Wendy's monthly income is £1,432, after a £99 deduction for the Universities Superannuation Scheme (USS). Essential bills come to £670 and she puts aside £100 for savings. She owes £544 on her credit card. In addition to a small private pension with Legal & General, currently on hold, Wendy has joined the USS. Her savings of £12,000 are in a Nationwide Isa.
Wendy would like to pay off her credit card as soon as possible and, in the longer term, plan towards her retirement. We asked Daniela Glover of Smith & Williamson, Justine Fearns of Chase de Vere Financial Solutions, and Carl Melvin of Millbrae Financial Services for advice on Wendy's financial situation.
Wendy Pattison, 34, London
Monthly income: £1,432 after £99 deduction for Universities Superannuation Scheme
Savings: £12,000 in Nationwide ISA
Debt: £544 owed on a credit card
Pension: Superannuation Scheme with University of London (five years), plus a small private pension with Legal & General on hold
Insurance protection: None
Property: Currently renting a property at £400 a month while saving for a deposit to buy first home
Glover says that Wendy's first action should be to pay off her credit card as the interest rate is likely to be much higher than the interest she is receiving on any of her deposit accounts.
Fearns agrees and thinks that the £544 should be easy to eliminate. In the meantime, she recommends that Wendy reviews her current interest rate and, if she isn't on a 0 per cent-interest card, she should consider moving to Virgin, which is currently offering 0 per cent AER for nine months.
As Wendy is looking to save for a deposit on a house in the near future, Glover advises saving into a deposit fund. If she has not made use of her Isa allowance for the current financial year, she could save on a monthly basis into another cash Isa. This will give her the flexibility of being able to withdraw the funds without any loss, although she should check any withdrawal terms with the Isa provider.
Fearns thinks that Wendy's £12,000 saved in a Nationwide cash Isa is a brilliant start. Nationwide is one of the top consistent providers of cash Isa accounts, and, with its current rate of 4.85 per cent gross AER, Wendy would do well to continue saving her £100 a month with it. If she wants to chase rates, there are better to be had. For example, Halifax is currently offering 5.15 per cent gross AER on its Easy Access Isa, but for ease of administration and peace of mind, Nationwide is probably the preferable option.
If Wendy is not expecting to buy a property or get married for five to 10 years, she could place some monthly savings into an additional product, such as a mini stocks and shares Isa. However, she would need to be comfortable with the additional risk to capital and be aware that the value of her savings will fluctuate. Once again, for peace of mind, the cash option is probably most suitable.
Melvin doesn't recommend Wendy commit funds to additional pension planning at present. However, he thinks that she should consider restarting her L&G pension, which may run in parallel with her employer's pension scheme under concurrency rules. Pension regulations will significantly change next year, meaning that she has more scope to invest higher contributions.
Glover says that Wendy will be able to contribute an additional 9 per cent to the scheme and buy either added years or Additional Voluntary Contributions (AVCs). The decision will depend on her attitude to investment risk and the ability to provide for a dependant's pension.
Added years provide a guaranteed return as the number of qualifying years within the scheme is simply increased. The pension benefit is thus exactly the same as the USS and includes a spouse's benefit and annual escalation of pension income. If Wendy selects AVCs, the potential benefit is dependent on the investment performance of the fund selected and prevailing annuity rates at the time of taking her pension. Alternatively, she could save into a stakeholder scheme, which works in a similar way to AVCs but is independent of the USS. The fund choice may be more attractive and suitable.
Melvin is concerned about Wendy's lack of insurance against ill health. As she is single with no significant debts, she doesn't require life assurance cover at present. But Melvin advises that she get an Income Replacement Insurance policy to provide income, in case of illness, beyond the period covered by her employer's sick-pay scheme.Reuse content