NO jobs are for life nowadays, Jacqui Doody believes. She speaks from experience. Both she and her husband, Pierce, have already been through a number of career changes.
Even now they are not quite where they want to be, and their varied career paths have left them with fairly depleted finances and little or no pension provision.
Pierce, 42, first joined the Army and then tried his hand at a number of jobs before settling down in the car industry. However, he felt that this did not provide enough security to support a family, so three years ago he decided to become a plumber. He now works as a trainee plumber for his local council and will complete his training next year.
Jacqui, 39, started out in the hotel industry but later changed to nursing, specialising in intensive care. She had only just finished her training when the couple’s first son, Kieran, now 5, was born. Since then they have had a second son, Eoin, 3, who is at nursery.
Jacqui now works part time at a private hospital. “When Eoin has been at school for a year I will go back to full-time work and I hope to become a health visitor,” she says.
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Once Jacqui is working full time and Pierce has finished his training, they expect their income to rise significantly. In the meantime they are managing on joint earnings of about £19,000 a year plus child benefit. They also receive tax credits of £160 a month.
Their biggest monthly outgoing is mortgage payments of £480. They hope to clear the £67,000 loan on their house near Leicester, which is worth £175,000, within 12 years. They also pay premiums of £53 a month for a critical illness and life insurance policy to cover their mortgage and provide a further £35,000 of life cover. “I’d like to know whether we have enough insurance,” Jacqui says.
Their total monthly outgoings, including all household expenses, amount to about £1,500. Jacqui has worked out that this leaves them with a surplus of little more than £300 a month.
Until now most of their spare cash has been used to make mortgage overpayments to reduce the 12-year loan. Their deal is a stepped base-rate tracker with Abbey that ends in July 2007. Jacqui says: “We very much want to pay off our mortgage as soon as we can, within ten years if possible, so we can concentrate on saving for retirement and saving towards university costs for the boys.”
Pension planning is a high priority. Pierce is a member of the local government pension scheme but he has no previous pension benefits. When he left the Army he took a lump sum in lieu of pension benefits which, Jacqui says, was “squandered in his wild youth”.
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Jacqui has no pension plans at all. Her jobs in the hotel industry did not come with pension schemes and she did not join the NHS scheme when she completed her training because she knew she was about to start a family.
They have no savings at the moment, but they have made a start. Jacqui recently opened two regular savings accounts with Halifax for their sons into which she puts £15 a month towards future university fees. But she would like to do more for the boys as well as starting to plan seriously for her own retirement.
She says she is open to suggestions about the best way to save and would be happy to invest in shares if they are likely to bring the best rewards. “I realise that you have to speculate to accumulate,” she says. Alternatively, she wonders if a buy-to-let investment would be a better idea, although she recognises that now may not be the best time for them to take the plunge.
Longer term, Jacqui is considering whether she might make more money by becoming self-employed, perhaps by offering complementary therapies. But that is on the back burner for now.
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What the experts say
SAVINGS/INVESTMENT
Mark Dampier, head of research, Hargreaves Lansdown
“I think Jacqui and Pierce are right to try to reduce their mortgage as quickly as possible. However, I do think it is important to have some money put by for emergencies first. They should start by using their cash mini-Isa allowances each year. The aim should be to have a buffer of cash equal to between three and six months’ net salary.
“For longer-term investment, consider a unit or investment trust. Saving monthly helps to iron out fluctuations in the stock market, so don’t be put off if the stock market falls in the first few years. In fact, this is an ideal situation because it allows you to buy shares at a cheaper price while the markets are low.
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“A good start would probably be a UK income and growth fund such as Invesco Perpetual Income or Jupiter Income. A broader spread could be obtained from an international investment trust such as F&C or a fund of funds unit trust such as Jupiter Merlin Worldwide.
“My advice in terms of saving for children is much the same. Groups such as Franklin Templeton offer quarterly subscriptions to investment trust savings plans. I have chosen to invest in Franklin Templeton’s emerging markets fund. Given that saving for children is usually over a long period of up to 18 years, an investment trust is likely to be more rewarding than a cash account. However, the choice does depend on your attitude to risk. Saving in the children’s names has tax advantages, but many parents prefer to save in their own names so that they retain control of the money.
“I would caution against a buy-to-let investment because this would entail taking on more debt. Also, property is highly illiquid, which means you may not be able to sell at the right time for you. It can also be expensive to maintain.”
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PENSIONS
Joanne Cox, adviser, Co-operative Bank Financial Advisers
“The timing is perfect for Jacqui and Pierce to start to focus on pension provision. Changes in legislation, which take effect on April 6, known as A-Day, mean that pension plans become a great deal more flexible.
“They have a lot of ground to make up, so should really start putting away as much as they can afford. The earlier you start to save, the longer your money has to grow. If they could at least split their spare cash between extra mortgage payments and retirement savings that would be a start. A good tool to work out how much to save to achieve your desired retirement income is the Financial Services Authority’s pension calculator at www.pensioncalculator.org.uk.
“They should first ensure that they are making the most of employers’ pension schemes available to them. If they want to add more money, they should consider options such as additional voluntary contributions, stakeholder plans and buying added years of service.
“After A-Day the increased contribution limit (100 per cent of your annual earnings up to £215,000) will mean more scope to make larger one-off contributions that attract tax relief in the same way as regular premiums.
“For example, funds earmarked for pension provision could be saved in Isas until you are sure that the money will not be required for another purpose and then paid into a pension as a lump sum once a year.”
MORTGAGES
David Hollingworth, head of communications, London & Country Mortgages
“Jacqui and Pierce’s mortgage deal with Abbey is quite good so there is no reason for them to switch, particularly as there are likely to be early repayment charges. However, I would urge them to check the structure of their mortgage because the payments do not look large enough to clear the debt within 12 years. This may be because the term is longer than they think or perhaps they are paying only interest on part of the loan.
“Overpaying makes sense because it generally equates to a better return than a savings account.”
PROTECTION
Kevin Carr, senior technical manager, LifeSearch
“It is possible that they are paying more than they need for life and critical illness cover. I suggest that they shop around. For example, Scottish Equitable would provide their level of cover for £37 a month, but they are paying £53. They should also check whether their premiums are fixed or reviewable because reviewable premiums are likely to become more expensive over time.
“Their existing cover is not sufficient to replace a lost income. They should consider a family income benefit policy and income protection in case one of them is ever too ill to work. They should also look at their employer benefits.”
Jacqui’s response
“The information provides a good framework to move forward with our financial planning. We will continue our mortgage overpayments but will also set up a fund for emergencies. I will also continue with a small savings plan for the children because it makes me feel better. As for other savings, my priority will be to open cash mini-Isas and then look at unit trusts.
“The advice on pensions was most helpful because it highlighted the impending changes in April. When our incomes increase we will both contribute to our employers’ schemes and make additional payments into the pot.
“I will have a look at the structure of the mortgage as advised and also consider an income protection policy.
“I have found this advice so helpful I am circulating it to friends in similar positions so that they may benefit.”
For more Money makeovers visit www.timesonline.co.uk/money-makeover