I don't want to rely on a man...

Sonya Stevens
Age: 29
Lives: in Hertfordshire
Occupation: Marketing manager
Earns: ?35,000
Mortgage: ?39,000
Debts: None
Investments: About ?2,000 in privatisation shares,
?1,000 in unit trusts, ?4,000 in investment trust,
?8,000 in deposit accounts
Pension: Member of company pension scheme
Aims: To find out whether she is doing the right things
with her money to achieve financial independence and
be able to retire at 50

Sonya regards herself as lucky. She says: 'My Dad gave me lots of good financial advice. Both my sister and I were brought up to understand the value of money and the need to save for our future.'

One result of this was that when she graduated in 1995, her overdraft was only £80. She had taken out two student loans but had put them in the bank. She used them a couple of years later for the deposit on her flat, unlike her fellow students who, she says, spent their loans on 'CDs, clothes and drink'.

Unable to fulfil her childhood dream of becoming a professional dancer following a foot injury, she took a degree in media studies. She subsequently 'fell into' a career in marketing in the telecoms and IT industry, first with BT and then with a start-up IT consultancy. She was unemployed for several months after being made redundant in 2001 but then moved into her present job as marketing manager for a law firm.

She is single and very much wants to remain financially independent in the future. She says: 'I do not want to have to rely on a man to look after me.'

She has set her sights on retiring early, or at least working part-time from age 50, and wants to know if she is doing the best she can to achieve that. She asks: 'How much should I realistically save if I want to retire early?'

She is a member of a non-contributory pension scheme, to which her employer contributes around 6 per cent of her salary. She has also acquired various bits of pensions from previous jobs. At her last company there was a Scottish Amicable scheme to which her employer contributed 5 per cent and she contributed 2 per cent. She was also a member of a pension scheme at BT.

At present, she is making no pension contributions of her own and thinks of the £100 a month she puts into a Foreign & Colonial investment trust savings scheme as her retirement savings. That holding is currently worth around £4,000. But she is worried whether she will have the willpower to leave it untouched until retirement, and whether she is saving enough.

She also has about £4,000 in her Post Office deposit account, to which she adds a few hundred pounds each month, and another £4,000 in a Lloyds deposit account. She regards these as her rainy day money. She has around £1,000 in a Framlington fund she inherited and some £2,000 in various privatisation shares which her parents bought for her.

Her flat, which she bought for £52,000 in 1997, is now worth £150,000. She has an endowment mortgage with the Bradford & Bingley on a 5 year discounted basis and has a mortgage protection policy.

Adviser 1: Andrew Jones

Sonya should contact the administrators of her
existing pension schemes and ask for benefit
projections to age 50 and a projection of
contributions needed to allow her to retire at 50.

However, this will involve assumptions, including
her future rate of salary increase, inflation and
interest rates, which means any projection will be
of limited use. A more useful approach is to make
sure she is paying a sensible level of pension
contribution and review this regularly.

She seems to have at least ?300 of surplus income
per month. One option for her 'rainy day' money
would be to transfer ?3,000 to a cash Isa, where
the interest will accrue tax free. She could
transfer another ?3,000 next year. The monthly
contribution to Foreign and Colonial and her
existing fund could also be placed in an Isa.
Another option for saving would be to make
additional pension contributions, either directly to
the fund or via an additional voluntary
contribution scheme. Pension contributions attract
tax relief, and as she just breaks into the higher-
rate income tax threshold, she will benefit from
relief at 40 per cent on some of her contribution
and 22 per cent on the remainder.

The core of her decision will rest on the flexibility
of Isa savings compared with the tax effectiveness
of the additional pension contribution. As she is
relatively young and well paid, and has some
additional savings, I would suggest that the
pension contribution option would be most
appropriate.

Andrew Jones works for the private client division
of Deloitte & Touche.

Adviser 2: Darryl Connor

Sonya should prepare a budget to identify
exactly how much income she would need to
retire on comfortably, and how much she should
therefore put away each month.

Then she needs to review her existing provision.
Her BT pension is a final salary scheme. She
needs to find out if she can take this early, and
how much it will be. She could consider
transferring it into her current pension scheme,
although she should not underestimate the value
of the guaranteed benefits it provides.

The Scottish Amicable scheme is likely to be
'money purchase'. With this type of scheme, it is
important that the investment fund chosen is
regularly monitored to ensure returns are
maximised.

Assuming her current company's scheme is a
group personal pension, she can contribute a
further 11.5 per cent of her earnings. She needs to
consider doing this, as it is only 21 years until she
is 50 and she may draw her pension for longer
than she pays into it.

Sonya should also make sure she is getting the
best out of her other savings. For example, she
could get better returns by using an
internet-based savings account such as Egg,
currently offering 4.6 per cent. Or she could
consider a mini cash Isa.

Individually held shares can be risky, and I would
recommend that Sonya consider transferring her
privatisation shares to a collective fund, which
offers a more diverse investment and reduces
risk.

Darryl Connor works for financial adviser Towry
Law.

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