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Jane Clarke
Age 51
Lives in Leicester
Occupation University lecturer
Earns ?29,000
Mortgage ?50,000
Debts None
Investments Tessa, Cash Isas
Pension Member of occupational scheme
Aims Pay off mortgage, top up pension to ensure
enough income for travel in retirement, provide financial help for children if
necessary
Jane Clarke is in her early fifties and until recently had never thought much about money or planning the future. Now she wants to sort herself out so she can retire at 60 and fulfil her ambition to travel.
'I don't want to travel in great luxury, but I do want to travel widely,' she says. Places she would like to see include South America, India and the Far East. 'I want to be young enough, and fit enough - and have enough money to enjoy myself.'
Until then she will go on working full-time as a university lecturer. Although she is fortunate to be a member of a public-sector final salary pension scheme, she is concerned about how much she will get. She has been contributing only since she went back into full-time work at 37, after bringing up her three children.
To top up her pension, she has been make additional voluntary contributions (AVCs) with the Prudential for four years. Last year she upped her contributions to the maximum ,so she is now paying 15 per cent of her salary into her pension.
But she is still plagued by doubts: 'Will I have enough for my retirement? Should I be buying added years instead of making AVCs?'.
She won't be sharing her ex-husband's pension. Theirs was a clean-break divorce two years ago.
Jane is concerned about her mortgage, too. After she divorced, she bought a property - 'smaller than a family home but big enough for friends and family to come to stay'. To cover the cost she took a flexible mortgage with Standard Life which is due to run until she is 65, though she aims to try to repay it by the time she is 60. However, so far, despite good intentions, she has not yet managed to pay any extra.
She is now wondering, as she has enough room, whether it would be a good idea to take in a lodger and use the money to pay off her mortgage, or to save more for retirement. Indeed, she feels she could start saving another £100 a month right away if she tried hard.
On the ordinary savings front, she has £1,000 in a Barclays Tessa, which she fears may be earning a low rate of interest, plus £3,000 each in two cash Individual Savings Accounts, which she opened this year and in 1999 with Barclays and Alliance & Leicester.
Part of this is money her husband gave to her when they divorced. She sees this as a combination of safety net, cash towards a new car and 'rainy day' money.
Her three children are now in their twenties, and the youngest will be finishing university this year. Thereafter, she feels she will be in a better position to save, although she would still like to help her children out financially if necessary.
More pension, less of a mortgage, more holidays, money for children. 'Am I asking too much?' she says.
Adviser 1: Gordon Wilson
Jane has taken effective action in a number of
areas. However, her mortgage is due to be repaid
five years after she retires. I strongly advise
repaying it before she turns 60.
Any spare funds should be used to reduce the
balance. Money from a lodger could help greatly
and is tax-efficient, as the income is likely to
qualify for rent-a-room relief. Jane could make up
to ?4,250 tax free.
The money she has in cash Isas would be better
used to reduce her mortgage: the interest rates
are less than she is paying on her loan.
Jane should provide an expenditure analysis to
help establish the level of income she will need
in retirement. Any additional pension planning
could then aim at this level. If surplus savings
remain she could consider more liquid
investments, such as equity Isas.
On the current figures, at 60, Jane will probably
have the equivalent of 23 years in the Teachers'
Superannuation Scheme. On a salary of ?29,000,
this equates to a pension of ?8,337 a year and a
lump sum of ?25,000. Her state pension will be
added to this, and Jane should fill in Benefits
Agency form BR19 for a forecast.
AVCs are an inflexible form of savings with, at
best, modest tax advantages. The option of added
years is likely to look expensive, but Jane should
request a quote from her employer.
Gordon Wilson works for financial adviser
Thomson and Shepherd.
Adviser 2: Sharon Linnard
Jane's priorities should be to repay her mortgage
by the time she is 60 and ensure she has sufficient
income for retirement.
Her mortgage allows additional repayments to be
made without redemption penalties. She should
ask what extra monthly repayment is needed to
pay it off five years early. The money for this
could be taken from the additional savings she
wishes to make now and when her children finish
university.
Her excellent occupational pension scheme
guarantees her a good income based on years of
service and her pay immediately prior to
retirement.
She is already endeavouring to enhance her
pension by making AVCs with Prudential.
However, it would be appropriate for her to
request the additional years that could be
purchased by transferring from Prudential and
maintaining her current contribution. Added years
do not come cheap, but would give her a further
lump sum and extra income.
She could switch her Barclays Tessa to one
paying more interest.
She could take in a lodger and put the money
towards her retirement. Further Isas could be
established, but it would be advisable for Jane to
look at equity Isas, which offer greater
opportunity for capital growth, provided she
understands the potential volatility associated
with this type of investment.
Sharon Linnard works for chartered accountant
KPMG.
Advice is for guidance only.
• Do you want to appear in Wealthcheck? Write,
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