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The Jones Family

Say hello to the Jones family. Mr Alan Jones is 41, and married with two children, aged 10 and 12. He is in good health and is working for a local electronics business earning £58,500 per annum. He is part of the workplace group pension scheme paying 3.5% of his own salary and would love to retire at 60. His current pension is valued at £112,000.

Alan’s wife Sue, also 41, works part time with an annual salary of £9,000 and no additional staff benefits.

Alan and Sue live in a three-bedroom house with a capital repayment mortgage of £133,000. Their monthly repayment is £729, with 21 years remaining of their mortgage term. They have just finished a fixed rate period and the loan interest rate has reverted to the lender’s standard variable rate of 3.25%.

Alan and Sue have a joint credit card. At 17.9% the interest rate is fairly high, and they have an outstanding balance of £6,200. They are paying the credit card off at £150 per month and it will take them five years to clear the debt (including £3,053 of interest).

Finally, Alan has recently inherited £40,000 and wants to understand what he should do with this money. He is considering paying down the mortgage but is not sure whether this is the best course of action. 


Plan with a budget
A key for Mr and Mrs Jones would be to complete a budget plan. Having a clear understanding of what comes in each month and how this money is spent allows you to plan clearly on your financial goals. Many people underestimate the importance of completing what is a fairly simple exercise.

The first action I would recommend with the lump sum is repayment of the credit card debt. This is high interest debt and repayment will save the couple £150 per month which is a valuable resource to help towards other financial priorities. They would of course also save a substantial amount of interest that they would accrue if the debt was reduced slowly.

Planning for the unforeseen
I would also look to create an emergency fund of around £20,000. An emergency fund should be invested in a high street instant access deposit account. It is not aiming to make good levels of interest; it is simply trying to create a buffer in the event of something unexpected happening such as the boiler breaking down or a car calamity. It will avoid such an expense going on a credit card. As a rule of thumb, we would usually recommend our clients hold 3-6 months outgoings as an emergency fund.

Become more tax-efficient
Having repaid the credit card and created the emergency fund, I would suggest that Alan pays £5,161.60 into his pension. This is the most significant action he can take from a tax saving perspective.

A personal payment of £5,161.60 to his pension will first receive basic rate tax relief at source. This will have the effect of increasing the contribution to £6,452. When combined with his existing pension payments, this will mean that Mr and Mrs Jones escape the High Income Child Benefit Charge.

Review your mortgage rate
Mr and Mrs Jones should consider reviewing their mortgage. Some attractive rates are on the market with little or no booking fee. A simple online search revealed a 1.94% fixed rate can be signed up to until July 2021. With no booking fee, this would save the couple £86 per month. The couple could take the lower rate and continue to pay £729 per month – their current mortgage payment. This would reduce the term from 21 years to approximately 18 years, meaning the loan is fully repaid ahead of their intended retirement.

Invest your surplus
Lastly, having made a lump sum pension payment and created a suitable emergency fund, Alan and Sue would have just short of £9,000 of cash left available. 

I would look to recommend this is invested in an ISA product, preferably one that invests in stocks and shares. Given the emergency fund, they should have money available if a financial shock occurs, meaning that any money invested could be left to grow over the medium to long term. 

When investing in stocks and shares, it is important to understand that money can go down as well as up. However, being able to leave your money over a longer period to ride out these ups and downs may well be rewarded with greater returns than those available from cash deposits.

How we can help
Our dedicated Independent Financial Advisers have significant experience in financial planning advice. We work closely with our clients to understand and define their goals, and help them to meet their needs. As well as helping families like Alan’s, we also specialise is advising those with significant wealth and those looking for planning solutions for later life.

This article does not represent personalised advice, and independent advice should always be sought before any action is taken. This is our understanding of HM Revenue & Customs practice as of June 30th 2019.


How we can help

If you have any questions about your financial situation, please contact Roy Thompson on 01903 534587 or visit

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