Wealth Check: 'I want to set up a fund for my son's education'

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The Independent Online

Rachel Halstead has an 11-year-old son. She is keen to set up a university fund for him, but also wants to make improvements to her home. "I want to be able to pay for my son's education, but also have a comfortable home and be able to enjoy my life," she says, adding that she'd like to retire at 55.

But Rachel's pension plans don't match her current income or contributions and she has an outstanding endowment mortgage on which a shortfall still remains. Despite having the basics in place, she has some work to do to achieve her financial goals.

Three independent advisers gave Rachel advice this week: Jason Witcombe of Evolve Financial Planning, Ben Yearsley of Hargreaves Lansdown and Raj Shah of SimpliGroup.

Case notes: Rachel Halstead, 36, an administrator from Nottingham

Salary: Rachel earns £25,000 and has around £500 left after bills each month.

Monthly spending: Around £900 is spent on Rachel's mortgage, food, utility bills, BT Telephone & Internet, and mobile every month.

Savings: A Halifax Web saver account worth around £5,000, a Halifax ISA with around £10,000 in it, and a current account for every day expenses.

Mortgage: Rachel has a part repayment mortgage on a property worth £190,000. There are 10 years remaining on the loan – currently a two-year tracker with Lloyds TSB for an interest rate of 5.99 per cent.

Pension: Rachel pays £90 a month into a final salary occupational pension scheme through her employer.


"As Rachel is paying a 5.99 per cent interest rate on her mortgage, she would need to earn taxable bank interest of almost 7.5 per cent for it to be a better "investment" than paying off her mortgage," says Witcombe. "Paying down the mortgage with spare income that she has would be an excellent way to save towards retirement."

Assuming Rachel has complained about her endowment shortfall, her next step should be to plan her savings around it says Yearsley. "Rachel has spare money every month – possibly up to £500," he says. "Depending on her expected shortfall, Rachel could have about £6,000 a year to pay the existing mortgage off or improve her home.


Rachel pays £90 a month into a final salary pension scheme which assumes she will retire at 65. But her figures don't add up. "Rachel wants to retire 10 years earlier than her scheme dictates," says Shah. "So she must ask her company pension scheme provider for a projection of the income she could receive."

"Retiring on the equivalent of £30,000 in today's money when she is only earning £25,000 is unrealistic," adds Yearsley.

Savings and Investments

From the next tax year Rachel will be able to transfer her savings from a Cash ISA into a Stocks and Shares ISA," says Shah. "She may want to consider being a bit more adventurous with some of her £10k Halifax cash ISA to allow the fund to potentially get a better return than in a cash based area."

Witcombe adds Rachel should find out whether she is eligible for child tax credits and working tax credits.

To find an independent financial adviser in your area, visit www.unbiased.co.uk

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

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