Wealth Check: 'How much of my recent inheritance can I spend?'

Click to follow
The Independent Online

Hilary Jackson, who works in medical knowledge management for the NHS, inherited cash and some shares after her mother died last year. She paid off her mortgage and has the balance of the money in a current account, with Smile.

Hilary Jackson, who works in medical knowledge management for the NHS, inherited cash and some shares after her mother died last year. She paid off her mortgage and has the balance of the money in a current account, with Smile.

Ms Jackson has no dependents and wants to enjoy some of her new-found financial freedom. Her main extravagance is running a classic Jaguar XJS, but she also likes travelling and collecting art.

The NHS pension scheme should guarantee her retirement income. But she wants to know whether she should pay into a Stakeholder pension, and if she should put money aside for long-term care.

Her main concern is whether her money is working hard enough for her. She wants to know how much money she should set aside for planning for her old age, and how much she can enjoy now.

We put her case to Justin Modray at BestInvest, Kevin Tooze at Equal Partners and John Donaldson at Think Positive.


Salary: £29,000

Debt: None

Property: House in Cambridge, no mortgage

Savings: Bradford & Bingley fixed-rate Isa; Bristol & West cash Isa. Savings and current accounts with Smile (£40,000, including inheritance).

Investments: Shares in Friends Provident and Abbey National. Inherited portfolio of shares (co-owned with brother) of £11,000. £12,000 in Jupiter fund. Endowment policy due to mature next year.

Pension: NHS scheme

Outgoings: £600 a month


Ms Jackson is a member of a pension scheme, which will pay two thirds of her final salary and which is protected against inflation. Mr Modray says, despite this, Ms Jackson can take out a Stakeholder pension plan. As long as her income stays below £30,000 she can pay up to £3,600 (£2,808 before tax relief).

If she wants to give her pension an immediate boost, Mr Donaldson says Ms Jackson can pay in £7,200 now, using this year's and last year's allowances. Mr Tooze points out that Ms Jackson could actually take a tax-free lump sum and income now, or she could wait until she is 75.


Mr Donaldson says Ms Jackson should separate her funds into pots for spending now, over the next five to 10 years, and in the longer term. Some should be in cash, and some in the markets.

Mr Tooze says Ms Jackson is not saving as much as she can, given her relatively low outgoings. Mr Tooze recommends she moves money from her Smile account - paying 3 per cent gross - to a savings account such as ING Direct's, that pays 4.6 per cent. Mr Modray suggests Ms Jackson considers alternative cash Isas, such as Abbey's at 5.1 per cent. She could also look at Skipton Building Society's bond, which pays six per cent until August 2007.


If she has already paid into her Jupiter Isa in this tax year, Mr Tooze suggests Ms Jackson would be best off paying in more, to bring the total up to £3,000. Through the company, sheshould be able to find funds that match her criteria for risk and income or growth.

Mr Modray says Ms Jackson's shares and Jupiter holdings give little diversification to her portfolio. Alongside a global fund, such as Artemis Global Growth she could invest in a bond fund, such as Isis Strategic Bond, or a commodities-based fund such as JPMF Natural Resources.

Mr Tooze says that as Ms Jackson's shares are held with her brother, they should be re-registered into individual ownership, in order to maximise tax allowances. She should then consider diversifying by moving funds into a unit trust or open-ended investment company.

Ms Jackson should be able to build up a portfolio of around £50,000 by the time she reaches 60. This should provide an income of £2,000 a year, and still have some potential for capital growth.


Mr Donaldson cautions that the average care home can cost £20,000 a year. Ms Jackson could use tax-free cash from her pension, or money from her endowment, to buy a long-term care policy. This could be a single premium, an investment-linked policy or an additional annuity to top up her retirement income, in order to pay for care.

Mr Tooze suggests Ms Jackson could take out an insurance bond, allowing a 5 per cent tax deferred withdrawal each year. If she invested the money from her endowment in this way, it would bring an income of £850 a year, enough to pay for a holiday.


Mr Tooze says Ms Jackson could cut maintenance costs for her Jaguar XJS by switching to a limited mileage insurance policy. As she is over 50, she could also approach SAGA, which offers cheaper rates.

Mr Donaldson says art and classic cars are not mainstream investments, but with care it is possible to risk some money on items that might appreciate.

Looking for credit card or current account deals? Search here