Wealth Check: 'What can I do with my 'rainy day' savings?'

Former teacher Beryl Bennett is retired and lives in Burnley close to her daughters and four grandchildren.

Beryl receives a teacher's pension of about £5,000 a year and state pension benefits worth £101 a week. Her outgoings, which consist mainly of running a car and general household bills, amount to around £230 each month.

She has £2,000 invested in an ISA and £9,000 in a TOISA - the accounts which were offered to Tessa savers when this tax shelter was abolished in 2001. Both are held with Abbey.

Beryl has savings totalling £50,000, which she's keeping aside for a "rainy day", possibly to be used later in life should she need to pay for a care home.

We asked three independent financial advisers for their assistance in helping Beryl to make the best of her finances: Lisanne Mealing of MD Associates, Vivienne Starkey of Equal Partners and Ben Gibbs of Re-Financial Planning.

Case notes

Beryl Bennett, retired, Burnley

Pension: Beryl is retired and receives a teacher's pension of £432 a month, plus a state pension of £101 a week.

Monthly outgoings: These include phone, utility bills and running a car, and total £230.

Savings: £2,000 invested in a cash ISA and £9,000 in a Tessa-only ISA - both with Abbey - plus savings of approximately £50,000

Insurance: None

Debts: None

Will: Yes

BILLS

With an annual income of around £10,000 and outgoings of about £3,000 a year, Beryl is able to maintain a reasonable standard of living, says Mealing. She may even be able to save money by searching for a better deal on her gas and electricity. The website uswitch.com will provide her with some help on the best deal available to her, depending on her consumption levels.

Starkey agrees that Beryl should shop around to make sure that she is getting the best deal on her telephone and utility bills. Keeping a record of her spending over a month, including household bills, car running costs, entertainment, and so on, may be tedious, but would give her peace of mind in the long run.

INSURANCE AND PROTECTION

With no financial dependents, Beryl has no need for life insurance, and critical illness cover is unlikely to be a key concern, says Gibbs. She receives a pension income, so a policy to protect this isn't relevant.

Beryl should keep her will updated so that it continues to reflect her wishes, advises Gibbs. She should also consider establishing an enduring power of attorney, if she does not already have one.

This would enable her family to administer her affairs if she were to become incapacitated. On a practical note, she should make sure that all her important financial documents are kept in a safe place and that someone else knows where these are.

SAVINGS AND INVESTMENTS

Beryl needs to make sure that her savings and ISAs are working as hard as they can, stresses Gibbs. Cash ISAs can pay up to 5.3 per cent interest so she must get the best deal. Portman Building Society and Alliance & Leicester are among the top-rate payers at the moment.

In addition, she can use stocks and shares ISAs to produce tax-free income, by investing in gilts or gilt and fixed interest funds (which make investments that pay out income) or shares that pay out income.

If she is looking to maximise income, she can expect an income of up to 5.5 per cent from a UK fixed interest fund. She may also find National Savings Index-linked savings certificates useful. They are tax-free, pay a return of 1.05 per cent above inflation - 2.3 per cent for February 2006.

However, these certificates are more useful to higher-rate taxpayers, because while the return is not as high as can be achieved in a high-interest account, it is paid tax-free.

Mealing also suggests Beryl consider reinvesting her cash ISA. She should make sure that she uses her ISA allowances every year to reduce the tax she is paying on her savings.

For her longer term money, Beryl may wish to consider investing £7,000 in a stocks and shares ISA, reducing risk by investing in a fund of funds portfolio, such as Jupiter Merlin Income or Growth, or perhaps the Skandia Cautious fund of funds range.

Beryl's "rainy day" money should be split up. She should put cash aside that she would need for a more immediate emergency, say £10,000, which could be invested in an immediate access savings account, such as Northern Rock's deal which pays 5.01 per cent a year.

The balance could then be invested in something longer term, such as a bond with the 5 per cent income payments either being deferred or taken, depending on her requirements for income.

Axa Distribution Bond is a good example of a lower-risk investment, although if Beryl was not too concerned about risk and was willing to tuck this away for longer periods, say in excess of 10 years, the range of options is wider.

INHERITANCE TAX

Depending on the value of her home, savings and investments, there may an inheritance tax liability payable on her estate when she dies, says Gibbs. The first £275,000 - £285,000 from 6 April for the next tax year - makes up the nil-rate band. No inheritance tax is payable on this.

Over the nil-rate band, tax is payable at 40 per cent. At this stage, she should identify any potential liability, though her options in addressing or reducing this are likely to be fairly limited based on her financial position.

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

Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tv
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
Finacial products from our partners
Property search
  • Get to the point
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: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence