Wealth Check: Snack-seller needs recipe for security

Buying a mobile catering unit meant a new career for one reader, says Ben Chu. Now she wants to know if she's doing the best she can for her old age

Mary Clay's father was flicking through the papers one day when he saw an advert for a mobile catering unit, on sale for £1,000. At the time, Ms Clay was working for a catering firm, and worn out by the late nights. Mr Clay joked that if she bought the catering unit she would be able to set her own hours. Ms Clay laughed at first, then began to think about it. Eventually, they went to see the unit. It was covered in mud, but the potential was there.

Mary Clay's father was flicking through the papers one day when he saw an advert for a mobile catering unit, on sale for £1,000. At the time, Ms Clay was working for a catering firm, and worn out by the late nights. Mr Clay joked that if she bought the catering unit she would be able to set her own hours. Ms Clay laughed at first, then began to think about it. Eventually, they went to see the unit. It was covered in mud, but the potential was there.

She bought the unit, cleaned it, had it inspected by the hygiene officials and took it out on the road. It has been a real success. Since 1991, she has been travelling around Derbyshire and neighbouring counties, selling snacks at horse trials, agricultural shows, private parties and any outdoor event that will take food vendors. She tows the unit with her Isuzu Trooper.

A company called Bradshaws, based in Bakewell, tells her where her catering is required. Her busiest days are Saturdays but Thursdays and Fridays are also often fully booked. Robert, her 39-year-old brother, helps when she is busy.

Ms Clay's business was hit hard by foot-and-mouth in 2001. "They cancelled the cattle markets and people stopped coming to farm fêtes for a long time," she says. "We weren't taking any money." Her mother bought a café just before the disease broke out and she suffered too. But things improved and Ms Clay is confident about the future. "Apart from that bad patch, we're serving more and more people every week. My new catering unit should be ready in six weeks."

Ms Clay takes about £18,000 a year. She saves £250 a month in her Jupiter High-Income Isa, which stands at £5,500. She also has a Pep with the same fund manager, worth £6,500. "I'm unsure whether I should continue my monthly Isa contributions in the present climate," she says.

She pays £46 a month to an income protection scheme and £25 for critical illness. She has a few shares in BT and National Grid and a stakeholder pension with the Norwich Union, to which she contributes £156 a month. "By the time I come to retire, the state pension won't be worth much," she says.

She lives with her parents on the farm where she grew up, on the border of Nottinghamshire and Derbyshire. Her boyfriend, Bob Cumberland, is in Wheatcoft, Derbyshire, where they film the TV show Peak Practice. "I'm interested in buying a house in Derbyshire," she says. "It would have to be central to the area I work. I need to know whether the property boom is going to continue and whether this is a good time to buy. Also, could I link my pension or Isa to a mortgage?"

We asked Martin Morris-Coole, of Thorn Financial Management in Devon, Paul Willans, of Blick Rothenberg in London, Anna Bowes, of Chase de Vere Investments in Bath and Roger Milner, of Inter-Alliance Group in Nottingham.

Profile: Mary Clay, 35

Status: Single
Occupation: Self-employed mobile caterer
Education: Nottingham Bluecoat school
Motoring: Isuzu Trooper 3.0 diesel (used for towing catering units)
Debts: None
Income: About £18,000 a year
Savings: NatWest account £2,000; Jupiter high-income Pep £6,500; Jupiter high-income Isa £5,500
Pension: Norwich Union stakeholder pension (50 per cent with profit, 20 per cent balanced managed, 15 per cent international index tracker, 15 per cent UK equity)
Shares: Small number of BT and National Grid
Outgoings: (Per month) Isa £250; pension £156; critical illness £25; income protection £46; car insurance £80; Orange mobile phone £30, living expenses £400.

'Move savings, change pension provision, expand business'

Solution 1: Savings

Mr Milner says Ms Clay's shares in BT and National Grid have not done well, which is perhaps symptomatic of what happens when natural monopolies are privatised. But selling now, with markets so depressed, makes little sense.

Ms Bowes says Ms Clay should increase the money in her savings account to £5,000 for an emergency fund. NatWest does not offer the most competitive savings rates, so she could transfer to the Northern Rock Tracker Online Account, which pays 4 per cent interest. If she is not going to invest more than £250 a month she should take out a mini-stocks and shares Isa so she can hold her emergency savings in a mini-cash Isa. Safeway offers the best easy-access mini cash Isa, at 4.2 per cent.

Mr Willans says Jupiter High-Income, with which Ms Clay has her Pep and Isa, is a well-performing fund but he feels she is too exposed to the stock market and should diversify. A balance of cash, corporate bonds, property and equities would reduce volatility and give her a smoother return.

Solution 2: Pension

Mr Willans says Ms Clay is right to be sceptical about the value of the state pension when she retires. But he warns her not to look on her business as being her pension. Instead, she should make a separate private arrangement. Her present pension contribution equates to £200 a month, after tax relief. Based on reasonable assumptions, she could receive a pension of £7,420 a year in today's terms. This would equate to 25 per cent of her earnings at age 65. To replace her present earnings, she would need to build a fund of £443,750 in the next 30 years and the premium would be £588 per month after tax relief.

Mr Morris-Coole says Ms Clay should know that the 50 per cent of her Norwich Union pension in a with-profit fund will almost certainly be subject to a market value adjuster (MVA) if switched to alternative funds within the plan or transferred to another provider. The MVA is a deduction from the fund value to dissuade policyholders from withdrawing value from a with-profits fund, other than in specific predefined circumstances, when market conditions are depressed.

Ms Clay's scope to switch funds within her plan is limited. It might be prudent to redirect future contributions from with-profits to other investment funds within the plan.

Solution 3: Property

Mr Milner says there are signs the housing market is slowing at its peak. And rising oil prices, caused by a war in the Gulf, could increaser inflation, leading to higher interest rates. Given Ms Clay's high level of mortgage borrowing requirement, this could leave her with greater borrowing cost and negative equity if house prices fall. It seems wise to wait.

Mr Bowes says if Ms Clay wants to buy a property she will need to build up a fund she can use as a deposit. She could link her pension or her Isa to a mortgage with an interest-only mortgage, using the fund she has in her Isa or 25 per cent of her stakeholder pension fund to pay off the capital. She must remember there is no guarantee it will pay off her mortgage, and this also will mean she does not have those funds available to boost retirement income.

Mr Willans says Ms Clay should see a new property as a home, not an investment. She should try to select a mortgage that will protect her against a concerted rise in interest rate. He recommends a capital repayment option, as this will give her greater certainty in her planning.

Mr Morris-Coole says conven-tional mortgage protection, which includes redundancy, may be the wrong product for the self-employed because of the definition of "redundancy" in most plans. A sickness/disability plan with a short period between the event and the ability to claim may be a more economic and practical alternative for Ms Clay.

Solution 4: Business

Mr Milner says Ms Clay could make her business a limited company. This would allow her the first £10,000 of profit tax-free, with dividends instead of pay. This has accounting costs but may be more cost-effective if her business expands.

Ms Bowes says Ms Clay should maintain income protection and critical illness cover, but review policies regularly to ensure she is paying competitive premiums and the cover is still adequate.

Mr Willans says Ms Clay will need to expand her business to increase her earnings. She may wish to run both units and employ a full-time assistant, or franchise her operation into neighbouring areas. She could use business finance to fund additional costs, rather than tying up her own capital, and interest could be offset against earnings.

If you would like to be given a financial health check-up, please write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.