Firm finances for itchy feet

Tracy Irish and Dom Giles
Ages: 36 and 33
Live in: Stratford-upon-Avon
Occupations: Teachers
Earn: From September ?12,000 and 50,000 Ethiopian Birr (?4,200) each
Mortgage: None
Debts: None
Investments: ?3,000 Pep, ?2,000 Premium Bonds,
?10,000 savings account
Pension: Tracy: paid-up personal pension; Dom: none
Aims: To find out how best to invest capital and monthly allowance while teaching in Ethiopia

Tracy and Dom love to travel. They met a few years ago while travelling in Argentina. Before coming back to the UK last July they spent two years teaching in the British International School in Colombia.

They have since married, and Dom has taken a temporary post teaching history, while Tracy, who normally teaches English and drama, has done an MA in Shakespearean studies.

Now they have itchy feet again and this September they are off to teach in the British International School in Addis Ababa. Around half the pupils will be Ethiopian, the rest from the international community. They expect to stay for four or five years.

Tracy says they are looking forward to travelling around Africa during their stay, but travel is not the only incentive. 'Teaching abroad is much less stressful than here. You don't have the red tape and bureaucracy. So you enjoy your work and your holidays more.'

Ten years ago, before she left for South America, Tracy bought a flat which she let while she was away. This time she decided to sell it so that her mother has less to deal with in their absence. It has now been sold (subject to contract) and after paying off her mortgage she expects to have around £23,000.

She wants advice on how to invest it but expects they will need the money as a deposit on a new property when they return to the UK. A lot of her friends have told her she should have kept the flat. One thing she is keeping, though, is her endowment policy with Standard Life, which has another 15 years to run.

While they are in Ethiopia, Tracy and Dom will each receive a local salary of 4,120 Birr (see box) plus a monthly sterling allowance of £980, to be paid into an account of their choice.

They have little or no pension provision and won't be provided with any in their new jobs. In the past Tracy was a member of the Teachers' superannuation scheme but says she was advised by her bank to leave the scheme in the early Nineties when she told them she was thinking of teaching abroad. They advised her to take out a personal pension instead, though she did not leave the UK for another two years. When she did, she discovered she could not continue contributing to that pension either, so it has remained dormant ever since.

Dom took a cash refund from his pension scheme when he was in his mid-twenties and now has no retirement provision.

They do have some savings, though. Tracy has a £3,000 Pep which she took out through her bank in 1995. She also has £2,000 in Premium Bonds. Dom has around £10,000 in a savings account with the bank.

While they are anxious to start investing wisely, Tracy says they would prefer any investments to be ethical.

Adviser 1: Robert Rackliffe

With regard to their existing investments, the
endowment policy with Standard Life should
prove a good investment and should be
maintained. Tracy's Pep should also be
maintained but she should review the underlying
investment and if it has been poor consider a
transfer.

I doubt whether Premium Bonds are the best
place for Tracy's cash. The estimated return is
only around 3 per cent at present; a mini-cash Isa
would produce more interest. Tracy and Dom
could invest up to ?3,000 each before they leave
the UK.

Depending on their precise attitude to risk, I
would recommend that Tracy and Dom invest the
majority of their capital - say ?25,000 - in a good
with-profits fund. Given their preference for
ethical investments, an obvious choice would be
the NPI's Socially Responsible With Profits Fund
which adopts the same investment strategy as
NPI's award-winning Global Care Fund. They
could also allocate some of the money for a
further Isa investment this tax year before they go
abroad.

Their monthly sterling allowances could be
invested in a portfolio of ethical unit trust savings
plans, perhaps Jupiter Ecology, NPI Global Care
Growth, Norwich Union Sustainable UK Growth
and Scottish Widows Environmental Investor.
Such investments should be viewed as medium-
to long-term savings, ideally five years-plus.

Robert Rackliffe is managing director of expat
financial advisers Jackson Batten.

Adviser 2: Tony Shah

The sale of Tracy's property seems to be well
timed, with the market at a high. It would be best
to invest the cash offshore, as they will be
non-resident. A low-risk investment is probably
advisable as the proceeds will be required in four
or five years. Investing in stock markets could
provide a better return, but at a risk.

One option would be an offshore gross deposit
account with a bank or building society, but
interest rates on these accounts are relatively
low. They could consider an offshore with-profits
fund, providing they can take a five-year view.
These funds give some exposure to the stock
market, and annual bonuses are used to smooth
out returns. But even these cautious funds are not
guaranteed (as Equitable Life demonstrated). It is
important that they maintain the premiums on the
endowment, as this could be used to help fund
future house purchase.

Pensions are a key issue. Tracy and Dom should
look at tax-efficient stakeholder pensions. They
will be able to invest ?3,600 a year each into
these pensions for up to five years while abroad
and still get tax relief on contributions.

It is disturbing that Tracy was advised to leave the
Teachers' scheme. She should contact the
company that recommended this - she may be
well be entitled to compensation if her policy was
mis-sold to her.

Tony Shah is international director of financial
adviser Towry Law

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