Wealth Check: 'What can I do with my 'rainy day' savings?'
Saturday 01 April 2006
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.
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
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.
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; request a free guide on NISAs from Hargreaves Lansdown
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
You'll need £220,000 for a minimum wage in your retirement
Questions of Cash: I checked in with Air France in time and still missed the plane
Minister's pension promise to firefighters challenged
Bank-beating exchange rates on your international payments
- 1 Planes go hybrid-electric in important step to greener flight
- 2 Antonio Martin shooting: Police and protesters clash over teenager's death just five miles from Ferguson, Missouri
- 3 Northern Lights above Britain: Stunning Aurora Borealis illuminates Northumberland sky on Christmas Eve
- 4 British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
- 5 Hip hop is both racial and political, and for Iggy Azalea to suggest otherwise is insulting
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens