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Case Study: How to plan, save and support
By Hannah Ricci
Yee Chung, 29, lives in Sutton Coldfield in the West Midlands and works as a pharmacist at Good Hope Hospital, where she earns £40,000 a year. Yee moved to the UK from Malaysia five years ago. She initially intended to stay only a short time, but after settling in - and meeting her Irish boyfriend, Colum - she has decided to stay and is saving to buy her first home.
Yee supports her parents, back home in Malaysia, in their retirement, providing £200 a month, and has also bought a home for them to live in. In UK terms, the property is valued at £30,000; Yee bought it with a 10-year mortgage of £25,000 from HSBC in Malaysia, which costs a further £350 a month.
On top of this, Yee pays rent on her own flat in the UK of £380 a month, plus an estimated £375 a month visiting her family in Malaysia, as well as Colum, who is currently studying in Chicago. "My aim is to save for a deposit so I can get onto the property ladder," explains Yee. "So I would like advice on the best savings and investment options to help me achieve this as soon as possible."
The expert view
Derek Capelin, director of Capelin Financial Management in Solihull, points out that Yee has a great deal of financial responsibility - not only in terms of providing for herself and preparing for the future, but as the sole source of income for her parents in Malaysia. So her immediate priorities should be to make a will and protect her income.
"While Yee has UK-based life assurance, she needs to consider how her assets would pass onto her parents," explains Capelin. "Yee does not have a will either here or in Malaysia, and if she was to die before her parents, they could find themselves in huge financial difficulty if a delay occurred in the settling of her estate in the UK."
Capelin says Yee's first step should be to put her existing Legal & General life insurance policy in trust. "The trust will allow Yee to clearly nominate her intended beneficiaries and will separate the policy payment from her own assets in the event of her death," he explains.
Will and testament
The next step is for Yee to set up a will - both here to cover her UK assets and in Malaysia regarding the property. "I suggest Yee seeks professional legal advice because her situation is potentially quite complex, particularly because foreign laws regarding the succession of assets are different to those in the UK," says Capelin.
He also advises Yee to appoint an enduring power of attorney (EPA). "An EPA is someone appointed to run your financial affairs should you be unable to manage them yourself, either temporarily or permanently," Capelin explains.
He adds that Yee needs to appoint someone to be a 'financial confidant', to take responsibility for these financial affairs in the event that she is unable to herself. "This person would be the 'trustee' in her L&G trust, the 'executor' in her will and the 'attorney' in her EDA," he says. "It would normally be a very close friend or relative, who has a legal and moral responsibility to act in her best interests."
Capelin says that if Yee does not know a suitable person locally in the UK, she should consider appointing her solicitor. "Their charges would only occur in the event of her death, and they would be best qualified to handle Yee's affairs at that time," he adds.
Next, Capelin turns to the protection of Yee's income, which again is vital because her parents depend on the money she sends home every month. Yee's contract with the NHS states that, if she is absent from work due to accident or illness, she will continue to receive full pay for six months. The next six months is then paid at half full pay, and after 12 months all payment ceases.
Review life cover
Yee has additional protection with Union Income Benefits Holdings plc, which is a policy from her trade union underwritten by AXA. "The amount of cover provided at £26,000 is acceptable, but the policy itself is not,' says Capelin. He points out that the policy only pays out for a maximum of 104 weeks following an initial deferred period of six months, which would leave Yee without any income after just two-and-a-half years.
Because the protection of Yee's income is so important for both her and her parents' financial well-being, Capelin recommends Yee cancels this policy and looks into taking out a combination of more appropriate protection options, including private medical insurance, critical illness cover and an income protection plan.
Medical and critical illness cover
"Yee should consider taking out private medical insurance (PMI) with Norwich Union Healthcare for £13.43 a month. This provides basic cover, and is far more appropriate than her current arrangement," he advises.
Capelin says Yee should also take out a critical illness policy, which will pay out a lump sum if she suffered a serious illness such as cancer. "A premium of just £10 a month with UNUM Provident would provide £35,000 of cover."
Capelin adds that Yee then needs to arrange long-term cover in the form of an income protection plan, which will pay out an income equal to between 50% and 75% of her salary until retirement, if Yee was unable to work due to a disability or illness. "UNUM Provident would provide an appropriate plan for Yee at a monthly premium of £34.51," explains Capelin.
Property plan
Next, Capelin moves on to Yee's aims to get onto the property ladder. "She was intending to wait until her boyfriend Colum returns from the US in about three years time. However, we've discussed the idea of purchasing a property sooner," explains Capelin. He adds that her monthly rent of £380 would be better redirected towards the purchase of her own home, and buying property would also secure Yee's right to reside in the UK.
A two-bedroom flat near the hospital where she works in Sutton Coldfield is likely to cost around £160,000. "Yee has raised savings of £12,700, which is nearly enough to cover a 5% deposit and the costs of purchase," explains Capelin. "A mortgage of £150,000 on a repayment basis of 30 years is likely to cost around £700 a month. However, if Yee was able to rent out the second bedroom, for say £300 a month, her net outlay would be around £400 a month, which is very similar to her current position."
Pension provision
Yee didn't join the NHS scheme when she started at the hospital because she didn't plan to stay. However, as she now intends to stay in her current job for at least three years, Capelin recommends Yee signs up to the scheme straightaway.
"The NHS pension scheme is an extremely valuable employee benefit," says Capelin. "The cost of the benefits provided by the scheme is around 20% of Yee's salary, of which she is only required to contribute 6%." The real amount for Yee is just 3.6% because she gets higher-rate tax relief on her contributions, with the NHS and the Government paying the extra.
Yee's response
"Derek's advice was very comprehensive and thorough," said Yee. "It has made me think about issues I didn't even realise needed addressing; and I plan to move forward with purchasing a property."
Derek Capelin is a director of Capelin Financial Management. Telephone: 01564 200 304, www.capelin.co.uk
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