Saving for their family's future is the key concern for Michael and Sue Lormont, 46 and 47. The couple live with their son Nii, 16, and daughter, Elianah, eight, in Walthamstow, north-east London.
"We're worried about our financial security and getting our kids through college, and how best to save for them and us," says Sue. "At present we seem to run out of money at the end of the month, even though we're not big spenders. We don't own a car or go on many holidays."
Michael is senior manager for a recycling company while Sue is a part-time communications manager for an aid agency, and they earn a combined income of around £72,800. They have £27,250 set aside in savings, including £10,000 for kitchen repairs.
"We bank with the Co-operative Bank and Smile as they are ethical banks," she says. "But recently we've wondered whether it's worth putting our ISA savings into a credit union as our accounts are paying so little."
Their savings are made up of £16,100 in an individual savings account with Smile paying 0.5 per cent; £8,000 in a Triodos ISA paying 0.65 per cent; and £3,150 in National Savings & Investments premium bonds. "In general, how much should we be setting aside in savings in case one of us is made redundant?" says Sue.
They save £50 a month for their son, with a total of £3,200 in a Cooperative Bank Future Fund for his future, paying 0.25 per cent.
"We opened a Children's Mutual Child Trust Fund for our daughter," she says. "This has £1,100 in it, but we stopped contributing in 2009 by mistake – a slip of the computer mouse – and haven't restarted it as we thought it probably wasn't the best investment."
Michael and Sue pay £684 a month for their £117,000 mortgage with 19 years left to run on a fixed rate at 3.29 per cent with Halifax until January 2014. Their three-bed house, bought for £157,000 in 2002, is worth around £232,000.
Turning to retirement planning, Michael has a small £3,000 personal pension pot with Aviva that he is not currently paying into, while Sue has around £30,000 in a Friends Life personal pension set up 15 years ago.
"I stopped contributing to this in 2010 when I was made redundant and didn't start again as I never got round to it," she says.
"My new job won't allow me to pay into this pension. I'm only allowed to sign up to their scheme, which they would also pay into, so it would be sensible to join." However, she adds that as it's with Barclays she's not keen on this "for ethical reasons".
For protection purposes they pay about £21 a month into a joint life policy with Aviva, which would pay out £117,000 on either of their deaths to cover the mortgage.
Running out of money each month is easily done with two kids, a mortgage, saving and retirement planning to consider, say our panel of independent financial advisers. After funding home improvements Sue and Michael will be left with around £18,000 in savings which will need to be built up again. As a priority they should consider their pension planning.
Any taxable savings should be in Sue's name to avoid paying higher rate tax, and it is good that the family are making use of tax-efficient cash ISA allowances, says Danny Cox from IFA Hargreaves Lansdown.
He adds: "Credit unions offer a range of savings products including cash ISAs so they could combine their ethical aims by helping the community without sacrificing the tax-free nature of their savings. However, credit unions may not pay the best rates of return on their savings."
Ideally they should hold sufficient cash in savings to meet their normal monthly expenditure for three to six months, say the advisers.
Jaskarn Pawar from IFA Investor Profile suggests funding the home improvement costs out of the Premium Bond savings, and Sue's Smile ISA. "These are the two sets of savings with the lowest interest rate."
If they wish to consider a credit union, Mr Pawar suggests London Mutual Credit Union, paying 3 per cent on its cash ISA.
Michael and Sue have very modest pensions, and the advisers stress they need to attack their retirement planning as a priority.
Pensions aren't the only way of saving for retirement, but they do benefit from tax relief on contributions as well as tax-efficient growth. There are other options, such as ISAs and buy-to-let property.
Michael should ask his employer what plan is on offer to employees. Michael and Sue should recommence their pension contributions, agree the advisers. As a higher-rate taxpayer, Michael will also benefit from 40 per cent tax relief reducing the net cost of each £100 contribution to £60.
Sue is currently "wasting" free money by not joining her employer's pension scheme, stresses Mr Cox. "If Sue strongly objects to her employer's choice of pension provider she should take this up with them and ask if they will pay the contribution of 7.5 per cent of salary into a pension of her choice."
Saving for the children
Building up a pot of cash for kids, so they can have a deposit on a first property or fund part of their university costs is wise, says Alex Pegley from Chartered Financial Planner Calculis. However, he adds he's not a fan of Child Trust Funds or their successor, Junior ISAs, because the money becomes the child's at age 18. "Will a slug of cash at 18 be spent wisely or will they blow it on things that aren't sensible?" he says.
For their daughter, the CTF has a further 10 years before maturity and they should consider taking more investment risk than cash, adds Mr Cox. "The Children's Mutual CTF has an ethical fund option, which they might want to consider." They can save up to £3,600 a year into either a CTF or Junior ISA. Mr Pawar says they can open an adult cash ISA for their son's £3,200 with a credit union or as an ethical ISA.
Michael and Sue should review their insurance policies to ensure they have enough cover in the event of their deaths. At present, their life policy would only cover the mortgage. This should include a review of the benefits their employers may offer such as death in service.
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