Personal finance: A problem shared...

Financial Makeover NAMES: EDMUND AND JUDITH HUGHES AGES: 31 AND 34 OCCUPATIONS: RESEARCH ENGINEER AND SENIOR NURSE

Edmund and Judith live in Hampshire and married last year. They are both employed, Edmund as a university research engineer and Judith as a senior nurse. Having got the savings for the wedding and new home out of the way, they now feel that they need to organise their personal finances.

They are particularly concerned about pension planning. Both of them are members of their employers' schemes: Judith has been in the National Health Service Pension Scheme since 1986 and Edmund joined the Universities Superannuation Scheme in December 1997. Their main worry is over Edmund's pension, as his current scheme is the only provision he has made.

The couple have some savings accounts scattered about, and each has a Tessa. They also have some shares; Judith has Halifax windfall shares, and Edmund holds some "blue chips". In addition to this, Judith has been paying into a low-cost endowment plan since 1989. They have a repayment mortgage, which is fixed for four years, and have taken out a joint level term life assurance to cover the loan. They save pounds 400 per month to fund home improvements and holidays, and would like to continue this if possible.

The adviser

Fiona Price of Fiona Price & Partners, 33 Great Queen Street, Covent Garden, London WC2B 5AA. Telephone 0171-430 0366.

The advice

For a newly married couple, Edmund and Judith's finances are in surprisingly good order. However, here are a few areas which need to be addressed.

As always, the first thing to look at is short-term savings. They need to build on the amount they currently have and should aim for at least three months' normal expenditure to cover any emergencies. Their savings are spread over three accounts and the rates on the First Direct high interest savings and Nationwide monthly savings account are not very competitive.

They should transfer the money in these accounts to the Nationwide Invest Direct account, which is paying 5.9 per cent gross (or they could consider Prudential's egg savings account, with a gross interest rate of 7.25 per cent, currently the best rate available, provided they are happy to put up with egg's administration problems).

As for the Tessas, Edmund's is with the Bradford & Bingley and I think that he should leave it there. Judith might want to consider moving her Halifax Tessa to get a better rate, as long as there are no penalties involved.

Investments: I would advise Judith to keep her low-cost endowment as it has been going for nine years. It suits her cautious attitude to risk and it would be inadvisable to surrender it, as it won't have made much, if any, profit. There could also be penalties on surrender.

Edmund should keep his shares, and I see little point in putting them into a PEP. It is a small shareholding and unlikely to give rise to a capital gains tax problem. And the income from PEPs will no longer be as tax-efficient, due to the reduction in tax credits on dividends. The cost of the PEP may outweigh the advantages here.

Protection: Further, Edmund and Judith see protection as a low priority. Both of their employers provide good levels of sickness benefit, so there is very little need for permanent health insurance (PHI) - especially for Judith. Their employers' schemes also have in-built death benefits which, together with the term assurance covering their mortgage, are more than adequate for their needs.

I would, however, suggest that they take out a critical illness plan, as extra protection for their home loan. This type of insurance pays out a lump sum in the event of contracting certain serious illnesses, and would give them some peace of mind if the unthinkable were to happen. A suitable plan, covering both lives for a sum assured of pounds 100,000, costs pounds 35 to pounds 40 a month.

Pensions: Edmund and Judith have said that their main concern is pensions. Edmund works on a contract basis and is less certain than Judith of his future career path. His aim is to retire at 65 on the maximum pension. This would mean that if he stayed with the Universities Superannuation Scheme (USS) he would have a shortfall in his target pension, equivalent to pounds 4,210 a year in today's terms. He can make up this shortfall by: buying "added years" within the scheme, making additional voluntary contributions to his employer's AVC scheme, or taking out a free standing AVC scheme.

Each one has its pros and cons. However, on balance an AVC scheme would probably be preferable to added years. Though a close run thing, on balance an AVC would suit Edmund's attitude to investment better in a favourable climate. The analysis I carried out showed that Edmund would have to pay pounds 77 per month, before tax relief, to achieve his objective.

Judith has been in the NHS Pensions Scheme since 1986. She originally joined the scheme in 1983, but was offered the opportunity by her employer to opt out after three years' service and take a return of contributions, which she decided to do. Though she later opted back in, it is a decision she now regrets.

She is anxious to make up the loss. Added to this, she would like to retire at the age of 55. Fortunately, as she was a member of her scheme before 1995, this is her scheme retirement age. It means that if she continues in service until the age of 55 she will have 34 years' service, and, because it is also her "normal retirement age", she can fund for the maximum pension (which is based on 40 years' service). Judith, like Edmund, has the same top up choices. After completing an analysis, I suggest that Judith buy added years. This will provide her with an inflation-proofed pension and is compatible with her very cautious attitude to risk.

My calculations show that Judith should be able to fund the additional cost of her pension using her spare cash. But she should write to the NHS Pensions Agency, giving her national insurance number, to get a breakdown of the cost.

Suggested Topics
News
people
News
people And here is why...
News
peopleStella McCartney apologises over controversial Instagram picture
Life and Style
Laid bare: the Good2Go app ensures people have a chance to make their intentions clear about having sex
techCould Good2Go end disputes about sexual consent - without being a passion-killer?
PROMOTED VIDEO
Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
News
i100
Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
people
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsWelsh town changes its name, but can you spot the difference?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Kristen Scott Thomas in Electra at the Old Vic
theatreReview: Kristin Scott Thomas is magnificent in a five-star performance of ‘Electra’
News
Destructive discourse: Jewish boys look at anti-Semitic graffiti sprayed on to the walls of the synagogue in March 2006, near Tel Aviv
peopleAt the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Life and Style
Couples who boast about their relationship have been condemned as the most annoying Facebook users
tech
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
News
i100
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.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Time to stop running: At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity

Time to stop running

At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence