Wealth Check: Working mum wants to have a secure future

With no investments or savings, Sara is concerned about financial security now she has a child. She is worried she's not contributing enough to her pension fund; a money purchase scheme worth £110,000. She would favour ethical investments. We asked Marlene Shalton, at Chambers Morgan James, Alec Ruthven, at AM Ruthven & Associates, and Lisanne Mealing, at MDM Associates, for a professional opinion on Sara's circumstances.

Case notes

Sara Buchanan, 31, charity worker and new mum.

Personal: Currently on maternity leave. Due to return to work three days a week in December.

Income: £26,300 pa

Mortgage: Home worth £235,000. Capital and interest repayment mortgage, variable rate, with Alliance and Leicester. Switched last year from original mortgage taken out in 2002 with Halifax. 25-year term at 4.39 per cent.

Pension: Money purchase scheme currently worth £110,000. Would like to retire at 55.

Monthly expenditure: Living expenses £800; pension £80.

Credit card: Smile at 9.9 per cent

SAVINGS

For long-term investing, Marlene Shalton recommends Sara use a mini equity Isa where she can invest up to £4,000 per year. She can do this with an ethical profile. Sara should log on to the Ethical Investment Research Service (EIRIS) at www.eiris.co.uk.

This provides research into corporate behaviour, helps charities and other investors identify the approach appropriate to their requirements, and publishes guides which recommend various funds with ethical criteria. She can also find an adviser who specialises in ethical investments. Alec Ruthven adds that Sara would benefit from the security of an emergency fund in place to cover the cost of unforeseen expenses. A recommended minimum is between three and six months' essential monthly expenditure.

Because Sara has a Smile credit card, Lisanne Mealing suggests she use Smile for all her banking. It would be easy to add an online cash Isa to her accounts and she will receive interest gross at 4.65 per cent, with no further tax to pay. She can easily switch funds from her current account at the end of every month as a sweep-up exercise. This way she will quickly build up a lump sum which could be used to invest in a maxi Isa where she will have access to stock market funds and the potential for greater growth.

CHILD SUPPORT

Shalton says Sara would have received the Child Trust Fund of £250 for Noah. She should think carefully about investing this if she hasn't already done so. Given that the money will be invested until Noah is 18, she should consider equity-based investments at least for the first 10 to 12 years to gain the optimum growth. She will be receiving child benefit of £73.66 a month and that may enable her to put some of her owns funds into a stakeholder pension while making sure she keeps saving the child benefit rather than spending it.

As Sara's objectives seem to be for her own personal savings and ultimate retirement, grandparents should be encouraged to contribute to the Child Trust Fund.

Ruthven suggests that Sara approach the Inland Revenue to see if she qualifies for any help with childcare costs as she will be working more than 16 hours a week.

PENSION

Sara will continue to build up benefits within her pension fund at her pre-maternity full salary level, says Mealing. Having looked at a projected value at age 60, it would appear that Sara's fund of £110,000, plus continued contributions from both her and her employer, will mean she should retire on a pension of about two-thirds of her final salary.

With Sara earning less than £30,000 a year and contributing to her employer's scheme, Shalton advises her to contribute up to £3,600 per annum gross through a stakeholder pension plan. With basic-rate tax relief at 22 per cent, she only pays the equivalent of £234 per month.

As Sara wishes to retire at 55 and her company pension has a normal retirement date of 60, she will need to make extra provision to bridge the gap, warns Ruthven.

It might be possible to take early retirement from the scheme, but the pension available would be reduced accordingly, so it is probably better to make separate provision if possible.

MORTGAGE

Ruthven stresses how important it is for Sara to keep her interest rate under review. Once her current deal with Alliance and Leicester ends, it may be worth looking at the option of staying with it and switching to a low-interest tracker mortgage for the rest of the term, as she will then pay a "fair" interest rate and save money on the costs associated with switching from lender to lender. The lower the balance of the mortgage, the less viable it becomes to keep switching.

INCOME PROTECTION

Ruthven thinks some Life Assurance, preferably including critical illness cover, should be considered, to protect the family before the mortgage is repaid. Additional cover should also be considered to cover the costs of bringing up a child as a single parent.

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk