Wealth Check: 'I want to save for my children's future'

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The Independent Online

John Richards, a 47-year-old primary school headteacher from Knaresborough, North Yorkshire, is at a crossroads in life. Soon to be divorced from his wife - he shares custody of two children - he needs to get his finances in order.

John is keen to find more money to pay for travels with his children, but he is also nervous about the future cost of their higher education. His children are 15 and 13, and John currently pays his wife maintenance. Once they reach age 18, these payments will stop, but he'll use the money to cover their university costs.

One way to raise money would be to sell a Standard Life endowment policy he holds, as this is no longer tied to the repayment of his mortgage. It's costing him £44 a month and is projected to be worth £20,000 in 2014. John also wonders whether he could have been mis-sold the endowment - it was supposed to deliver £33,000. If so, should he claim compensation?

Another possibility John is considering is converting his mortgage to an interest-only deal. He expects to inherit enough money to pay back the capital owed, and his repayments currently eat up more of his income than he'd like.

Finally, John is worried about his pension. He intends to retire at 60 and is a member of the Teachers Pension Scheme. However, his wife is entitled to 20 per cent of the final pay-out. Should he invest more now to make up this shortfall?

We asked three independent financial advisers to help: Danny Cox, of Hargreaves Lansdown; Chris Holt, of Punter Southall; and Philippa Gee of Torquil Clark.

Case notes

John Richards, 47, headteacher, Knaresborough

Personal: John is about to get divorced, but his two children live with him half the time.

Income: £46,000 a year (£2,660 a month after tax).

Monthly outgoings: £1,300 on bills, maintenance payments and expenses. £120 savings. John spends the rest.

Savings: £1,300 savings account; £1,300 ISA; 580 shares in Standard Life.

Property: £85,000 mortgage.

BUDGETING

Philippa Gee suggests John does not have a sufficiently clear picture of where all his money is going each month. In addition to cutting down on his bills by negotiating better deals with utilities and mobile phone providers, she thinks he may be frittering money away and suggests he keeps a diary of his spending. This will help him to identify opportunities for economies.

ENDOWMENT POLICY

Chris Holt says that while selling the endowment policy may be a good way for John to raise money, he needs to do some research before taking action. He must start by asking Standard Life how much he would get if he cashed in the policy now.

Next, find out how much it would be worth if he sold it on the secondhand endowment market. Finally, John needs to be sure he can do without the money due when the policy matures in 2014.

Danny Cox says that John should complain about the sale of the endowment policy if he believes he was not advised there was a risk it would not cover his mortgage in full. He should contact whoever sold him the policy as soon as possible, as strict deadlines for complaints apply.

MORTGAGE

If he does sell the endowment, Cox recommends using the money to repay as much of the capital outstanding on his mortgage as possible. Holt is concerned that John is considering depending on an inheritance to repay this amount, as there are no guarantees the money will materialise.

Holt also points out that John's mortgage is not due to be repaid until 2024, five years after he is due to retire. Paying off some capital now might enable him to reduce both the term of the borrowing and the monthly repayments, which would help with the travel plans.

SAVINGS

The advisers want to see John give his savings and investments a little more structure. While the cash fund, which John has earmarked as savings for a new car, is fine, Gee would like to see the money moved into a tax-free cash individual savings account (ISA) paying the best possible rate.

John's other investments are his stocks and shares ISA, which carries holdings in two shares, and his Standard Life windfall shares, due to be issued on Monday. This is not a well-diversified approach and Gee says she would like to see John invest future savings in a fund, rather than individual stocks. She suggests a multi-manager approach, for extra diversification, with T Bailey and Jupiter Merlin her suggested investment companies.

PENSION

Cox says that based on the terms of the Teachers Pension Scheme, John is on target for a pension worth just under half his pre-retirement salary, minus the 20 per cent that goes to his wife.

Extra payments make sense, if John can find the money, but Cox advises him to check the terms of his final divorce settlement. If he pays into his work scheme, some of this money may be due to his wife. That may not be the case if he sets up a second private pension instead.

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