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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Marie had fake ID, in the name of Johanna Koch, after she evaded capture by the Nazis in wartime Berlin
historyOne woman's secret life as a Jew in wartime Berlin
News
news... and what your reaction to the creatures above says about you
News
Jihadi John
newsMonikers like 'Jihadi John' make the grim sound glamorous
News
newsAnother week, another dress controversy on the internet
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

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003