Emergency call for a financial rethink

Helen and Hugh Mulholland
Ages: 36 and 38
Live in: Kent
Occupations: Police officer and fireman
Earn: ?17,000 and ?21,500
Mortgage:?70,000
Debts: Overdraft and credit card
Investments: Endowments, friendly society plans, unit
trust savings plans and cash Isas
Pensions: Members of occupational schemes
Aims: To reshape their finances and save more

As members of the emergency services, Helen and Hugh Mulholland know all about timewasting calls made by the public. But they are wasting no time themselves in getting their finances in order.

Helen, who joined the police after taking a politics degree, works in calls handling and takes some 999 calls. She says: 'Only around one call in 10 is a genuine emergency.' Hugh's experience as a firefighter is similar.

The couple have three children - Joseph, aged eight, five-year-old Hugh and Esther, who is nearly one. Helen recently returned to work after maternity leave following Esther's birth. This included nine months' unpaid leave, and Helen says this set them back financially.

As well as running up a £1,500 overdraft, they have recently broken the habit of a lifetime and signed up for a credit card on which they now owe £1,500. But there was a good reason for taking on the card, which has a zero per cent rate for the first six months. Helen explains: 'We are going to visit my sister in South Africa in March. She has given us Air Miles to cover my fare, but we had to pay for the rest of the family and decided this was the best way of financing it.'

Now she is back working part-time, Helen is confident she and Hugh will be able to clear their overdraft fairly quickly and pay off the credit card before the interest-free period ends. She thinks now would be a good time to review the family finances and build up some emergency savings again.

She feels they could cut their mortgage costs. Their Cheltenham & Gloucester loan has a five-year fixed rate of 7.19 per cent. This applies until July, when they are tied for another year before redemption penalties cease.

Both have 25-year endowments with the Police Mutual Assurance Society (PMAS) and they and the children also have 10-year PMAS friendly society plans. In addition Helen and Hugh save £50 a month jointly in a unit trust plan. Each has a cash Isa but the balances in these have shrunk to a few pounds because of Helen's maternity leave. The children's savings include money in unit and investment trusts, and small amounts in building society accounts.

Helen and Hugh belong to occupational pension schemes, which provide some life cover. They also have life assurance for their mortgage, family income benefit and Helen has private medical insurance.

Adviser 1: Gordon Wilson

Helen and Hugh's affairs are in good order, as
they have sought independent financial advice in
the past. They have kept a close eye on
managing debt. Their mortgage fix looks
expensive now, but would have been a good
choice five years ago. The next step is to shop
around again with a view to remortgaging. If
rates remain low, fixing will be attractive.
However, borrowing on credit cards and
overdrafts can be expensive, so they should first
clear those balances.

Their pension benefits look strong. If additional
pension income is needed, they could consider
contributing to stakeholder pensions. Both
pension schemes provide good widow's and
dependants' pensions and further life assurance
has been added. They probably have adequate
life cover but should explore critical illness cover.

It is good to have invested in regular savings
plans, but I would not invest too much with any
single company and would restrict the amount
invested in inflexible long-term contracts such as
those with PMAS.

Their choice of unit trusts is interesting. The funds
chosen with both Artemis and ABN Amro are
more volatile than most. I would instead choose a
broad-based international fund with greater
diversification. If they are interested in unit and
investment trusts they would be advised to use
their mini equity Isa allowances of up to ?3,000 a
year each.

Once they have cleared their debt, they should
aim to build up reserve funds of ?10,000 to
?20,000, split equally between mini cash Isas and
a more generalist unit trust. Fidelity International
may be a good core holding.

Gordon Wilson works for financial adviser
Thomson & Shepherd.

Adviser 2: Gillian Cardy

Helen and Hugh should set out their plans and
objectives to get a clearer idea about whether
they are doing the right thing. But first they should
build up a cash reserve of, ideally, three to six
months' outgoings, using their cash Isas.

They should also consider how much income they
are likely to get from their pension schemes and
how this ties in with their requirements. If there is
a shortfall, I would look at added years. This will
enable them to link their additional pension
provision to their increasing salaries, providing
tax-free cash and an index-linked pension which
would be expensive to provide in any other way.
This will also enable Helen to make up for her
unpaid maternity leave.

With regard to the mortgage, they may like to
reset their payments with a low fixed rate. Or they
could shorten the repayment term by increasing
their monthly payments so some of their 'savings'
are used to repay the mortgage. They could do
this with a flexible mortgage. They may find an
offset mortgage, such as that offered by Intelligent
Finance, to be worthwhile, using their increasing
cash savings and Isas to offset against their
borrowing and further reducing the mortgage
term.

Term assurance policies should be reviewed
continually to see if the same cover is now
available more cheaply elsewhere and there may
also be a case for looking at critical illness cover
for each of them. Regarding longer term savings,
I would recommend they place less emphasis on
endowment and friendly society savings plans,
which tend to be inflexible and are not always
good value.

Gillian Cardy works for financial adviser
Professional Partnerships.

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