Wealth Check: Time out to raise a family so the savings must go to work

The patient

Time off work to raise a family has left Emma Bagnall, 42, anxious about her finances. Emma, from Highbury, north London, is a graphic designer but has not worked since May last year. In place of a salary, she receives 1,000 from her husband every month. This sum is used to provide for their two children, Jonas, six, and Albie, three, and pay household bills.

"I was contributing to my own savings accounts and pension plans regularly, but stopped when the children came along," she says. "I hope to pay into them again soon as I think it's important to have a separate pot of savings to your partner."

So far, she has built up a good sum in various places, with 22,000 in an Icesave instant access account paying 6.3 per cent. She also has 400 in an individual savings account (ISA) with Chelsea Building Society at 5.35 per cent.

As well as cash savings, she holds some equity investments, with 5,600 in a with-profits bond at Scottish Widows. But this has proved a poor performer, as her original investment was 5,000 eight years ago. In contrast, she put 7,000 in the Jupiter Income Trust five years ago, which has soared in value to 11,900 and is wrapped in an ISA.

Fortunately, Emma has no debt and benefits from living in a mortgage-free home. The family's four-bed house was bought in February 1999 for 335,000 and is currently worth around 700,000.

She also has several separate pension plans from previous employment.

"I feel I have so many bits of pensions everywhere," she says. "And I worry that I don't understand the plans or their performance."

She has 12,200 in a Norwich Union stakeholder through an old employer, along with 27,760 in a personal pension with HSBC. She also has a total of 47,500 in three separate Friends Provident personal plans, which she has held since the early 1990s.

Emma has no protection policies in place.

The cure

Erratic working lives, including time out to raise a family, often leave women struggling to set aside long-term savings consistently. But Emma is in a stable financial position and our panel of independent financial advisers (IFAs) stress that, with a bit of tinkering, her portfolio should produce better returns.

Savings/investments

Emma should ensure her investments are as tax-efficient as possible. When she can, she should use her annual tax-free ISA allowance of either 3,000 for a cash account or 7,000 for an equity ISA (3,600 and 7,200 respectively from next April).

"She should transfer money from the Icesave account to use this year's ISA allowance," says Caroline Hawkesley of IFA Evolve Financial Planning.

Some of her cash savings could be drip-fed into a unit trust to plan for any school fees, adds IFA Matthew Woodbridge from Chelsea Financial Services.

Emma's with-profits bond has not even kept pace with inflation. Moving this money would be wise, so long as she doesn't suffer a hefty exit penalty.

Retirement

Pooling her pensions will make them more cost-effective, agree the advisers. As a possible home, Mr Woodbridge recommends a self-invested personal pension from fund supermarket Cofunds. "Housing it all under one roof will also make it easy to monitor performance and switch to less risky funds as she nears retirement," he says.

But before transferring the money, she should check if this means giving up any guarantees. She should also watch out for punitive exit fees, warns Colin Rothery of IFA Throgmorton Financial Services.

Protection

With two young children, life cover is essential if either Emma or her husband were to die, says Mr Rothery. A whole-of-life policy, paying out a lump sum on death, can be put into trust so any proceeds are outside their estate for inheritance tax purposes.