Financial makeover: Towards a French future
Saturday 13 June 1998
Ages: 47 and 32.
Occupations: former headteacher and teacher.
The problem: David has taken early retirement but Edward is still employed. They would like to spend more time in France, where they own a property. The ideal balance would be to spend six months in the UK and six months in France. The couple want to know how to maximise their earnings, including the possibility of buying another property, plus investing a large lump sum.
The solution: If spending more time in France is important, it may make sense to sell their home in the UK and buy a smaller one, particularly when David and Edward won't be using it that often. Buying another house in the UK for investment purposes does not make sense. The couple should invest their cash for retirement but also use some of the money to pay off their existing mortgage.
DAVID AND EDWARD have been together for about six years. Both have worked in the teaching profession, from which David recently retired on grounds of stress. His pension is pounds 15,000 a year. Edward is still working and his present salary is about pounds 25,000 a year.
The couple live in David's home in London, valued at pounds 200,000. This costs about pounds 1,100 a month in mortgage, insurance and other services. They also have a cottage in France, which is mostly paid for and which costs some pounds 700 a year to run, although the couple say they spend a lot more than that on its garden.
David has some pounds 32,000 on deposit, paid to him as severance when he retired. He has an endowment policy which matures in 2012, with a minimum value of pounds 75,000. Other than that the couple's investments are minimal.
Edward is still a member of the teachers' superannuation scheme, into which he pays up to the legal maximum via a combination of top-up contribution with Prudential and Barclays schemes.
The couple want to take things easier, possibly moving to France and retiring altogether. But the question is how to reconcile the obvious loss of income without suffering too dramatic a change in lifestyle.
They wonder whether they should sell the property in London to reduce their outgoings and buy something cheaper. Whereas this is the preferred route, both admit that the property is ideal for them in many ways because it is quiet and they are established there.
There is some debate also as to whether Edward should buy a property of his own for investment purposes.
The adviser: Amanda Davidson, a partner at Holden Meehan, independent financial advisers in London (0171 692 1700).
The advice: Edward and David are pondering over a variety of options. They are carrying a large mortgage at the moment, pounds 110,000, with a policy to back it that does not mature for another 14 years.
As both Edward and David want to spend more time in France, it would make sense for them to move towards this eventual outcome. I therefore recommend that they should consider selling the property in England, albeit not necessarily immediately. They can then purchase a more modest property which will have the advantage of reducing their monthly outgoings.
Bearing in mind that they spend only nine months of the year in the UK, they are not getting full value for their mortgage commitment. Of course David should retain the endowment to set against a future property and in any event even if the mortgage is entirely discharged, then he should maintain this as a savings plan to give a lump sum at some stage in the future. If they wanted to realise the money earlier it may be possible to reduce the term of the policy so long as there is 10 years to maturity.
The ideal amount of mortgage would be pounds 30,000-pounds 40,000 as this will reduce commitments dramatically and enable David and Edward to increase their savings towards the goal of early retirement for Edward and more time spent in France.
Edward is up to his limit in terms of pension contributions. He should obviously maintain things at this level as his income increases. If he wants to retire at age 50, he will have had 22 years' service by then. However, these days it is much harder for teachers to retire earlier and there are likely to be early-retirement penalties which Edward should investigate by asking his pensions department.
I anticipate that by maintaining the additional voluntary contributions (AVCs) he is already making, Edward is heading for 11 per cent of his income or some pounds 2,750 per annum in real terms at age 50. It would be ideal if we could make this up to two-thirds, which would involve another increased commitment from Edward of about pounds 300 per month. He is paying pounds 150 per month into a PEP which goes some way towards this. However, he should look as soon as he can to increase this and preferably double it.
It would not be sensible for Edward to purchase another property. It would make David and Edward's financial circumstances too property-orientated and they would have to maintain yet another mortgage.
If David and Edward are going to stay in their current property for a number of years, then they should look to renegotiate their mortgage. But any arrangement is going to tie them in for a length of time, so they need to make sure that this links in with their plans for moving.
David has some pounds 32,000 to invest. My advice is that he should keep pounds 5,000 for emergencies. This should be kept in a high-interest account, such as the one offered by Standard Life Bank, which pays 6.96 per cent gross. This will suit them as they can make transfers by phone, even when in France.
With the rest, David should put his maximum pounds 6,000 allowance into a PEP. As a first-time PEP investor, 50 per cent should be placed in the UK and 50 per cent internationally. Good providers include Fidelity and Perpetual. David has indicated that he would like to invest the money ethically. If this is a strong consideration, then he could invest his pounds 6,000 in a PEP with NPI or Jupiter, which both have ethical funds.
David could give pounds 4,000 to Edward to top up his own Prudential PEP. This money could go, for instance, in a European fund. The track record of Prudential's European Fund has been fairly mediocre, but investors are allowed to choose only one PEP fund manager per year, which means either staying with Prudential or transferring to another provider. This can have significant new initial investment costs.
I suggest David pays off some of the mortgage with the remaining pounds 17,000. He will not get the same return on his capital in a risk-free environment and it will also help reduce the couple's monthly outgoings.
Finally, as Edward and David are partners, there are some more issues to consider. Sensibly, they have made wills both in this country and in France, leaving property and assets to each other. Edward should check that the teacher's superannuation scheme allows him to name David as beneficiary in the event of his death - although, unfortunately, many public sector schemes do not allow non-married couples to receive their partners' pensions when they die.
Geoffrey Macnab reviews American Hustle, also starring Christian Bale and Bradley Cooper
newsFormer soldier taped 33 of the animals to the floor and then stamped on them one by one
Michelle Nijhuis' daughter insists (s)he is, and she learnt a valuable lesson on gender in books
news Opponents claim it would stop performers such as Beyonce and Madonna appearing on TV
It takes a platoon of chefs, litres of brandy and rum, and almost 100kg of dried fruit
food + drink
Sun will 'flip upside down' within weeks, says Nasa
Paul Walker: Fans hold memorial and car rally for Fast & Furious actor
Cycle death inquest: Boyfriend hugs driver of 32 tonne tipper truck that killed his girlfriend
Paul Walker death caused by speed alone
Apollo Theatre collapse: Scores injured after partial ceiling collapse on to audience in London's West End
- 1 America's 'virgin births'? One in 200 mothers 'became pregnant without having sex'
- 2 North Koreans are gasping for the truth: Let's give it to them
- 4 Sun will 'flip upside down' within weeks, says Nasa
- 5 Christmas comes early: Justin Bieber is 'retiring from music'
- < Previous
- Next >
iJobs Money & Business
attractive: Citifocus: Prestigious investment house is recruiting for a Busine...
attractive: Citifocus: Prestigious investment house is recruiting for a Busine...
£500 - £650 per day: Harrington Starr: Harrington Starr is working with a Glob...
£27000 per annum: Harrington Starr: Junior Consultant (Excel, Financial Spread...