WHEN elderly parents begin to need extra care, do you sacrifice your own independence to take care of them or not? And if you do, will you be able to pick up the financial strands of your own life once they are gone?
Ms H is 50 and lives in the south-east. After being made redundant four years ago, she moved back into the family home to take care of her parents who are now in their late 80s. In a couple of years time, she expects to be back working, converting her present part-time job into a full-time one. Happily, she has some financial resources of her own - a very modest pension plan from her previous job and a £30,000 lumpsum invested mainly in Post Office savings certificates and a building society. "My eventual share of the family inheritance should be sufficient to buy myself a small house, with a little cash left over," she writes.
"My question is how can I use my lumpsum of £30,000 to the best advantage in order to provide me with extra income in later life. I was considering buying a small house near here for around £45,000 - I could manage to pay a £30,000 mortgage - to rent out at about £300 a month. However, on further thought I am wondering if this is an efficient method of investment given the expense of initial purchase costs plus subsequent maintenance of the property. Also I presume I would be liable for Capital Gains Tax if I ever sold the house for a profit."
Our reader's pension fund - seven years contributions plus an £1,800 lump sum contribution - will not be sufficient to provide her with any kind of decent retirement income. But if she does return to work shortly, she theoretically has nearly IS years in which to continue making contributions, either via an occupational scheme or through AVCs. A rule change in the latest Finance Bill means she will also be able to fund an AVC to the tune of 20 per cent of her net relevant earnings from age 55, instead of IS per cent.
Given that she has an opportunity to fund a pension herself - and will have the comfort of owning her own home outright - Ross Barry, an independent fee-based adviser Family Money spoke to, recommended that Ms H seriously consider investing the bulk of her £30,000 in equity-based products. "With up to 15 years in which to invest, equities are the most obvious way for her to significantly increase the value of her lump sum," says Mr Barry. "She needs to assess how much risk she's prepared to take," he adds, "but time and again it has been shown that over a longer period equities will outperform deposits."
Ideally, says Mr Barry, Ms H should spread her £30,000 around and choose at least two or three investment vehicles - a good managed fund with a proven track record and low entry costs, an off-shore unit-trust from a major international investment company which will maximise the tax-free status of the fund and her personal CGT allowances and perhaps even a tracker bond.
With a potential for nearly 15 years of pension funding ahead of her, the combination of an occupational pension, state pension and a decent return from investments should provide for a relatively comfortable, if modest retirement income. Since she is a single person, however, Mr Barry suggests that our reader seriously consider taking out maximum allowable permanent health insurance - PHI - and join the Voluntary Health Insurance scheme if she is not already a member.
Assuming this lady earns £15,000 a year, PHI will cost her £71.76 a month," says Mr Barry. "After tax relief this works out at just £37.32 a month and it will pay her £151.00 a week until retirement if she should fall ill and is unable to work again."
Permanent health insurance covers a maximum 75 per cent of income less state disability benefits. Plan B under the Voluntary Health Insurance will cost Ms H a little under £250, minus tax relief of 27 per cent. Finally, since life insurance is not a priority, she may want to consider taking out a small serious illness policy - say, £20,000 or £25,000, which could cover exceptional medical or nursing costs, or perhaps some alterations to her home if she did fall ill with a very serious illness," says Mr Barry. "But with a good PHI policy in place I don't think a critical illness plan is a major priority."
