Wealth Check: NHS workers seek financial health check

One family wants to know what they should do to make best use of their savings, says Ben Chu. And they need to find a way to pay for university fees

When Mudassir Pasha came to Britain from Pakistan in 1989 the last thing the NHS wanted was more managers. "People were reacting against the managerial culture introduced to the health service by the Tories," he says. "They wanted to promote existing NHS staff, people who had some experience of medical care, rather than professional managers."

But Mr Pasha, now 37, wanted to work in the NHS so he trained as a nurse at the University of Glamorgan. In 1993, he started as a staff nurse at Llandough hospital, part of the Cardiff and Vale NHS Trust, and became a bed manager. Last year, he was made assistant directorate manager of medicine.

He met Mary Jones, a children's nurse, at the hospital in 1994, and they married the next year. They have three children; Cordelia, 10, Sufiyan, four, and Gabriel, 13 months. Mrs Pasha has not worked since Sufiyan was born but expects to go back this year.

The Pashas live in a village called Miskin, near Cardiff. They have a £90,000 Alliance and Leicester flexible mortgage on a four-bedroom detached house; £39,000 is endowment-linked and the rest repayment. They moved from a smaller house in central Cardiff last October. Mr Pasha asks: "At a time of low interest rates and volatile share prices, should we be concentrating on paying off the mortgage?"

They find life pleasant in Cardiff. Mr Pasha does not speak Welsh although the hospital is officially bilingual. "I lived in London for a while and it's so much cheaper here," he says. "A similar house to ours in, say, Croydon would cost £250,000. I couldn't afford that."

Mr Pasha's father visits from Pakistan every two years. The family also occasionally travel there to see relations. Mr Pasha expects they will stay in Cardiff for the next few years but would consider a long-term move to Bristol or Swindon if a job came up.

Mr Pasha and his wife are in the NHS pension scheme, although Mrs Pasha's pension is frozen at present. She has worked in the NHS for 13 years and wonders if it is worth cashing in her pension now. Mr Pasha wants to know whether he ought to take out a private pension.

The family have £10,000 in savings spread across two Tessas, an Isa and savings accounts. "I'm not sure about what I should do with the funds, particularly the Tessas, in the long term," Mr Pasha says. "How should I plan to put my children through university?"

He also does other work in another capacity for the NHS but he pays extra National Insurance and income tax. Mr Pasha would like to know if he can claim these back. We put their case to Charles Ansdell, of Inter-Alliance Group in London, Danny Smith, of Towry Law in Berkshire, Ken Rayner, of The MarketPlace in London, and Peter Cox of IFPC, in St Albans.

Profile: Mudassir Pasha, 37, And Mary Pasha, 40

Family: three children; Cordelia, 10, Sufiyan, four, Gabriel, 13 months;

Occupation: Mr Pasha is an assistant directorate manager in Cardiff and Vale NHS Trust. Mrs Pasha is a children's nurse;

Education: Mr Pasha has an MA in computer information systems;

Motoring: Nissan QX 3.0 and Nissan Micra;

Debts: £1,000 on credit cards;

Salary: £25,000;

Savings: Two Tessas, Isa and savings accounts;

Pension: Both in NHS pension scheme;

Stocks: 500 shares in Bradford and Bingley;

Property: Four-bedroom detached house in village of Miskin, near Cardiff;

Outgoings: (Per month) Mortgage £467; council tax £115; electricity £35; gas £50; food £240; car rent £160; phone £20; petrol £200.

'Remortgage and stick to the NHS final-salary pension'

Solution 1: Savings

Mr Rayner says Mr Pasha should reinvest his Tessas into Toisas (Tessa-only Isas) when they mature to maintain their tax relief. Mr Ansdell says Mr Pasha should build an immediately accessible lump sum for emergencies. The best account at present is a Birmingham Midshires phone-based one offering 4.1 per cent. He should keep his Bradford and Bingley shares since the company has significantly outperformed the FTSE 100 over a year.

Mr Smith says there is probably little point in Mr Pasha selling his Isa since it would realise his losses. He should review the fund to see if it can be placed with a better manager.

Solution 2: Mortgages

Mr Rayner says in times of low interest rates and volatile stock markets, your money is best used paying more on a mortgage. Mr Pasha's flexible mortgage with Alliance and Leicester allows overpayments, payment holidays, reduction of monthly payments and the ability to borrow money back.

Mr Cox says a £90,000 mortgage based on a multiple of Mr Pasha's earnings of £25,000 is high. He recommends that they obtain a projected maturity value for the £39,000 endowment to ensure it is on course to repay the targeted sum. If it is not, they should convert any shortfall to repayment.

Solution 3: Pensions

Mr Cox says the NHS has an excellent final-salary pension, index-linked to protect against inflation. When Mr Pasha retires he will get a pension and a tax-free sum based on his years of pensionable service and his final salary. Under no circumstances should he consider opting out of this arrangement and taking up a private pension.

Mr Ansdell says Mrs Pasha's wife is not allowed to cash in her scheme until retirement. But she should restart her pension when she goes back to work, and buy the years she has missed. Mr Pasha should continue to put in what he can afford, though how much depends on when he wishes to retire. With most corporate pensions schemes in difficulty, public sector schemes are likely to offer the best pensions.

Mr Smith says Mr and Mrs Pasha are eligible for a stakeholder pension investing up to £3,600 a year.

Solution 4: Tax

Mr Ansdell says Mr Pasha may have overpaid his tax bill, in which case he may be entitled to a refund from the Inland Revenue and he should speak to his local tax office.

Mr Cox says if Mr Pasha has earned less than £5,420 from his extra work, he will not be entitled to a refund. Given that Mr Pasha's salary from his principal employment is £25,000, the NHS is entitled to deduct extra national insurance and income tax from his extra work. As an employee he is required to pay class-I contributions, based on income between the lower earnings limit of £4,615 per year, and the upper one of £30,420. National insurance contributions on this sum are levied by all employers, including the NHS, at 10 per cent. If his extra earnings were say £5,420, (the difference between his main earnings of £25,000 and £30,420), he would be liable to income tax at 22 per cent and national insurance at 10 per cent on the full amount of extra earnings. But any employee who has paid these maximum levels of class-1 NICs should not be liable for additional NICs above the upper earnings limit. If Mr Pasha has earned more than that, he should complete a form CA5610 to claim a refund.

Solution 5: Children

Mr Rayner says to finance his children through university Mr Pasha should save regularly and start as soon as possible. High-interest savings accounts are the best place for low-risk investments. If the account is opened in the child's name, and they fill in an R85 form from the Inland Revenue, no tax is payable.

Mr Ansdell says the Pashas have have three options for their children's university education. First, they may qualify for maximum government funding. Second, their children could seek student loans and part-time work. Third, they can find a total of £30,000 for university education. In practice, a combination of these options usually works.

Mr Cox says they should start long term savings into equity-based unit trust funds. This way, risk can be reduced through "pound-cost averaging". Units bought at differing times and prices, average out the highs and lows of movements in stockmarket-based funds. More units are bought when the price is low and fewer when the price rises.

He says as each child gets to within five years of their target dates, Mr Pasha should move the funds into lower-risk areas such as deposit funds to avoid stockmarket volatility. And they are easily accessible when the children start university.

If you would like to be given a financial health check-up, please write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.