‘I’m turning 50 but financial advisers refuse to help me with my small pot of money’

Dear Kyle,

I’m turning 50 in two months’ time and have suddenly realised I need to start preparing for my retirement. I recently read the article ‘We have £3.25m, no mortgage and no kids – do we have enough to retire?’ and was exceptionally envious of the choices the featured couple have made with their money.

It sounds like I have made the exact opposite choices to them. I’m feeling lost and, to add insult to injury, I’m being turned away by financial advisers because my pot of money is too small for them to want to help me.

I only started paying into a workplace pension over the past few years while working in the sustainability arena in the corporate sector. Three years ago, I moved into the public sector and immediately took on a civil service pension. I have only recently understood the benefits of the salary average civil service pension, and I’m pleased I made this move.

I earn £70,000 in my public sector role (which I know is a very healthy salary) and my boyfriend, who is self-employed, earns £30,000. He is 10 years younger than me and has no pension. I’m paying a lot into my two workplace pensions, so I’ve dropped down into the lower tax bracket threshold, and pay 20pc tax, not 40pc.

I have a mortgage with my boyfriend of approximately £125,000, the house is worth £400,000. We have no children.

Sadly, my parents recently passed away and I will inherit approximately £100,000 from the sale of our small family home in South Wales.

I have the following investments:

I’ve tried to get investment advice on my inheritance of £100,000 by contacting various financial advisers in the Oxfordshire area and while they are all very nice and polite they will not help me. They all say a very similar thing – my inheritance is so small it is not worth them helping me out.

I understand that my £100,000 might be an insignificant amount to financial advisers, but to me it is a lot of money, and it means so much to me because my working-class parents saved hard to leave me this legacy. I want to make sure I make the most of it.

So, my questions are:

• What shall I do with the £100,000 to secure a relatively safe financial future? I’ve been considering diversifying and putting £30,000 into a pension, £30,000 into stocks and shares, and £30,000 into an Isa/savings. I’m aware of the £20,000 Isa limit, but I’m thinking that I could max out my Isa each year and put the rest into a high-interest savings account until the following year.

• If I go with the above, should I put my £30,000 into my private or public sector pension? I cannot access my public sector pension until I’m 67.

• Should I consolidate my pensions into my civil service pension? This does mean I cannot access anything until I hit retirement age (currently 67).

• If I invest in stocks and shares, how do I do this and what exactly do I do? I have no idea how to go down this route and it feels very scary.

• How do I maximise my opportunities to give myself a financially healthy future? I want to feel financially secure to the best of my ability.

Warm wishes,

- Emma

Dear Emma,

In this column, my main focus is to offer practical pointers on the holdings within investment portfolios rather than stray too much into financial planning or tax consideration.

But, as you’ve unfortunately been turned away by financial advisers, I will start by offering some suggestions based on things I know having been a financial journalist for most of my career. However, please bear in mind that I’m not a financial adviser.

To start off, I would work out what “financial security” and a “financially healthy future” mean for you. Work out when you want to retire, what you want to do in later life, how much income you will need for a dream retirement, and the financial goals you want to achieve before you get there.

Working those things out will allow you to make the best choices with your £100,000 inheritance, whether that means boosting retirement provision, keeping money more accessible, paying off debt, or a combination of these.

I don’t know your exact pension contributions, but I assume you still have scope to pay in more. You can pay in up to £60,000 in total this tax year and get tax relief. You can also carry forward allowances from the past three years, so that is worth looking into.

The other option is to buy extra years in your civil service defined benefit pension. This means securing extra future guaranteed income, instead of building a pot of money. The decision between extra income and adding to your workplace defined contribution pot essentially comes down to risk and flexibility.

Would you prefer the certainty of knowing what the investment will secure in retirement? Or would you prefer to invest this money, accepting the unpredictability of investment markets, but with extra flexibility – such as being able to draw money out sooner?

I would ask yourself the same questions when considering whether to consolidate your pensions into your civil service pension.

Bear in mind that as current pension contributions have reduced your adjusted net income below the higher-rate tax band, further contributions will attract only 20pc tax relief. This is not necessarily a problem, but something to think about.

In terms of using Isas, as you say, you can save or invest £20,000 into a cash Isa, a stock and shares Isa, or a combination of the two, between now and April 5, when the allowance resets.

For the £30,000 you are considering investing, the first port of call would be to utilise the Isa allowance you have left this tax year. The rest can be put into a general investment account.

Once the new tax year starts, consider redirecting money from this account to the Isa wrapper by doing what’s known as a “Bed and Isa” transfer. This is a process where you sell holdings outside tax wrappers and repurchase them within your Isa.

Provided the profit you realise for the tax year in question (you can also deduct any losses you’ve made) is within the capital gains tax allowance, it should not trigger a tax charge.

You mention that there’s an old cash Isa that doesn’t have a great savings rate. It would be prudent to transfer this to somewhere offering a better interest rate, or invest the money if you have a sufficient cash savings buffer and no short-term plans to access it.

Next, the million-dollar question of where to invest and what to invest in. As you are a novice investor, I would suggest keeping things simple to start with by “owning the market” through index funds or exchange-traded funds (ETFs). I’ve invested in these types of funds, but also have so-called active funds, in which a professional investor aims to outperform the market.

In terms of index funds, I would suggest looking at multi-asset funds, which invest in shares and bonds, and are low cost. Such funds are a one-stop shop to the world’s markets and are viewed as an ideal starting point for beginners due to the diversification offered by the spread of investments.

The market leader is Vanguard’s LifeStrategy range, and its 20pc, 60pc and 80pc equity funds sit on Interactive Investor’s Super 60 list of fund ideas. BlackRock’s MyMap investment range does a similar job, alongside Legal & General Investment Management’s Multi-Index funds and abrdn’s MyFolio Index range.

Before committing money to the stock market, decide what you want to achieve, how long you are planning to invest for, and how much risk you are prepared to take. It is key to understand your tolerance for risk as well as your appetite for reward.

With the three index ranges mentioned above, some of the funds are more conservatively invested by having a lower exposure to shares. Due to this, when stock markets fall such funds should be better equipped to protect your capital. The trade-off, however, is that when markets rise, funds that are more cautiously positioned will generate more modest returns.

Funds adopting a medium-risk approach have about 60pc in shares and 40pc in bonds, while funds that are classed as being adventurous will typically have 80pc or more in shares. Such funds offer the possibility of higher returns over the long term but tend to protect capital less when markets fall.

The other option, for those who don’t want to pick their own funds, is to consider managed products. After completing a questionnaire, investors are directed into a fund. At Interactive Investor, we have our own Managed Isa, which offers investors access to a range of diversified portfolios, with annual fees starting at just 0.13pc.

Kyle Caldwell is funds and investment education editor at Interactive Investor