Wealth Check: 'I have savings but no pension - how should I invest my money?'

An Irish farmer who has moved to England needs advice on how to juggle his savings and help with financing his business
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The Independent Online

Farming is in Philip Feeney's blood. His parents are farmers in Waterford and Mr Feeney grew up in the Irish countryside. After studying agriculture at Rockwell College in Co Tipperary, he took a job as a dairy herd manager in Staffordshire two years ago. "I'm very happy here," he said. "I decided to take a job in England because I was eager to do something different."

He is in charge of the day-to-day management of a 250-cow herd on a farm near Stafford. His working day varies in length, depending on the time of year. "When we're calving, it's very busy, but when the herd is grazing, it's quiet," he said. "Unlike many other herds, our cows all calve together in the spring, rather than in blocks through the year. We've gone back to a simpler, more basic system."

Mr Feeney flies home to Ireland to see his family and friends every two to three months. "It works out well, because I'm within about an hour of airports in Birmingham, Manchester and Liverpool," he said.

One of Mr Feeney's immediate concerns is about how to make provision for his retirement, since he is not in a pension scheme. "What type of pension do I need and how much should I be contributing?" he asked. His employers do not offer a scheme and he wonders how to go about claiming tax relief on any contributions he will make. He would also like advice on whether he can open a UK pension scheme and subsequently work abroad.

His savings are healthier. He has £3,000 in a 2002 NatWest Isa and a further £3,000 in a 2003 NatWest Isa. He also has £1,000 in an Intelligent Finance direct access savings account and £500 in a NatWest current account. "Should I move my existing Isa funds to Intelligent Finance from NatWest to benefit from their 4.35 per cent interest rates?" he asked. He would also like to know what he should do with his spare cash when he has filled his 2004 Isa allowance. "Should I venture into shares, bearing in mind I have little knowledge of the stock market?" he asked. He would like to invest in a house at some point. "Is my best option to buy in the UK or in Ireland?" he asked. "In Ireland, you need a 20 per cent deposit if you are an overseas buyer or invest in the stock market."

Mr Feeney has no firm plans regarding the future. "It's all up in the air at the moment," he said. "I'd maybe like to go into business myself in the farming sector." He would appreciate advice on how to raise money to start a business. "Is it wise to move my savings to a personal bank now, when I may need a commercial bank in the future?" he asked.

We put his case to Steve Martell of Martell Investment Management, David Higgins of Glazers Financial Services, Glyn Hall of Beckett Financial Services and Nick Breton of The MarketPlace at Bradford & Bingley.

PHILIP FEENEY, 27, DAIRY HERD MANAGER

Status: Single;

Occupation: Dairy herd manager;

Education: Agricultural qualifications at Rockwell College, Ireland;

Salary: Middle-income earner;

Debts: None;

Savings: £3,000 in 2002 NatWest Isa; £3,000 in 2003 NatWest Isa; £1,000 in 2004 Intelligent Finance direct access savings account; £500 in 2004 NatWest current account;

Pension: None;

Motoring: 1999 Toyota Corolla;

Outgoings (per month): £650 on food, phone, electricity, clothes, fitness, car and holidays.

Solution 1: Pension

Mr Martell says if Mr Feeney wants a yearly pension income of £20,000 in today's terms from the age of 60, assuming inflation of 3 per cent a year, he will actually need a pension of £53,000 when he comes to draw it. To produce this level of income, he would need to invest around £270 per month until the age of 60 (assuming growth of 8 per cent a year and an annuity rate of 8 per cent). Mr Martell recommends a stakeholder pension plan with Norwich Union. The tax man will top up the £270 to £346 per month by contributing a tax rebate. If Mr Feeney decides to move overseas, he can leave the pension plan in the UK for it to grow without any additional charges or transfer it to an overseas pension arrangement, provided he gets Inland Revenue approval and is in overseas employment.

Mr Hall says Mr Feeney should consider contracting in or out of the State Second Pension Scheme, the earnings-related addition to the State Pension Scheme. If he is not going to remain in the UK, it may be advisable for him to redirect some of the National Insurance contributions he and his employer are paying into his stakeholder policy.

Mr Higgins says, as Mr Feeney is unsure about his future residence, he may want to contribute to a unit trust and then make lump sum contributions to a stakeholder pension. If he was to save five per cent of his salary per year, he could save for three years and make a lump sum contribution of 15 per cent in the third year. If, in the mean time, he started a business or moved abroad, he could take the whole amount as a lump sum, less capital gains tax.

Solution 2: Savings

Mr Higgins says Mr Feeney should transfer his 2002 and 2003 Isas from NatWest to Intelligent Finance to get a higher rate of interest. With April nearly upon us, he will have another £3,000 cash Isa allowance. If he is willing to accept a degree of risk and put aside money for five years or more, he could consider a stocks and shares Isa when he has used up his cash allowance. He should look at simple, low-cost tracker funds or, if he will trade greater risk for stronger growth, a multi-manager fund.

Mr Martell says it always makes sense to shop around for the best interest rates with cash Isas, and points out that the Portman Building Society is also offering 4.35 per cent.

Mr Hall says, if Mr Feeney is considering buying a house in the short-term, any form of stock market-related investment would be unwise. A better bet would be premium bonds, which are encashable at full value within seven days. If he does not win a prize, his only loss would be the relatively small amount of taxed interest he could have earned on deposit.

Mr Breton says Mr Feeney has a good basis for investing in the stock market. He has a strong cash position and should consider investing into his pension as a kick-start, given he will get tax relief.

Solution 3: House buying

Mr Higgins says it would be more convenient for Mr Feeney to buy in the UK rather than Ireland, since he spends the majority of his time here. This would make it easier to look for a suitable investment property and keep control of it thereafter. A buy-to-let mortgage in the UK usually requires a deposit of 15 per cent and the rent to cover the mortgage repayments by 125 per cent. When looking for a suitable property he should consider location, condition and whether it will appeal to his potential market for renting.

Mr Breton says, while there is not a huge difference in the buy-to-let market in the UK and Ireland, the UK may suit Mr Feeney better as he will only have to find a 15 per cent deposit and he will have access to a much larger choice of lenders. But before embarking on a buy-to-let investment, he should research the area well.

Solution 4: Setting up a business

Mr Martell says there are many possible sources of finance open to Mr Feeney. His bank is an ideal starting point, although many businesses prefer to keep their personal and business banking separate. There are particular banks that specialise in lending to the farming community and he can find out more about this by contacting the business adviser at his local Business Link. They will be able to put him in touch with Business Angels and other suitable private investors, as well as specific commercial lenders who work in the farming sector.

If you would like to be given a financial health check-up, write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.

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