Having contributed to three different company pension schemes in the last 10 years, she is unsure just how much retirement provision she has built up, and whether she should transfer assets from her old pension to her current employer's scheme. She also wants to replenish her savings, and is looking for advice on putting money aside regularly.
Philippa Gee, of the independent financial advisers Gee & Co in Shrewsbury (01743 236982) advises:
"Frances has pounds 2,000 in a NatWest Premium Reserve Account. This offers unattractive interest of 3.15 per cent a year at present. Why not switch to the Nationwide, which currently offers 6.4 per cent gross a year?
"She holds no other investments, and wants to start a more structured savings programme. I would advise starting off by building up cash deposits with the pounds 300 which she identified as being `spare' each month. This should be diverted into the savings account. Setting up a standing order, to carry out the transfer automatically, will encourage her to maintain this approach - but can, of course, be cancelled at any time. After a year Frances will have built up a more reasonable sum of pounds 5,600 plus interest, which should provide three months' net income, therefore establishing a safety net, should her situation change.
"With interest rates still low, she should then look to start other investments, set over the medium term of five years. This could well coincide with a job change, when she may need a temporary "cushion". So, she should aim to keep the pounds 5,600 in cash deposits, and use pounds 150 per month of her spare pounds 300 to continue to top this up. She can use the rest to top up her company pension (see below). She should earmark pounds 50 per month to pay into a personal equity plan (a tax-free way of investing in a share fund). For this, she might consider Gartmore's UK Index Tracker, for lower charges and to reflect a fairly cautious attitude to risk.
"With the remaining pounds 100 per month, Frances should start paying into a TESSA (tax-exempt special savings account). This gives her tax-free interest as long as she keeps the money in the account for five years. In an emergency she can access it, but would have to pay tax on some of the interest. Bradford & Bingley offers TESSAs with a competitive variable rate of interest, currently 7 per cent. An opening balance of pounds 500 is needed.
"As to her mortgage, Frances is in a really good position, as her employer protects her against any interest rate above 5 per cent.
"Now to her pension. When Frances worked for NatWest she transferred her preserved pension with Sainsbury's, a previous employer, into NatWest's scheme. When she subsequently left NatWest she was advised not to transfer these benefits again. The pension was frozen. That advice was probably sound; however, situations change and matters should be reviewed.
"Keeping all pension benefits `under one roof' can have advantages. But each scheme Frances belonged to may have individual benefits that could be lost by transferring them. She should ask the trustees of her NatWest pension scheme for details of benefits held, and what they would equate to at retirement. Then she should ask her current personnel officer what the company would be prepared to give her if she transferred from NatWest, and compare the options.
"To top up her pension, Frances can make Additional Voluntary Contributions (AVCs) up to a maximum of 15 per cent of salary. She would like at least 50 per cent of her working salary in retirement; two-thirds would be ideal, and is the overall maximum she can take from scheme benefits, so she must find out how much her preserved benefits from previous schemes are before considering AVCs. Given her circumstances, Frances has started planning her finances well. By reviewing her affairs now she is putting herself in an excellent position for the future"n
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