Wealth Check: 'Will our savings stretch to fund college?'

The Lormonts are keen their children have a comfortable stint in higher education, but their home needs a makeover

The patients

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.

 

The cure

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.

 

Savings

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.

 

Retirement planning

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.

Protection

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.

Do you need a financial makeover? Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF j.knight@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Sport
football
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Finacial products from our partners
Property search
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: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas
    La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

    Deaf community outraged by La Famille Bélier

    The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
    10 best high-end laptops

    10 best high-end laptops

    From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair