Wealth Check: 'I want to save up for travelling'
Saturday 26 February 2005
Jo Booth qualified as a nurse in 2002 and worked in private healthcare for six months before going travelling for a year. She started working full-time as an accident and emergency nurse in July 2004, when she joined the NHS pension scheme. Ms Booth worries that this won't remain a final salary scheme.
She rents a flat in London from her brother, which keeps her rent relatively low. She admits that she probably won't stay in London long-term, especially with the cost of property. She would like advice on how best to pay off her student loan while also saving money to go travelling again. Ms Booth works 12-hour shifts, which means she often gets several days off at a time and really enjoys using them to travel. Most of her spare money goes on plane tickets, she says.
We put Ms Booth's case to Andrew Merricks at Skerritts, Patrick Connolly at John Scott & Partners and Justin Modray at BestInvest.
JO BOOTH, 25, NURSE
Salary: £17,635, plus £3,000 London weighting.
Housing costs: £300 a month.
Savings: £2,200 in an instant access account.
Pension: NHS final salary pension scheme.
Debt: £8,000 student loan.
Monthly outgoings: Bills including phone, £50-60; travel and going out, £200-£300; Other, £100.
Student loans are effectively interest free (interest is equal to the rate of inflation) and, says Mr Modray, Ms Booth should be in no rush to pay off the loan because this is a very cheap form of borrowing. Her employer must automatically deduct the standard student loan repayment (9 per cent of income over £10,000) from her monthly salary, which currently equals about £80 per month.
Mr Merricks says that if Ms Booth would like to pay off her loan more quickly then regular overpayments are the best way of chipping away at it - she can get them deducted from her gross pay. He suggests that Ms Booth may not have the income both to do this and save for travelling, and that she should definitely see the world before the more onerous responsibilities that come with getting older begin to loom.
Mr Connolly suggests that if Ms Booth wants to give up her job to go travelling then it may be advisable to cut down on her foreign trips now in order to save. He says that if Ms Booth doesn't need her savings in the short term she should move them to a mini-cash Isa where she can get competitive returns, instant access and tax-free interest.
Mr Modray also recommends opening a cash Isa, as using surplus monies from her current account will earn her a higher rate of tax-free interest and she can contribute up to £3,000 each tax year. A current cash Isa "best buy" is the Alliance & Leicester Direct Isa, paying 5.4 per cent a year. Because she travels frequently, Ms Booth could save money with a low-cost annual travel insurance policy. Deals vary, so shopping around could save her money. For household bills, Mr Modray says that using an internet service such as www.uswitch.co.uk could help Ms Booth cut her utility bills. This will boost her disposable income available for savings.
Mr Merricks says that an NHS pension is as good as any in public service and certainly better than anything that Ms Booth could do on her own. He is not aware that there are any restrictions for people who join and rejoin the scheme if they are taking breaks from working for the NHS. He does say, however, that Ms Booth should not voluntarily stop paying into the NHS Scheme if she is still working for them. As with overpaying on the student loan, getting her pension contributions deducted from her gross pay will help Ms Booth to budget as she'll have a better idea of what her net pay will be. There may be rumours about the scheme changing, but Mr Merricks thinks this is a way off yet.
Mr Modray suggests that Ms Booth should avoid investing in stockmarkets unless she can tie up the money for five to 10 years or more, but says if she remains in the NHS pension scheme until retirement she will probably be better off then than the majority of the population. It would not make sense to move away from the NHS pension, and if she leaves the NHS she should leave the pension in situ and consider options offered by future employers.
If Ms Booth maintains her employment it is extremely unlikely that her pension will not remain a final salary arrangement, but Mr Connolly warns that the situation could change if she left the scheme to go travelling and returned to the NHS at some point in the future, during which time the scheme for new entrants had changed.
Advisers' views are given for information only
* For a free financial check-up in the Wealth Check column, write to The Independent, 191 Marsh Wall, London E14 9RS, or e-mail email@example.com
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