When do you know that you are a foodie? Perhaps when you start buying organic
chicken for the cat?
Mark and Barbara Richards, of Nottingham, spend about £500 a month on food,
despite owning an allotment, where they grow all their own organic fruit and
vegetables. They shun value ranges and instead opt for luxury brands in the
super-market aisles. Mark, 50, estimates that they spend about £50 a month
on wines and spirits. When Kimba the cat is not munching on organic chicken
from the butcher, she is enjoying up-market “gourmet” cat food.
Barbara, 56, says: “I guess we are foodies. We only buy organic meat and
invite friends round for dinner. Mark loves cooking.”
When not playing chef, Mark is a local government officer, while Barbara is a
self-employed alternative health practitioner. The couple have a joint
income of £44,000 a year, but this is about to go up as Mark is starting a
new job that will pay an extra £15,000 a year. This will bring in an extra
£500 a month, which they plan to save for retirement and holidays. They
currently have nothing left over at the end of the month for either.
Barbara’s income is erratic. The number of patients she has is variable
because of cancellations or no-shows. She earns £30 an hour but does not
charge a cancellation fee. Her outgoings include paying for herbal
supplements, equipment, professional training at £800 a year and rooms in
local clinics, which cost a maximum of a quarter of her hourly earnings. She
works 16 hours a week and would like to earn more, but she is keen to
maintain a good work-life balance.
The couple live in a three-bedroom cottage in a Nottinghamshire village. Two
years ago the house was valued at £250,000, but Barbara says: “Prices in
Nottingham have slipped since then, so it may be worth less now.”
They have £110,000 to pay on their Woolwich lifetime tracker mortgage, at 0.19
percentage points above base rate. The monthly repayments are £749, but Mark
is considering switching because there are no early repayment charges.
Mark has savings of £10,000 from a recent inheritance and wants to know
whether he should use it to pay off debts. He has a £10,000 Abbey loan over
eight years at £102 a month. He also has a credit-card balance of £4,000 but
switches between 0 per cent transfer deals. Barbara has a £4,000 loan from
Lloyds TSB at 5.9 per cent, which she used to market her business, Options
for Health. She has £1,500 in a Lloyds TSB savings account.
Mark has been paying into the Local Government Pension Scheme for 30 years.
This should give him a lump sum of £40,000 when he is 64, as well as income.
His next employer will offer him a stakeholder pension and will match a
contribution of 4 per cent of Mark’s salary.
Barbara has no private pension and could miss out on a full state pension
because a former employer failed to keep her national insurance
contributions up to date. She expects an income of £97 a week when she
retires but hopes to top this up over the next five years. She would like to
know if she should be paying in more to the state pension or be putting
extra cash in a private scheme.
Financial CV
Earnings: joint income of £44,000.
Mortgage: £110,000 on lifetime tracker at 0.19 percentage points above
base rate.
Savings: £10,000 inheritance.
Pension: Mark is a member of the Local Government Pension Scheme and
will receive £44,000 plus income at 64.
Objectives: Decide whether to invest their savings or use the money to
pay off debts.
The Richards: what the experts say
BUDGETING & SAVINGS
Philippa Gee, Torquil Clark
“It is no issue what Barbara and Mark choose to spend their money on, but it
becomes more of a problem if not saving now means that they won’t be able to
keep the same standard of living when they retire. Therefore, I would
suggest they undertake some moderate cost-cutting.
“Reducing their food and drinks bill by £25 a week would give them an
additional £100 to save each month. Maintaining savings for ten years into
an account paying 5 per cent would produce a lump sum of £31,696. Increasing
this by another £15 a week would lift the figure to £41,205. Scarborough
Building Society currently pays 6.8 per cent for regular savings.
“Some of their pension savings should go into a pension in Barbara’s name to
make use of her personal allowance.
“Barbara can generate a better return from her work. A cancellation fee is
important. She could also cut costs and increase charges and so reduce her
hours while still attracting returns. The average charge in Barbara’s region
is £20 per half-hour.
“I would urge the couple to use their savings to pay off debts, starting with
those carrying the highest interest rates – they cannot save more if these
debts remain.”
