Wealth Check: 'I need a nest egg to return to Britain from Vietnam'
A British teacher and his partner have finally paid off student debts and want to come back to Britain. How can they put their plans into action?
Sunday 03 April 2011
Simon Wilkinson has been living in Vietnam since August 2009. Having finally cleared all his debts, he is now keen to start saving, as he wants to build up a nest egg before leaving the country. The 34-year-old, who is head of English at a secondary school, lives in Ho Chi Minh City with his partner, Steve, 32, who works as a clinical psychologist.
Simon earns £32,000 a year, and Steve earns $72,000 (£45,000); the couple have been together for 13 years and entered into a civil partnership in 2006. "In London, we were both working extremely long hours and got tired of the cost of living," says Simon. "We decided that international expat living would be beneficial to our careers and quality of life."
However, Simon and Steve left university with combined debts of about £40,000, both having studied for long enough to get doctorates.
"I studied for eight years, including a BA in English and American studies, a PGCE [post-graduate certificate of education] and then a PhD, and accrued about £20,000 in student loans," says Simon. "Steve spent six years studying, and while he earned an NHS salary for the last three years of the doctoral training, a combination of travelling and helping me out with my PhD funding meant he also graduated with about £20,000 of debt in 2003."
The couple have worked hard to clear these debts – as well as their overdrafts and credit cards – and are finally getting into the position of having money to save and invest.
"Right now, it feels as though we are in a kind of financial limbo with zero debt and zero wealth," says Simon. "We both want the security of having some savings, and are just about in a position to save £2,000 a month until we leave Vietnam in 18 months' time. However, we know that with our love of travel and absence of other commitments we might not return home straight away, and could accidentally end up in Africa or somewhere else for a period."
They are renting out the two-bed flat they own in London. "We bought this in July 2007 for £322,500, and as this was just before the end of the lending boom, we got a mortgage of more than 100 per cent," says Simon. "This is a repayment deal with Northern Rock at 5.84 per cent which ends in December this year. The problem is that while the rental income is £1,100 a month, we have to send £750 back each month to cover some of the mortgage. This expense is making us question whether to sell."
The couple do hold £1,700 jointly in a Halifax share trader account, currently invested in several companies quoted on the Alternative Investment Market (AIM). Simon has six years of teachers' pension contributions from his time working in the UK, while Steve made contributions into an NHS pension for eight years; neither has any protection policies.
"As we are not contributing to pensions at the moment, we want to save not only for the short term to create peace of mind, but also want to invest for the longer term," says Simon. "We're also both keen to have a family at some stage, and want financial security should we decide to take the next step."
Our panel of independent financial advisers (IFAs) agrees that while Simon and Steve are concerned about building up a nest egg, they cannot ignore the need to have short-term cash reserves. They also point out that while property is usually a good long-term investment, their property is a heavy burden, and may not become the asset they had hoped.
Deciding whether or not to retain exposure to Britain's residential property market is not a simple matter, according to Robin Keyte from Towers of Taunton. "There have been many tales of people who have sold a nice house in the UK to move overseas, only to find they can't afford to return to a similar standard of property when they come home," he says. "However, it doesn't seem to make sense to rent out the flat and pay £750 a month in addition to the rental income when the property has little or no equity in it."
Mr Keyte suggests that Simon and Steve could reduce their outgoings by changing their mortgage deal to an interest-only basis.
"This could potentially save them about £600 a month, but the risk with this approach is that the mortgage never gets paid off," he says. "Ideally, you want the flat to provide a net return that exceeds inflation, and with the current outlook, I'm not sure that will be likely for a while. It would be entirely understandable if you decide to sell, but I would suggest selling only if the proceeds are enough to repay the mortgage in full."
Mike Pendergast from Zen Financial Services agrees that it may be worth waiting until the housing market improves. "Then at least you will make something on the property," he says. "You could also consider reviewing the monthly rental in the meantime, to see whether it's feasible for you to generate more income."
Anna Sofat from Adidi says that Simon and Steve need to focus on building an emergency fund.
"As this fund needs to be easily accessible, cash savings are ideal," she says. "I would suggest one of their first priorities ought to be building up this emergency fund by slotting away, say, £1,000 each a month."
Mr Keyte agrees that without this fund, the couple's finances are vulnerable. "If you have any existing UK savings accounts, you can arrange for the payment of gross interest while you are non-resident," he says. "Otherwise, you may wish to approach your local branch of a bank such as HSBC to see what savings arrangements you can set up in Vietnam."
Mr Pendergast adds that if Simon and Steve are both still UK taxpayers, they can also maximise contributions into individual savings accounts (ISAs) while they are working abroad.
With an emergency fund in place, Simon and Steve can start looking at their investments.
"The only investments you currently hold are extremely high-risk shares in companies quoted on AIM," says Mr Keyte. "While AIM shares do have certain tax benefits, in practical terms, they are not much use to you at present, and I strongly advise against making further investments in these."
Instead, Mr Keyte suggests the couple make use of the existing Halifax online share dealing account and introduce money to buy investment trusts. "Investment trusts are plcs that invest in the shares of other companies and are useful collective investment vehicles," he says.
Both Simon and Steve have made a decent start on their retirement planning by paying into good pension schemes while they worked in the UK, says Mr Pendergast.
"But as you are both no longer employed here, you will not be accruing benefits," he says. "If you are still UK taxpayers, you could look at making contributions into a UK-based personal pension or self-invested personal pension (Sipp), as you can still maximise contributions into these vehicles while working abroad."
Ms Sofat points out that while living out of the UK, you are still permitted to contribute a maximum of £3,600 per month into a pension scheme for up to five years.
As Simon and Steve don't have sufficient assets to meet their financial needs should one of them become ill, Ms Sofat suggests that, as a matter of priority, they take out income protection. "They could also consider life cover to provide a buffer for the survivor," she says.
Mr Pendergast adds that life cover will be even more important should they decide to have children, and urges Simon and Steve to draw up a will.
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