Wealth Check: Property and pensions provide the two big lessons for teacher Nathan

Our experts say he should keep paying into his workplace scheme instead of relying on a buy-to-let house

The patient

Nathan Atherton, 36, wants to pay off the mortgage on the family home so he and his wife, Faye, 35, can save more for their daughter's future.

The couple, who live in Preston with 20-month-old Nancy, are also looking at investing in a buy-to-let property as part of their longer-term planning. Nathan works as a behavioural tutor at a school in Blackburn, earning £24,000, and has been in this job for four years. Faye works part-time as a youth worker.

The Athertons have been careful about building up money, and currently have £25,000 in a cash individual savings account (ISA) with Santander, £3,000 in a regular savings account with Norwich & Peterborough building society, and £1,000 in premium bonds. They also save £500 a year into a cash junior ISA with Nationwide building society for Nancy. While they have no investments at the moment, they also don't have any debts.

The couple live in a three-bedroom house which they bought in 2000 for £206,000. They now have a mortgage on this for £82,000 on a repayment basis. "This is a mixture of a fixed-rate deal [£60,000 at 2.49 per cent] and a tracker [£22,000 at 1.25 per cent]," says Nathan. "I pay the mortgage and Faye the bills."

Nathan currently pays £110 a month into his workplace pension, and also gets life cover through that scheme. In addition, the couple pay £20 a month for critical-illness and accident cover. However, Nathan is thinking about opting out of his pension and using that money as a deposit for a buy-to-let property.

"This would be an investment for Nancy's future and also help fund a comfortable retirement for both Faye and myself," he says. "I'm looking to buy with a friend and we're each trying to save at least £200 a month for the next two years."

The friends then hope to have around £10,000 to put down on a run-down place they can renovate. "My theory is that by the time I get to 55 or 60, I will have paid off the mortgage on our family home and will also own a second property which I could sell, giving me a lump sum, instead of a pension lump sum. We would then have money to spend on Nancy's education and things she'll need in the future."

Alongside this, Nathan hopes to have amassed £50,000 in his ISA by the time he turns 60. "I hope that the combination of the buy-to-let property, my ISA savings and 15 years of pension contributions – plus the state pension – will be enough for a comfortable retirement," he adds.

The cure

Our panel of independent financial advisers (IFAs) commend Nathan and Faye on having built up a good level of savings and avoiding debt. But they urge caution before stopping pension contributions into a workplace scheme, and recommend that a combination of both property and pensions may offer a better solution for their long-term planning goals.

Continue to build cash savings

While the Athertons have been sensible in putting most of their savings in cash ISAs, meaning all interest is tax-free, Aj Somal from Aurora Financial Planning urges them to check whether they could earn a better rate of interest. Useful sites for comparing rates include Moneyfacts.co.uk and Savingschampion.co.uk.

James Robson from Plutus Wealth Management adds that cash is the most appropriate way to save for short-term goals such as cars, holidays and a buy-to-let deposit, but over the long term cash can become eroded by inflation. "If some of the cash is designated as long-term savings, they could consider diversifying into investments," he says. "It's possible to transfer money from cash ISAs to equity ISAs while still retaining the tax wrapper."

 

Work on paying off the mortgage

Aiming to pay off the mortgage is a sensible goal, according to Mr Robson.

"As their current deals come with competitive rates of interest, they could consider making overpayments to reduce the balance further. Generally, lenders will allow borrowers to overpay 10 per cent of capital each year without penalty."

Think carefully about property

versus pensions

Patrick Connolly from adviser Chse de Vere points out that while many people plan on using their property to help fund their retirement, this can be a high-risk approach.

"I'd urge people to use property alongside pensions – not instead of them," he says. "Nobody can predict how residential property will perform in the future."

This is a view shared by Mr Somal. "I'd suggest Nathan continues to pay £110 a month into his employer-sponsored pension and then save £100 a month towards a deposit, along with his friend," he says. "He should then aim to do this for a four-year term. Buying a property is a long-term investment, and so is a pension. For this reason, it's better to be diversified in both types of assets, rather than to have all your eggs in one basket."

