Fiona Sweeney's sons are still babies but she is already worrying about paying for their education. "My husband, Robert, became a mature student a few years ago and we realised how expensive fees are," she says. "We want to put money aside to support our sons through university or give them a lump sum when they finish school"
Mrs Sweeney, 31, and her husband are nurses. Mr Sweeney, 36, took a five-year career break to study theology but returned to the NHS last year. Mrs Sweeney works in accident and emergency at Brighton General but next month goes to a hospital in Worthing, West Sussex. "I've got a 40-minute commute to Brighton and on shift-work it can get wearing. But I'll soon be able to walk." Mr Sweeney works in geriatric mental care in nearby Shoreham.
Their younger son, Will, is 10 months and their the other, Jack, is two and a half. When Mrs Sweeney moves they will go to the local nursery. "I'll be able to drop them off before work and pick them up after my shift," she says. The rates are £107 for two days a week and the Sweeneys want to know if they are eligible for childcare vouchers.
They invest £50 a month into a Royal Pension Fund for Nurses' savings plan. "Should we be investing in an Isa instead?" Mrs Sweeney asks. They also save £25 a month for Jack into a bond with family assurance and they plan one for Will. They would like to know if these bonds are the best way to save for the boys' future. They also want to build savings in an instant access account for holidays.
The family moved into a Victorian terrace house in Worthing two years ago. They took out a 100 per cent mortgage of £80,000 with Sainsbury's on a 6.3 per cent, fixed-rate repayment. They think the house is now worth £130,000. The Sweeneys recently drew down an additional £28,000 on top of their mortgage to pay debts. "Our mortgage is fixed till May 2004," Mrs Sweeney says. "Would we be wise to change it when the fixed period is over?"
They are both in the NHS pension scheme but since Mr Sweeney has only been a member for six years they wonder if he needs to make Additional Voluntary Contributions.
We put their case to Ashley Clark, director of Need An Adviser.com, Robert Guy, consultant at Timothy James and Partners, and Ken Rayner, investment spokesman for The MarketPlace at Bradford and Bingley.
Fiona Sweeney oncology nurse
Status: Married to Robert Sweeney, 36; two sons, Jack, two and a half, and Will, 10 months;
Motoring: 1983 Ford Cortina estate;
Debts: £108,000 mortgage; £6,000 student loan;
Family income: £36,000 a year; They receive £106 every four weeks in child benefit;
Savings: £50 per month into Royal Pension Fund for Nurses savings plan; £25 a month for elder son into a child bond;
Pension: NHS pension scheme;
Property: Two-bedroom Victorian terraced house in Worthing, West Sussex, worth £130,000;
Outgoings: (Per month): £1,400.
Solution 1: Pension
Mr Guy says Mr Sweeney is unlikely to do the full 40 years' service with the NHS, so he could buy back years through the NHS pension scheme.
Mr Clark says the NHS superannuation scheme provides a pension of 1/80th of final salary for each year they are members and, when paid, is index-linked. They will also receive three times the yearly pension as a tax-free lump sum.
Mr Sweeney has completed six years, so if he stays a member until 60 he will have accrued a pension benefit of 30/80ths of his salary as a pension, plus 90/80ths of salary as a tax free-cash lump sum.
Based upon today's salary this would be a pension of £7,500 a year plus £22,500 tax-free. If he wishes to make additional pension contributions other than AVCs he should take out a stakeholder pension. AVCs do not pay tax-free cash but stakeholder pensions can pay out a tax-free 25 per cent of the fund value at retirement without penalties for early retirement.
Solution 2: Mortgage
Mr Clark says their mortgage interest rate of 6.3 per cent is not competitive and given that interest rates may fall this year, they should consider remortgaging at the end of the term.
But many lenders have early redemption penalties well after the end of the fixed rate period, particularly on 100 per cent loan-to-value mortgages. They should consult a mortgage broker now and weigh up the costs of early redemption against remortgaging today on a much lower rate of 4 per cent rather than waiting until the fixed-rate period ends.
Mr Rayner says if the couple like the security of a fixed rate they could opt for Halifax's two-year fixed rate which is 3.99 per cent. The deal comes with a free valuation and no legal costs.
This would bring their monthly payments to £605, saving £145 a month, or £1,740 a year. If redemption costs are less than this it may be worth remortgaging now.
Solution 3: Savings
Mr Guy says families should have between three and six months of normal expenditure in an easily accessible savings account. Cash Isas can act as good emergency funds because the interest is paid gross, they usually have a higher rate than normal deposit accounts and they still offer instant access.
Child bond payments of £25 per month into a friendly society can be tax-efficient because the fund is not taxed and nor are the benefits at maturity. The plans are also in the child's individual names. A downside is that they are usually inflexible and the money usually cannot be touched early without penalties.
Mr Clark says savings schemes offered by the Royal Pension Fund for Nurses tend to be endowment plans with higher charges. They are not good value for money compared to most standard Isas, which have a maximum charge of 1 per cent a year.
If their scheme has a short time before maturity they should keep it so as not to lose bonuses. If it has a few years to go, they should redirect their savings into a cheaper savings plan such as an Isa.
As an alternative to child bonds, they should consider stakeholder pensions for them. Even newborn babies are allowed to have a pension scheme with tax relief of 22 per cent even for non-taxpayers.
Mr Rayner encourages the couple to look at unit trusts and open-ended investment companies, given the term to invest is considerable. They have a competitive charging structure and a wide range of fund choices.
Solution 4: Childcare
Mr Clarks says childcare vouchers work like luncheon vouchers. Many employers, including the NHS, offer them and although they are a taxable benefit in kind, they are free of national insurance. Given that NI has been raised by 1 per cent to 11 per cent with no cap, paying for childcare via a voucher scheme could mean savings of more than £40 a month for the Sweeneys now.
Mr Guy says they need to check that their employer is prepared to pay an element of their income as vouchers and that their nursery will accept them.
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