Wealth Check: Ruth and Mike must capitalise on their strengths

With no mortgage and decent savings, the couple, with two children, must focus on improving their position

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The Independent Online

The patient

Ruth and Mike Holwill are keen to build up savings for short-term needs and to put their children through university in a few years' time. They live in Leeds with Euan, 13, and Freya, 10. Ruth, 43, has worked as a pharmacist for a major chemist for 22 years, but is currently working part-time and earning around £17,000 (plus bonus). Mike works as a senior charge nurse, earning around £36,000.

"I started working part-time in February 2001 after having Euan," says Ruth. "I currently work 14 hours per week on a flexible working-parent contract meaning I work more during term time and less in the school holidays. I have no plans to work full-time again, but do expect to increase my hours to around 25 per week in seven years' time when Freya finishes school."

The couple have been disciplined about building up their savings, and have amassed around £13,000 in two fixed-rate cash individual savings accounts (Isas) with Kent Reliance building society.

"The money is locked in until April 2014, but most of it will be spent on a new kitchen," says Ruth. "Once we've paid for this, I'll feel quite stressed until I can start building our easy access savings again."

Both Ruth and Mike pay into fixed-term regular investment plans run by life assurance companies.

"I pay £50 a month into a plan with Scottish Widows and the current value is £9,000," says Ruth. Mike pays £50 a month into a plan with Friends Provident and the current value is £5,000."

Both plans were opened in February 1999 and are due to run for 20 years; they will mature in 2019.

The Holwills bought their three-bed semi in 2002 for £155,000. They then added a utility room in 2005 at a cost of £15,000. The couple repaid their mortgage two years ago.

Ruth pays into a company pension and has done so since starting work at the firm. "This was a final salary pension until four years ago," she says. "I now pay in 12 per cent of salary, and the company matches this. Mike pays around £250 a month into an NHS pension."

The couple are in the very fortunate position of having no debts.

Both Ruth and Mike have life insurance policies with critical insurance cover in place until their children are 21. These policies are with CGU and Scottish Provident.

The cure

Our panel of independent financial advisers (IFAs) commend Ruth and Mike on having paid off their mortgage alongside raising a family. They also agree the couple are in an excellent position, with no debts and good pension provision. However, they add that building cash savings should remain a priority, and that investing into stocks-and-shares Isas could be of long-term benefit.

Increase cash savings

Patrick Connolly from Chase de Vere says the couple are doing the right thing by using their cash Isas for savings, as all interest is tax-free.

"But as they will be using most of their cash savings to buy a new kitchen, they need to make a concerted effort to build up funds again," he says. "They should continue to use cash Isas – making the most of the increased allowance of £5,940 from the start of the new tax year."

Claire Walsh from Pavilion Financial Services adds that it's vital to have cash savings to cater for any emergencies or requirements.

"As a guide, people should look to hold between three and six months' spending money in an accessible cash fund," she says.

Build on existing pension savings

Both Ruth and Mike have good-quality pension provision, and should continue to build on this.

"Mike is a member of the NHS scheme which provides excellent benefits, guaranteed by the Government," says Mr Connolly.

He adds that Ruth did well to join the pension scheme when she started work. "While the final salary pension is closed, her employer still matches payments – so Ruth should continue to save into it."

Review regular savings plan

Mr Connolly warns that it can be difficult to get to grips with exactly how fixed-term regular investment plans work – and what benefits the holder is likely to get in the future.

"Most with-profits policies are now paying very low bonuses – or none at all," he says. "The Holwills need to get an idea of how much they might receive at maturity. "

Danny Cox from Hargreaves Lansdown agrees that these types of plan are not particularly tax efficient and can be expensive. "They are invested in with-profit funds which have had a torrid time since 2009, and the long-term prospects for decent returns remains poor," he says. "In my view, their savings should be diverted in a different way."

Invest in stocks-and-shares Isas

For any future regular investments, Mr Cox recommends looking at stocks-and-shares Isas.

"The costs are likely to be lower, Isas are more tax-efficient, and there are much better fund choices," he says. "Many of these are cheaper than their current plan – meaning the returns should be better."

Do you need a financial makeover?

Write to Julian Knight at:

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