Jen Crowe works in oil exploration, spending half the year at sea. At the
moment she is based on a research ship off the coast of Venezuela.
“I work rotations of six weeks on, six weeks off ,” Jen, 27, explains. “I am a
seismic navigator, which means that I guide the ship through a survey area,
collecting data on sound reflections from rocks beneath the sea to determine
if there’s any oil down there.”
Jen earns £3,600 a month after tax and has managed to accrue more than £45,000
in savings and investments. “It’s easy to be financially disciplined at sea
when there’s nothing to buy and we work 12-hour days, no days off,” she
says. “Part of the reason why my job is well paid is because it is insecure.
The oil industry has a lot of peaks and troughs and has taken a beating in
the credit crunch, so redundancy is a very real risk for me.”
She wants to secure her future with a decent pension and is also thinking of
investing in property. She rents a flat in Gedling, Nottingham, with four
friends. Her monthly expenses include £260 for rent, council tax and utility
bills, £60 for petrol and £50 for piano and singing lessons. She says: “At
sea I sometimes practise singing on the helipad — where no one can hear.”
When at home Jen’s main expense is socialising, about £800 a month. “I don’t
budget,” she admits. “I just spend and then throw whatever’s left into
savings.”
The bulk of her cash savings of £30,000 is in a savings account with ICICI
Bank, earning 2.45 per cent. She says: “I keep it in cash because I worry
about redundancy, but also because I toy with the idea of buying a house and
want to be free to move quickly. ICICI Bank had the highest-yielding
instant-access account.”
Jen also has £1,200 in an Intelligent Finance cash Isa, which pays 0.6 per
cent, but asks: “Is it even worth forgoing the taxes for that?”
She adds: “I save £80 a month into a slush fund — an account that pays almost
no interest but gives me instant access to cash to bail me out if I get paid
late or spend too much. There is about £400 in it.”
A further £100 a month goes into a savings account until she has enough to
invest in a 12-month bond. At present, she has £1,000 in an ICICI bond, at 5
per cent, which matures in January.
Jen also invests £600 a month in two Zurich Sterling stocks-and-shares Isas;
one worth £8,700, the other £3,000. She also has £700 of shares in the
Norwegian company that she works for, SCAN Geophysical ASA, £650 of Taylor
Wimpey shares and £1,000 of shares in Royal Bank of Scotland. She also puts
£150 a month in a Scottish Widows endowment, which is forecast to be worth
£18,000 when it matures in 2018.
Last year Jen started contributing £240 a month to an AXA Sun Life pension,
which is worth about £3,000. A recent statement gave a projected value of
£130,000 at retirement, providing a pension of £5,000 a year in today’s
money. “Would a self-invested personal pension be a good idea since AXA’s
management charges must be destroying my pension pot?” she asks.
Jen also pays £175 a month into her company pension, which stands at about
£3,000, and has a pension fund of about £5,000 from her first job.
She says: “I worry about not having a decent pension and being unable to
retire. I would like to build a pension that will pay out about £20,000 a
year when I retire — hopefully between 60 and 62. However, contributions of
£300 a month from the age of 26 will apparently result in annual income of
only £5,000, adjusted for inflation.”
Jen has a £7,000 student loan, which she is paying off at £120 a month, but no
other debts.
What the experts say
Pension and investments: Paul Barnes, Fairinvestment.co.uk
“Based on her income Jen could contribute up to £63,000 a year into a pension
and attract tax relief, but it is vital not to overcommit herself and to
build savings and investments alongside any pension plan. At the end of each
year she can invest any excess income or investment returns into her pension
as a lump sum, rather than increasing her contributions from the present
£300 a month.
“As Jen’s pension fund and level of contributions grow, a self-invested
personal pension (Sipp) could be considered as her portfolio and investment
strategy becomes more diverse.
“While Jen is concerned about the risk of redundancy, it is important to
channel any excess income into easily accessible savings and investments.
She should utilise her maximum stocks-and-shares Isa allowance, which is
increasing to £10,200 for under-50s next tax year.
“Making payments into a pension when there is a risk of redundancy is
advisable only if you can access the money without restrictions. Based on
current legislation, you will not be able to access your pension until 55.
