The future is weighing heavily on the mind of Fiona Buckland. The 40-year-old
sales manager from Kensal Rise, northwest London, has been contributing to a
pension for only ten years and fears that she has not given herself enough
time to secure a comfortable retirement.
Fiona does not want to be in the same position as her 67-year-old mother, who
is getting by on a meagre NHS pension of £160 a month and the state pension,
currently £90.35 a week.
Fiona, who has no children, wants to help her mother to live comfortably while
putting aside enough cash to pay for her own retirement years.
“I want to ensure that my mother does not have an impoverished old age, but I
need to start planning now so that I do not end up in the same position,”
she says.
Having spent her twenties studying, working part-time as a teacher and living
in New York, Fiona started full-time work only ten years ago. She is now
based in London, and has realised that she faces retirement with few plans
in place. “You get to a point when you hit 40 and suddenly realise that you
are going to live into retirement,” she says.
Fiona currently earns £48,500 a year and puts 6 per cent of her salary into an
occupational pension. Her employer contributes 12 per cent and she believes
that her pension pot is now worth about £20,000. Fiona has had little
investment or pension advice and wants to find out how much she needs to
save to live comfortably after 65.
When she split from her ex-husband two years ago Fiona used a substantial
amount of savings to buy him out of their two-bedroom garden flat. It left
her with only £2,500. Her saving habit is erratic but she has managed to put
away £400 in the past three months.
In August she fixed her £206,000 Halifax mortgage at a rate of 5.89 per cent
for three years, with monthly repayments of £1,300. Fiona is unsure whether
it is more cost-effective to overpay on her mortgage or contribute to a
pension?
She has thought about taking advantage of the current turmoil in the housing
market to trade up to a larger home. “I would like to look at the options
for moving again,” she says. “It would probably be the last time that I
would move home before I retire.”
Fiona describes her work as “stressful” and in the next two years would like
to consider her options. “I have no plans to leave,” she says, “but I do
think about taking a sabbatical at some point in the next few years.”
She dreams of travelling again and would like to try volunteering overseas,
but she has little savings and does not know how it could fit into her
retirement plans. She also worries about who would look after her mother if
she was to go away. At the moment she pays her mother's household bills of
about £150 a month.
Her mother is not claiming any benefits, although Fiona believes that she may
be due some state support because of her low income. She has also been hit
hard by the sharp rises in energy and fuel costs.
Fiona also pays thousands of pounds in medical expenses each year. Her mother
is generally in good health, but Fiona would like to know more about
long-term care options. She says: “There will come a time when decisions
have to be made. I don't really have a clue how much it could cost for care
in the future and whether we should begin to prepare for those costs sooner
or later.”
Her brother, who has learning difficulties, lives with her mother and
contributes to her mortgage repayments. The balance on her mother's home
loan, with Britannia Building Society, stands at £25,000. It is on the
standard variable rate of 4.24 per cent, but Fiona does not know if her
mother will be able to switch to a better deal.
Fiona Buckland: What the experts say
Financial Planning: Andrew Collett, Evolve Financial Planning
“At the current pension contribution rate of 18 per cent, Fiona's pot will
soon start to build up. As a rough guide, a 60-year-old woman would need to
accumulate about £190,000 in a pension to generate annuity income of £1,000
a month. However, she could consider making an additional pension
contribution of £1,715 next year, which will cost her a little more than
£1,000 when 40 per cent tax relief is taken into account.
“Fiona's future goals require some form of financial commitment. I would
suggest that she creates a new dedicated savings account, making use of her
annual cash Isa allowance.
“She mentions that she started work ten years ago and spent time abroad. I
would recommend that she checks how this has affected her entitlement to a
state pension. Taking a sabbatical in future will also have an impact on her
national insurance contributions record and, therefore, her state pension
benefits. She should call the Future Pension Centre on 0845 3000168. Fiona
and her mother should also check the government website at direct.gov.uk to
see if she is entitled to any additional benefits.
Action plan
Open an Isa savings account
Consider additional pension contributions
Check out state pension and benefits entitlements at direct.gov.uk
Pension and savings
Hannah Edwards, Killik & Co
“It appears that Fiona has about £300 a month of surplus income, which she
should use for long-term investing.
As a starting point, she should ask her employer if it is willing to match
higher pension contributions.
“Her Winterther Life scheme restricts access to a limited number of funds.
Fiona should ask if her employer is happy to redirect its contributions into
a scheme of her choice, such as a self-invested personal pension (Sipp),
which could widen her investment options. If it is not, she should consider
paying in £200 a month to a private stakeholder pension or low-cost Sipp.
“With the remaining £100 a month, she should establish an equity Isa. There is
no tax relief on contributions, but there is tax-free growth and she can
withdraw the capital at any point.”
Action plan
Start saving an additional £200 into her pension
Open a stocks-and-shares Isa, contributing £100 a month.
Mortgage
Jonathan Harris, Savills Private Finance
“Fiona is understandably keen to take advantage of the drop in house prices
and trade up to a bigger home, but it may make sense to stay put for now.
The loan-to-value ratio on her mortgage is about 60 per cent, but this could
increase if prices continue to fall, particularly if she plans to trade up
to a bigger property. She has also borrowed about 4.3 times her income and
it will be challenging to find a higher income multiple.
“Her mother is on Britannia's standard variable rate (SVR). If she wanted a
cheaper rate, she could consider a fixed deal or a base-rate tracker, but
there will be an arrangement fee - possibly as much as £1,000 - and possibly
valuation and legal fees. Because she is retired, not all lenders will
consider her application and she will also be tied in with early repayment
charges.
“Selling the property to clear the capital may be an option but another home
would be needed for her brother, who also lives there. Another option would
be to trade down to a smaller property, which may enable her mother to clear
her mortgage and bank some cash, which she could then live off.”
Action plan
Stick with the existing mortgage and property
Consider her mother's mortgage and the possibility of downsizing
Long-term care
Pauline Thompson and Jane Vass, Age Concern
“If it gets to the point where her mother might need a hand with day-to-day
activities, Fiona should seek further advice on what support is available.
People expect care services to be free, so it can be a shock to find that
they are normally means-tested. As a general rule, in England anyone with
more than £22,250 will usually have to pay the full cost of their care.
“If Fiona's mother stays in her own home, it will not usually be counted
towards her assets. If she moves into a care home later, there are special
rules on valuing the property if she owns it jointly with Fiona's brother,
or if he is incapacitated. Fiona's mother may want to obtain legal advice on
joint ownership with her son to protect his rights to occupation. Last year
care-home fees averaged nearly £25,000 a year, with nursing home fees
costing an additional £10,000.”
Action plan
Seek advice on local authority care provision in her mother's area
Seek legal advice for her mother on joint ownership of property
Fiona's verdict: Taking control thanks to clear objectives
My mother and I feel less worried about the future now that we have short,
medium and long-term objectives to improve our financial positions.
The advice from the experts was practical and extremely useful. I will
certainly call the Future Pensions Centre. I never considered the effect on
my state pension of another sabbatical and this is definitely something to
consider. I have also spoken to my mother and we plan to go through the
information available online to find out whether she is eligible for any
benefits or tax credits.
I have contacted my employer's pensions department and made an appointment to
discuss my contributions. I will also begin paying in to a cash Isa and plan
to open a stocks-and-shares Isa, as I have very little saved or invested.
If I trade up, even more of my assets will be in bricks and mortar and I will
have even less money to support my mother in the future. The message from
the advisers was pretty clear and I do not think I will be moving in the
near future.
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