Financial Makeover: The Commons Touch NAMES HUGH AND CHERYL YARDLEY AGES 25 OCCUPATIONS HOUSE OF COMMONS EMPLOYEE AND SOCIAL WORKER
Huw and Cheryl have a joint income of pounds 33,450 gross a year, about pounds 2,000 net per month. Their outgoings run at approximately pounds 1,500 per month, leaving them pounds 500 per month available for positive financial planning.
They have no savings at present and Cheryl has a student loan of pounds 3,600 to repay. She is not required to start repaying this until April 1999. There is also a small loan from Cheryl's father, which needs to be repaid.
The adviser: Martha Catterall, director at City Independent, independent financial advisers, 35 Paul Street, London EC2A 4UQ (0171 528 0092) The advice: My first piece of advice would be for Huw and Cheryl to set up a direct debit of pounds 200 per month into a Standard Life Instant Access account, which pays a rate of 7.35 per cent gross on a balance between pounds 1 and pounds 4,999, to repay Cheryl's student loan. This will allow Cheryl to get a head start in repaying her loan so that by April she will have already built up a lump sum of pounds 1,200 plus interest, to throw at the debt. In addition, the couple should set up another monthly direct debit of pounds 100 per month into the aforementioned Standard Life debt account and every six months pay Cheryl's father a lump sum of pounds 600. It always pays to look at who is providing the best rates: Prudential has recently announced that it's new telephone subsidiary, Egg, will pay 8 per cent gross on balances from pounds 1, although it is not yet clear how long the Pru will keep this price advantage. Huw and Cheryl also need to create an "emergency fund" of pounds 1,500 to deal with unforeseen circumstances without having to rely on credit cards. Once the pounds 1,500 has been created, it can be topped up whenever it gets depleted. Having such an account gives you a feeling of security too. They should set up a third direct debit for pounds 100 per month into a different Standard Life account. Standard Life will allow savers to have a variety of accounts under one main umbrella. The total balance is used to determine the interest rate. The couple have a mortgage of pounds 42,525 with the Halifax, at a capped rate of 6.8 per cent until August 2002 and is repaid using a PEP. You elected to repay the loan over a 10-year period, and pounds 280 per month goes into a Halifax Tax Free Homeplan. This combines a PEP with life cover and critical illness cover. If they die or are diagnosed with a critical illness, the mortgage is paid off but they forfeit the accrued PEP value. Of the pounds 228 per month, pounds 131.86 per month each goes into two separate PEPs. with pounds 16.62 per month paying for the decreasing term and critical illness cover on a joint life basis. Huw and Cheryl are concerned that the performance of the Halifax Accumulation fund is poor, as has been reflected in a recent survey they have read. I must admit that the Halifax PEP funds are not on my list of recommended PEP funds. Indeed, the Halifax Accumulation fund, which has only been going just over a year, ranks 107 out of 144 according to Standard & Poor's Micropal information quoted in this month's. What Investment? magazine. To invest in a fund with only one year's experience is not advisable in my view, instead I would recommend a company with a proven track record. The couple could stop their direct debit to the Halifax PEP and then transfer the accrued balance into a new PEP with a new PEP provider. …