Bloomsbury Financial Planning

He and his wife have two children at private schools, which cost £7,700 a year. Davidson would like to save up enough to see his daughters through university and provide them with the funds to purchase a car and put down a deposit on their first homes.

The couple would also like to have around £72,000 in cash for emergencies. Davidson recently remortgaged his house and borrowed an additional £40,000 to pay for renovations.

Marc Ruse, chartered financial planner at Fiducia Wealth Management, says that the couple's plan to achieve financial independence in 10 years' time is ambitious but achievable as long as they take a flexible approach to future savings. However he says that Davidson's relatively high mortgage is not consistent with his low-risk investments.

"Think of a mortgage as a negative investment," he says. "Unless the rate of return on your investment is significantly greater than the rate of interest you are paying for your mortgage, then maintaining a mortgage and investing elsewhere achieves little. You are effectively borrowing in order to invest."

Ruse

says it makes sense to reduce the mortgage as quickly as possible. One possibility is to switch to an offset mortgage, says Steve Caps, certified financial planner at Ramsay Brown Financial Services. With these all the funds are held in a separate account and offset against mortgage interest payments, which can reduce the gross interest payable without adverse tax consequences. Paying off the mortgage early could be done at the expense of pension contributions - except for those that gain an employer contribution - as long as the couple keep their contributions into individual savings accounts (Isas) up to date, says

Ruse

.

Ruse

would like to see greater balance between Davidson's pension funds and those of his wife. If they have similar-sized pensions they will be far better placed to make provisions in the event of either one of them dying prematurely.Under the current pension rules it is possible to invest up to 100 per cent of earned income into a pension up to this year's allowance of £225,000. However

Ruse

says that investing in a pension only becomes really attractive when you obtain higher rate tax relief on the contributions. Because of this he recommends that Davidson's wife, who is not a higher rate taxpayer, should cease payments to her stakeholder pension.

Robert Lockie, certified financial planner at Bloomsbury Financial Planning, says that Davidson has obtained sufficient insurance to cover his family's expenditure in the event of his being unable to work. The couple have also been sensible in organising wills and arranging enduring power of attorney.

As long as the couple's investments return at least 5 per cent per annum, which is reasonable, Lockie says financial independence is sustainable.

The substantial pension pots Davidson has accumulated might be best placed in a low- cost self-invested personal pension (Sipp), in order to provide access to low-cost passive funds rarely available to individual pension investors via other vehicles, says Lockie.

"Restructuring the portfolio to reduce costs would simplify future management," he says.

If Davidson wished to include active management within his portfolio, Lockie suggests diversified investment trusts, which offer lower annual costs than unit trusts.

Davidson is interested in the benefits of Isa saving over pension contributions, and Lockie says that the argument in favour of Isas is that the internal tax treatment of the funds is the same as for pensions but with lower costs.

In order to meet the demands of school fees and university costs, Caps says the couple should consider contacting the schools to see whether they would accept payment in advance at a discount. He estimates that it will cost £38,000 to fund the education needs of both girls, and payment in advance is a particularly tax-efficient way of paying for the fees as the discount can sometimes be equivalent to (or in excess of) the gross rate achievable on bank or building society accounts.

Finally

Ruse

notes that the couple invest each month in Premium Bonds, which provide an annual rate of return of 3.8 per cent. The odds of winning a prize, he says, are 24,000 to 1 and it is therefore worth investing the maximum allowance of £30,000 to obtain prizes, or nothing at all.

Names have been changed