Sally Newson, of Streatham, South London, is worried that she is unprepared
for the recession.
As a recruitment consultant, her career has been badly hit by the economic
downturn. In “normal” years she could have expected to earn between £30,000
and £40,000 in bonuses on top of a basic salary of about £30,000. But as
unemployment has risen, the chances of any bonuses this year look remote.
There are some savings to fall back on if times get tough, but her funds are
seriously depleted after she bought a house in January.
Sally, who is in her thirties, says: “I have spent a lot of my savings
renovating my new house. Although I feel like it has been money well spent,
I now have only £3,000 in my Lloyds TSB savings account. That doesn’t
provide much of a financial safety net.”
She also has a nest egg for retirement but is concerned that the investments
are not performing well.
“When I first moved from the Isle of Man to the UK in the late 1990s I paid
into a company pension. But in 2002 I moved back to the Isle of Man and
stopped making contributions. It was worth about £3,000 at the time.
“That was when I set up an offshore savings plan with Hansard [the investment
manager]. It was invested in three balanced-managed funds and has been a
complete white elephant.”
Sally pays £100 a month into the scheme and, since 2002, has contributed
roughly £8,000. However, last month it was worth only £5,112.
The policy is due to mature in 2020 and there are hefty exit penalties. If it
was surrendered now she would receive only £3,500, less than half the amount
that she has put in.
“I want to know whether I should continue paying into the scheme, which I
don’t find too onerous, but start another investment plan elsewhere. Or
maybe I should just call it quits and transfer the existing amount to a
better savings plan.
“Should a new scheme be in the Isle of Man or would I be better off moving the
money to the UK? And what should I do with the frozen company pension
scheme?”
Sally also wants to know if she has been a victim of mis-selling and what can
be done if that were the case.
Given the precarious state of the job market, she has been exploring ways of
protecting herself. However, she has found unemployment insurance confusing
and has no idea whether the deals that are available are good value.
“Some insurers won’t consider me because they exclude recruitment consultants
from redundancy cover,” she says. “The companies that will offer protection
have quoted premiums of about £30 a month, which sounds quite expensive.
“Given that the policies do not allow me to make a claim until I have been off
work for three months, would I be better off putting money aside in a
savings account? And how much might I need to give myself for a comfortable
cushion.”
Happily, the rest of Sally’s personal finances are in pretty good shape.
Overall, her monthly outgoings are about £1,000, including travel and
utility bills, and £680 for her mortgage. There are no other debts.
“I have a Lloyds TSB American Express Air Miles credit card, which I use for
shopping, but I always pay off my balance in time,” she says.
Sally would like to know whether this is the most competitive credit card that
she could be using and whether it is worthwhile being so diligent about
paying off the outstanding balance.
She would also welcome some suggestions on how to make some extra money, but
adds: “It would need to be something that I could do in the evenings or at
the weekends so it does not impact on my day job.”
What the experts say
Financial planning: Sue Faiers, Smith & Williamson
“Sally has £3,000 with Lloyds to act as an emergency reserve. This could be
moved into a cash Isa to benefit from tax-free interest, though it is
important to ensure that this capital is still accessible if she needs it.
“She will lose nearly a third of her Hansard policy value on surrender, but it
is still worth considering whether to stop investing or give up the policy
entirely. This will require a comparison of the full details of the plan
charges against alternative UK investments, such as investment Isas.
“One important point to remember with offshore plans and financial advice
provided outside the UK is that they are not regulated by the Financial
Services Authority, so you cannot make a complaint using the Financial
Ombudsman Service. More information about when and how to lodge a complaint
against an adviser or investment company based in the Isle of Man can be
obtained from the Isle of Man Financial Services Ombudsman Scheme at
www.gov.im/oft/ombudsman.
“With the pension built up at her previous employer, consideration needs to be
given to what this is worth before making any decision to transfer the plan.
Sally may be surprised as it will have been invested on her behalf in the
intervening years.
“Paying off her credit card balance each month is the best thing to do.
However, Sally should consider whether she is using the Air Miles awarded.
If not, she may wish to look at a credit card that offers cashback benefits
that can be used for any purpose. American Express and Halifax both have
decent cashback cards.”
Action plan
Move emergency funds into a cash Isa.
Don’t rush to transfer money from existing plans.
Consider a cashback credit card.
Unemployment insurance: Matt Morris, LifeSearch
“Unemployment cover is almost impossible to find these days as a standalone
policy. However, it is still possible for Sally to purchase unemployment
cover as an addition to another policy, such as real-life cover, offered by
Fortis, or income protection. Generally, premiums for unemployment cover are
about £3.65 for every £100 of cover a customer takes out.
“The rule of thumb with all protection policies is to take one out as soon as
possible. Do not wait until something bad happens — by that time, it may be
impossible to find an insurer willing to offer terms.
“People seeking unemployment cover must not have any specific knowledge that
they are about to be made redundant. If Sally does know that her job is
under threat, then an insurer will not offer her cover.
“Sally mentioned that it is hard to find a policy because she is regarded as
having a high-risk job, but it should still be possible. An adviser should
know the best companies to place her with after considering the individual
circumstances, as well as explaining the different options regarding
deferred periods. Qualifying periods are something that consumers also need
to be aware of.
“She should also remember that protecting herself against redundancy is only
one small part of protecting her finances. Depending on her personal
circumstances and the benefits that she receives from work, life cover,
income protection and critical-illness cover are also worth considering.”
Action plan
Buy unemployment cover as part of an income-protection package.
Look for a policy as soon as possible.
Earning extra income: Harry Freedman, Career Energy
“Sally should think about whether she wants the part-time work simply to make
money, to help to develop her career in recruitment or to get some
experience in another career that she may have always been interested in
trying.
“There are the obvious part-time jobs that Sally could apply for, such as
working in a shop, bar or restaurant. However, many of the people that we
work with use the evenings and weekends to try out careers that they have
always liked the sound of but didn’t think would pay the bills. For Sally,
this may be the perfect way to bring in extra income while trying to make
money from her other passions.
“Some people have always wanted to start a business, and doing this while in
full-time work gives them the security to try it out. This could be anything
from an internet business, buying and selling things on eBay to walking dogs
or selling home-made food or jewellery.
“It may not bring in the extra money that she is looking for straight
away, but we have met many people that have turned these part-time hobbies
into lucrative businesses.”
Action plan
Make extra money from a passion or part-time hobby.
Sally’s response
Given the current financial constraints, and that it is unlikely that I will
be able to increase my salary through bonuses this year, any money-saving
guidance is greatly appreciated.
The advice on how to claw back the loss from the Hansard policy is good and I
will definitely be comparing Isas to see which is the most competitive and
whether it is worthwhile surrendering the policy. I do know that the Isle of
Man is regulated, so I am not too worried about that. What I’m more
concerned about is whether I was mis-sold the policy and if I have a case.
Thankfully, I have been given an assurance that I am not at risk of
redundancy, but having income protection in this market does give you peace
of mind.
The ideas that Mr Freedman has come up with are really useful. I am sure that
there are aspects of my job or skills that I could use in other industries.
This could help to supplement my income without having an impact on my day
job.
Would you like our experts to give you a financial makeover? Write to
Money, The Times, Times House, 1 Pennington Street, London E98 1TB,
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