“Finally, I would advise Jen to register her stocks-and-shares Isas through a
fund supermarket, such as Cofunds or Fidelity’s FundsNetwork, as this will
allow more control over her portfolio with no additional costs.”
Action Plan
Stick with current pension contributions.
Invest any excess income in pension.
Register stocks-and-shares Isas through a fund supermarket.
Property, investments and pension: Anthony Cousins, Savills Private Finance
“Jen has a sizeable cash deposit for a property, but as her job is insecure it
may be wise to postpone buying for now. She is unlikely to be priced out of
the market as property will probably fall another 10 per cent.
“The allocation of funds in Jen’s pension and Isa is very high-risk. She is
100 per cent invested in equities, with exposure to emerging markets and
high-risk funds. To dilute her risk, a collective investment, such as a unit
trust, may be useful. These tend to be invested in 40 to 60 different UK
stocks, thus diversifying her exposure.
“The AXA Sun Life pension will generally have lower charges than a Sipp. If
the AXA projection is not producing the desired retirement income, Jen has
two choices: increase monthly contributions and/or delay her planned
retirement age. This should generate a larger pension fund when she retires,
along with improved annuity rates if she delays retirement.”
Action Plan
Delay buying property.
Review risk level of existing funds.
Reassess pension contributions.
Property, investments and pension: Danny Cox, Hargreaves Lansdown
“The consensus is that property prices will fall by a further 20 per cent, so
Jen can bide her time and then grab a bargain.
“She should use her 2009-10 Isa allowance of £3,600 to move some of her
savings into a cash Isa and save up to 40 per cent tax on the interest, even
if she intends to buy a house soon. The Barclays Golden Isa is paying 3.61
per cent at the moment. Jen could also transfer her Intelligent Finance Isa
to Barclays.
“Jen should move her shares into an Isa via a transaction known as ‘bed and
Isa’. This means that you sell a share and immediately buy it back within an
Isa wrapper. This would prevent higher rates of tax being paid on the
dividend income, or capital gains tax on any future sale.
“Jen has set a pension target of £20,000 a year at age 60 to 62. Her state
pension will not be paid until she is 68, so she should check her other
schemes. If she retires before they are paid, she will have to live on other
resources and plan accordingly.
“She should check if the Norwegian company scheme allows her to take the
benefits as cash — the rules vary for overseas pensions. If so, this is very
attractive because UK private pensions are restricted to a maximum of 25 per
cent cash. It may be worth paying more into this pension.
“The AXA plan provides diversification from Jen’s company pension and benefits
could be paid from age 55. Jen has opted for higher-risk funds in the main.
The charges for these are higher than for AXA’s standard funds, but this
should be a price worth paying because she is getting first-class fund
managers and exposure to specialist funds.
“For every additional £100 a month paid into a pension, with contributions
increasing annually by 2.5 per cent to offset inflation, Jen could receive a
further £2,775 of income in today’s terms at age 60, assuming a 6 per cent
growth rate after charges.
“Jen could consider a low-cost Sipp as an alternative to the AXA pension. This
would offer her a wider investment choice.”
Action plan
Delay property purchase.
Move shares into an Isa.
Consider a low-cost Sipp
Jen’s response
Brilliant, thank you. I particularly appreciate the advice about moving my
stocks-and-shares Isas into a fund supermarket. I didn’t realise that this
was possible but I would certainly like to keep more control over the funds
that I invest in. I will also contact Barclays to take advantage of its
Golden Isa.
The experts seem to have recognised that anxiety is at the root of my desire
to buy a house right now. I have been afraid that I will miss the proverbial
boat and regret it. I feel confident now that I can ride out the recession
with cash and see if there are any housing deals at the end of it.
On reflection, my pension funds do seem risky so I will convert some into unit
trusts. Also, I had not really considered the advantages that my company
pension gives — in terms of being able to take it as a cash lump sum. I had
thought only about being unable to get tax relief because it is a foreign
plan. After the experts’ advice I will be leaving it there instead of
exercising my right to remove it at the five-year mark.
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 telephone number. You must
be prepared to disclose your income and be photographed.