Action plan
Budget to free up additional money.
Increase return on Barbara’s work.
Repay nonmortgage debts.
Establish pension entitlements.
RETIREMENT PLANNING 1
Anna Bowes, AWD Chase de Vere
“When approaching retirement, the last thing they need is increased debt. They
should use some, or all, of the inheritance to pay off debt.
“The secret is to draw up a budget to see clearly how much they spend, and on
what. This exercise will probably shock them, but it may also identify areas
in which they can save.
“I would recommend saving in a cash mini-Isa. One of the best is the National
Savings & Investments Direct Isa, paying 6.05 per cent.
“Barbara should make up the shortfall in national insurance contributions
(NICs), as this could seriously affect her state pension.
“Despite Mark’s excellent pension scheme, their income in retirement will be
far less than they currently enjoy, so they need to add to Mark’s new
pension scheme. Adding £300 a month will cost Mark only £90 net of
higher-rate tax.
“When they retire, they can use their savings in an immediate vesting pension.
This allows them to receive tax relief on the contribution and use the lump
sum to buy an annuity.”
Action plan
Use savings to pay off debt.
Open a cash mini-Isa.
Barbara make up shortfall in NICs.
Mark add £300 a month to pension.
RETIREMENT PLANNING 2
Tom McPhail, Hargreaves Lansdown
“Barbara should contact the Department for Work and Pensions for a forecast.
She should benefit from paying additional NICs but may not be eligible for
the impending reduction in the number of qualifying years required for a
full state pension. She should also check that she would not be buying
benefits to which she will become entitled anyway.
“At age 65 Barbara will be able to draw an income of up to £10,000 a year
tax-free because of the age allowances. So any additional household savings
should be made in her name rather than Mark’s because he would pay 20 per
cent tax.
“From his local government scheme, Mark can look forward to a pension of about
£11,500 a year. This will increase in value to keep pace with inflation up
to 2.5 per cent between now and retirement. He will also enjoy a lump sum of
about £40,000 and a basic state pension of £4,539. His new employment will
give him combined pension contributions of 8 per cent of his new income to
produce a fund at age 65 of about £63,000, or additional income of about
£2,750.”
Action plan
Investigate paying additional NICs for Barbara.
Build up a retirement income of £10,000 a year in Barbara’s name.
MORTGAGES
Rob Clifford, Mortgageforce
“Barbara and Mark could qualify for some of the keenest mortgage deals, but
their current deal is competitive.
“The alternatives would offer free valuation and legal fees but will have
expensive arrangement fees. The couple may also have to pay Woolwich a £275
discharge fee. Nationwide offers a two-year tracker at 0.13 points above the
bank base rate, but it carries a £1,499 set-up fee. Cheltenham &
Gloucester offers the same rate with a £995 fee.
“Even though Mark is dissatisfied with the Woolwich, I think that they should
stick with the current deal.”
Action plan
Maintain current mortgage deal.
LINKS
Torquil Clark: 0800 0723186, www.torquilclark.
com
AWD Chase de Vere: 0845 7959112, www.awdplc.com
Hargreaves Lansdown: 0117-900 9000, www.h-l.co.uk
Mortgageforce: 0800 0831006, www.mortgageforce.co.uk
Mark’s response
“The experts have given us food for thought. We are guilty as charged and our
food budget will have to be cut, but Kimba should not be made to suffer for
our sins, so we will continue feeding her organic chicken.
“The comments on pensions and saving for retirement have made us think. We
will look at using the tax allowances available.
“The suggested budget exercise to establish exactly what we spend is something
we have tried before without success, but after our Money MoT we are more
determined than ever.
“The advice regarding saving in an Isa or a high-interest account was prudent,
especially with a new job on the horizon. As for the mortgage, we are
happier after the recent rate cut and may use this to our advantage by
maintaining our payments at their current level, thus overpaying slightly.”
Would you like a financial makeover? Write to Money, The Times, Times House, 1
Pennington Street, London E98 1TB, marking your envelope Money MoT,
or e-mail moneymot@thetimes.co.uk.
Please include current finances, short and long-term goals and a daytime
phone number. You must be prepared to disclose your income and be
photographed.
