Nursing my finances back to health

Jenny Warner
Age: 40
Lives in: South London
Occupation: Nurse
Earns: ?13,000
Mortgage: ?67,000
Debts: None
Investments: Isas, investment trust savings plan, instant access account
Pension: Occupational pension plus AVCs
Aims: To maximise the money she has available, boost her pension and provide some financial security for her children

Both Jenny Warner and her partner Dominic had rural childhoods. Hers was in 'deepest Northamptonshire'. His was in Ireland. They would like their two daughters, Bronte, aged three, and Maille, aged 20 months, to have a similar upbringing. So they have decided to sell their house in London and move to the south coast.

'We thought we had better make our escape now before Bronte started school,' explains Jenny.

They are looking for a property around Southampton or Southsea where they will be able to get more for their money than in London. Dominic has found a job in the area and his new employer is paying the relocation costs.

They would like to remortgage at the same time but are locked in with their current lender by a hefty redemption penalty. Nevertheless their lender, Alliance & Leicester, has agreed to them switching to a flexible mortgage without penalty, and Jenny hopes they will eventually be able to start paying off chunks of their loan early.

Their current repayment method is an Allied Dunbar endowment but they have been told it will probably not pay off the loan in full. She wonders how best to proceed with the endowment.

The one downside of their move is that Jenny will have to give up her well-paid part-time nursing job organising organ transplants. Although she does not envisage having too many problems finding a new job, she doubts she will earn as much and it may take several months to organise. During the intervening period, they expect to have to dip into their ?8,000 savings, in a Northern Rock instant access account.

Another consequence will be a further gap in her pension contributions. Her pension is one of her prime concerns - and regrets. She admits: 'I rather naively opted out of the NHS pension scheme in my earlier twenties. I didn't see any harm at the time as I was intending to go abroad to work.' She rejoined about seven years ago and converted the private pension she had begun into a free-standing AVC scheme. However, the arrival of children meant her pension contributions went down again when she started working part-time.

Still, she and Dominic have invested about ?18,000 in Isas linked to funds such as Norwich Union European, Henderson Global Technology and Fidelity's UK Aggressive.

They are contributing a further ?100 a month to a Gartmore Isa and Jenny has started an investment trust savings plan for ?20 a month with Edinburgh Fund Managers. These investments are mainly intended for the future financial security of the children. She realises she has chosen high-risk funds but feels that over the next 15 years they will come good.

Although she is concerned about her children's financial security, she admits she is unsure how much life cover she and Dominic have apart from the cover Dominic gets with his pension scheme.

Adviser 1:Sharon Linnard

The penalty-free switch to Alliance & Leicester's flexible mortgage is useful for the short term, but it would be worth checking alternative offers when penalties cease to apply.

Early surrender of endowments offers poor value, and there is no second-hand market for unit-linked contracts, such as that with Allied Dunbar.

It may be worth simply discontinuing premiums and accepting a lower policy value with the mortgage split, part endowment/part repayment. Penalties on surrender or premium cessation need to be explored.

Turning to Jenny's pension concerns, the new stakeholder pension rules mean that she could continue contributing up to ?300 a month gross to a pension while she is between jobs. When she starts work again, a stakeholder pension can be maintained alongside any occupational scheme, providing she does not earn over ?30,000 a year.

As Jenny says, their Isa savings are in relatively high-risk funds. The recovery of technology funds could take a considerable time but, in the event of a partial recovery, perhaps at least a proportion of the holding could be switched to a different sector.

For peace of mind, the couple should consider taking out a term assurance policy: it may be possible to purchase death cover of ?100,000 each over a 15-year term for no more than ?23 a month.

Sharon Linnard works for chartered accountants KPMG.

Adviser 2: Dan Kemp

It is important that Jenny look at whether she is making the best use of her additional pension contributions. One option open to members of the NHS pension scheme is to buy added years of service. A new option is the advent of stakeholder pensions. The charges on these schemes are likely to be lower than on Jenny's FSAVC policy.

Regarding the endowment, Jenny should not be panicked into making a decision too quickly. Most old endowments make the majority of their charges in the first few years. You only really get full value if you continue investing until maturity. As Jenny has other savings, it is likely that these will be more than sufficient to cover any shortfall.

This touches on a key issue: I would want to encourage Jenny to be more selfish with her savings. At present these are mostly focused toward providing financial security for her children. However, the money she has invested in Isas could make a huge difference to her retirement and that should be her priority, with the surplus going to her children.

Jenny has clearly taken an adventurous approach to her investment, which has not done her any favours over the past year; however it should prove successful over the long term. My only concern is the lack of balance. It is important to include both higher- and lower-risk funds in any portfolio.

Dan Kemp works for financial advisers Holden Meehan.

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