead are all important. Rebates may change in the future. There is a useful fact sheet on the subject on the Association of British Insurer's website ( www.abi.org.uk).


Fry says that for regular, long-term savings, Kenneth needs to use his individual savings account (ISA) allowance - a mini version of the plan, if he is saving less than £3,000 a year.

A broadly based fund, such as Jupiter Merlin Growth Portfolio or the New Star Fund of Funds, might be a good place to start. But Kenneth should only consider this if he is willing to accept that the value of his investments may rise and fall.

Adam agrees. Over the longer term, shares have tended to provide a more effective hedge against inflation than any other asset class, he points out. He reckons Kenneth could also save about £200 a month into a mini cash ISA for tax-free, accessible capital, as well as £150 a month into a mini stocks and shares ISA.

Lockie reckons that, with his lack of housing costs, Kenneth is in a better position than many, especially with surplus income of up to £600 a month. Even so, it still makes sense for him to set a sustainable budget, with regular savings made by standing order straight from his bank account.

* For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk