Wealth Check: Should I take company shares or go for the cash?

With a new job after a series of promotions and a new home, it is time to review family's pension, insurance and savings arrangements
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The Independent Online

A long time ago Rob Brazier wanted to go to drama school. "That was the big plan, but when I started earning money acting fell by the wayside," says the 27-year-old. When he was 18 he joined the police force as a civilian worker. "While a lot of my friends were at university, I found myself working with surveillance teams and serious police cases," he said.

But he knew he did not want to do police work forever, so after three years he joined Cadbury's as a salesman. He was promoted six times in seven years and was eventually made senior national accounts manager in charge of a team.

Three months ago, Mr Brazier joined Colgate-Palmolive UK as a trading controller. He deals with a host of clients including the Co-op, Londis and John Lewis. "It's quite different from selling chocolate but I know all the clients from my time at Cadbury's," he said. "Colgate-Palmolive are a bigger company globally but they're smaller in the UK, so it has the feel of working in a smaller company."

Mr Brazier met his wife, Ali, 31, five years ago. They have two children – Jacob, three, and Emilia, one. Mrs Brazier used to be a manager at an IT company but is not working at the moment.

The family live in Chertsey, Surrey, and have recently moved from a small two-bedroom cottage into a four-bedroom house which they bought for £275,000 with a mortgage of £160,000. The mortgage is their only real debt. "I don't like to take risks with money: no loans, no hire-purchase, no sofas on credit," said Mr Brazier.

Mr Brazier is a member of Colgate-Palmolive UK's final-salary pension scheme. He did not join the Cadbury's scheme during his time there, opting instead to take part in their share save plan. He has £6,000 invested and will have the choice within the next three months to buy Cadbury shares or take the cash. "The shares are not doing too badly, so I'll probably buy them back," he said. He also has a small pension from his time in the police but does not know how much it is worth.

Mr Brazier's company car is a pool vehicle but he will soon get an Audi A4. The family have legal and general life insurance, with static cover, which goes with their mortgage.

We put his case to Nick Breton of the Marketplace in London, Rob Guy of Timothy James and Partners in London, Darius McDermott of Chelsea Financial Services in London, and Colin Rodger of Alexander Sloan Financial Planning in Glasgow.

Robert Brazier, Trading Controller

Age: 27

Status: Married to Ali, 31. Two children, Jacob, three and Emilia, one

Occupation: Trading controller for Colgate-Palmolive UK

Salary: Higher-rate tax-payer

Motoring: Company car (upgrading to Audi A4)

Debts: £160,000 mortgage

Savings: £5,000

Pension: Final-salary company pension scheme; small frozen police pension

Property: Four-bedroom house in Chertsey, Surrey, worth £275,000

Stocks and shares: £6,000 in Cadbury Schweppes share save plan

Outgoings: (Per month): £900 mortgage; £30 gas; £30 electric; £60 house insurance; £70 life insurance; £110 council tax; £70 car; £250 food shopping; £30 water bill; £10 TV licence; £100 a week for going out, clothes, shopping etc.

Solution 1: Pension

Mr Breton says final-salary pensions are dying out. An employer will have to put on average 15 per cent of an employee's salary into this scheme per year, compared with 5-6 per cent in a defined contribution scheme.

Mr Rodger says Mr Brazier's police pension is not strictly frozen, but revalued each year, broadly in line with inflation. It could be worth transferring this to the Colgate-Palmolive scheme. He can ask the police for a transfer value, and the Colgate scheme administrators will be able to tell him how many extra years and months this will buy him in their scheme. If he continues to be promoted and his salary increases above inflation, his pension will increase correspondingly.

Mr Guy says Mr Brazier could start pension contributions of up to £3,600 per year for his wife. She would receive basic-rate tax relief at source, which is 22 per cent, even though at present she is a non-taxpayer.

Solution 2: Insurance

Mr Breton says Mr Brazier's Legal and General life insurance will give him cover for the full amount he has insured throughout the term of his mortgage. This is different to decreasing term assurance, which naturally decreases as your debt does. If he can comfortably maintain his payments, it makes sense to keep paying to a level policy.

Mr McDermott recommends the Braziers assess their requirements and contact Chelsea Lifesearch, which searches the market for the most competitive life insurance quote available. It is also worth considering how they would cope if he were unable to work due to illness. Critical illness cover would give them added protection, but can be quite expensive.

Solution 3: Savings

Mr Breton says people should have three months' expenditure in an instant access account for emergencies. Mr Brazier's outgoings are £2,000 a month, so he could do with adding another £1,000 to his savings. He could have £3,000 of this in an instant access mini-cash Isa, and the rest in a top paying instant access savings account.

Mr McDermott says it is advisable to utilise your Isa allowance wherever possible and if Mr Brazier has any spare cash he should put it into a fund supermarket such as Cofunds, which has a minimum of just £50 per month.

Mr Rodger says Mr Brazier's share save scheme would normally give him the option to buy Cadbury shares at a set price, which could be good value. However, this would leave him with over half his total savings in one company's shares. This is a relatively risky approach and in due course he should thin the shares out, perhaps putting some of the proceeds into a broadly based unit trust if he still wants exposure to the stock market.

Mr Guy says it might be more beneficial for Mr Brazier to invest his £5,000 savings purely in his wife's name. She is currently a non-taxpayer and can therefore complete the R85 form that can be picked up from any bank or building society. This will ensure she gets the interest paid gross.

Solution 4: Property

Mr Rodger says the mortgage market is fiercely competitive. It would be worthwhile for Mr Brazier to shop around the market to check that they have a good deal with their existing lender. If not, they should consider remortgaging into a better rate.

Mr McDermott says he would generally advocate a fixed mortgage as it makes it so much easier to budget. It is important to look for one that has no redemption penalties beyond the fixed-rate period and may well be beneficial to fix for five years, even if the rate is slightly higher, as we are likely to see rates increase over this time.

Solution 5: Car

Mr Rodger says if Mr Brazier is getting a company car he should bear in mind that he will be faced with a tax charge. This is based on the list price of the vehicle and its CO2 emissions, and can range from 15 per cent to 35 per cent. If the company gives him any choice of make or model, he needs to check the CO2 figure. There can be a big difference even between the same model with a petrol or diesel engine, and he could avoid a nasty surprise on his tax bill by thinking ahead.

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