Mr Robson warns Nathan that he may need to save a deposit of 25 per cent to be able to source a competitive deal on a buy-to-let property.

"Equally, if he plans on renovating, he needs to ensure there is enough money to cover this too," he says.

In addition, Nathan and Faye need to factor in the costs of letting out a second property, and think about the risks of potentially getting bad tenants – or no tenants at all.

Be wary of opting out of workplace pension schemes

As Nathan will have access to either the teachers' pension scheme or the local government pension scheme, Mr Connolly says he should think carefully before giving up membership.

"These schemes provide excellent benefits guaranteed by the Government, which would be extremely hard to replicate elsewhere," he says. "While there are changes happening, they will still offer very good value, so my strong recommendation would be to continue making contributions."

Mr Robson agrees that by being part of a pension scheme and making contributions, both Nathan and Faye can take advantage of the tax benefits, allowing them to save for the future in a tax-efficient manner.

Mr Connolly adds that for most people, the best approach to retirement planning is a combination of pensions and stocks-and-shares ISAs. "Pensions provide initial tax relief but are inflexible, whereas ISAs are also tax efficient and give greater flexibility," he says.

Review the Junior ISA

Given the timescale involved with junior ISAs, Mr Somal suggests that for parents who accept the risks of the stock market, it may be worth looking at equity ISAs, as this should give better returns than sticking with cash.

Mr Connolly says a good option could be the Jump Junior ISA, which invests in the Witan Investment Trust, "a very large ... fund investing in shares throughout the world".

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
News
Kristen Stewart and Rupert Sanders were pictured embracing in 2012
people
News
President Obama, one of the more enthusiastic users of the fist bump
scienceBumping fists rather than shaking hands could reduce the spread of infectious diseases, it is claimed
Sport
Laura Trott with her gold
Commonwealth Games
Arts and Entertainment
Gal Gadot as Wonder Woman
arts + ents
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
arts + ents
Arts and Entertainment
Pedro Pascal gives a weird look at the camera in the blooper reel
arts + entsPrince Oberyn nearly sets himself on fire with a flaming torch
News
Danny Nickerson, 6, has received 15,000 cards and presents from well-wishers around the world
newsDanny loves to see his name on paper, so his mother put out a request for cards - it went viral
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
News
Orville and Keith Harris. He covered up his condition by getting people to read out scripts to him
People
Arts and Entertainment
Zoe Saldana stars in this summer's big hope Guardians of the Galaxy
filmHollywood's summer blockbusters are no longer money-spinners
Arts and Entertainment
O'Shaughnessy pictured at the Unicorn Theatre in London
tvFiona O'Shaughnessy explains where she ends and her strange and wonderful character begins
Life and Style
Workers in Seattle are paid 100 times as much as workers in Bangladesh
fashionSeattle company lets customers create their own clothes, then click 'buy' and wait for delivery
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Training/Learning and Development Coordinator -London

    £28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

    Training Programme Manager (Learning and Development)-London

    £28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

    .NET Software Developer (.NET, C#, ASP.NET, front-end)

    £30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...

    C# Web developer (C#,MVC,ASP.NET,SQL)

    £30000 - £40000 per annum + Bonus+Benefits+Package: Harrington Starr: C# Web d...

    Day In a Page

    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on
    It's the best of British art... but not all is on display

    It's the best of British art... but not all is on display

    Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
    Critic claims 'I was the inspiration for Blanche DuBois'

    Critic claims 'I was the inspiration for Blanche DuBois'

    Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
    Sometimes it's hard to be a literary novelist

    Sometimes it's hard to be a literary novelist

    Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
    Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

    Edinburgh Fringe 2014

    The comedy highlights, from Bridget Christie to Jack Dee
    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    The woman stepping down as chair of the Heritage Lottery Fund is worried