THE 26,000 Irish nurses (who nearly went on strike earlier this year) should, just about now, be receiving some of the back pay they are due as part of their settlement. The amounts vary from between £500 and £2,000.
Family Money has been asked by the matron of one of the Dublin maternity hospitals, on behalf of her nurses, to come up with a few suggestions for what to do with this modest windfall. She also passes on the concern of many nurses about investing in AVCs, in light of the fact that "nurses face a particular problem since they tend to enter permanent employment quite late because so many of them opt to travel. Many of them come back to Ireland in their early to mid-30s."
Nurses, like most of us, might be tempted to blow their £500 or £1,000 or even £2,000 on a nice holiday, or something for the house, but understandable as this is, such sums are substantial enough, says Sinead Burke, investment manager of brokers IPT Sedwick Dineen, to put towards longer-term purposes.
"First of all, £2,000 is a large enough sum to put into a one or two-month, high-yield deposit account before making up your mind about what to do with it. There is no point in leaving money in a chequing or ordinary deposit account which is earning a fraction of a per cent interest rate," she explains.
Top of the agenda, she says, should be looking at whether the windfall can effectively reduce existing debt.
"There is a credit card culture in this country, but how many of us really appreciate that we are paying at least 2 per cent per month interest for the convenience of such a borrowing facility? Nurses should consider paying off their expensive credit cards and other loans with this money and avoid all those future interest payments. They should ask first if they will be charged any penalties for redeeming a lease or other hire purchase loans."
Even paying off a bit of the mortgage should be considered, she says, since any reduction in the capital outstanding will have a positive impact on the total amount you pay, or the number of months or years remaining on the loan.
"On the savings and investment side, this is the perfect opportunity to start an education fund for the children or some other long-term savings purpose," says Ms Burke. Whether £500 or £2,000, the lump sum "would be a good start to a low-cost PIP or PEP (Personal Investment Plan or Personal Equity Plan on offer from a number of leading life assurance companies) or a with-profits policy. Post office savings bonds, which are yielding 14 per cent over three years would also be a good bet; five-year savings certs are yielding a bit less, but would not be a bad bet if you think rates will fall.
Some analysts believe the recent mortgage and bank interest rate rise is unlikely to be sustained and that interest rates are likely to come down over the next two years if we are to join the ERM in 1999.
Ms Burke concedes that £2,000 or less is too small to buy into a stock market tracker bond, one of the most popular lump-sum investments at the moment, but it is enough to buy a stock directly.
Any nurse with a Norwich Union life assurance policy, and who is entitled to free shares when the company is floated on the London stock exchange in June, should also think seriously about buying the discounted shares the company is offering. Norwich Union members will receive details of this discounted share offer next week and will have a couple of weeks to decide whether they want to buy additional shares.
Analysts here and in Britain expect the share price to rise sharply shortly after flotation and there are now suggestions that Norwich plc may be a takeover target by big overseas institutions; if that happens, it could also result in sharp share price rises.
On a lighter note, says Ms Burke, the nurse with a windfall might like to spread her cash around by adding a few hundred pounds worth of prize bonds to her portfolio. "If it was me, I think I might be tempted by a nice piece of antique furniture or a nice picture - both have proved to be good investments as well as very attractive additions to a home."
Regarding the investment in AVCs, this is an issue that requires careful consideration Additional Voluntary Contributions to a pension plan can be a tax efficient way for someone to make up for the fact that they may have started saving for a pension late in their career.
However, nurses who are uncertain about their long-term contract or working position should be aware that standard AVC contracts carry high upfront charges in the form of commission and costs which can result in poor value funds for many years.
Unless you are making annual lump-sum contributions (which carry lower initial costs because they are effectively, a series of individual contracts) or are quite certain that you will be investing on a regular, monthly basis for a minimum of IS or 20 years, an AVC may not be such a good investment. The best advice is to seek independent, preferably fee-based advice about AVC schemes currently available to nurses, and only then decide if it is the proper option for you.
