Granny's cash is vanishing

Nicky Philpott
Age: 32
Lives in: Brixton, London
Occupation: Charity worker
Earns: ?18,000
Mortgage: ?82,000
Debts: Credit cards
Investments: ?10,000 in Nationwide Invest Direct
Pensions: Non-contributory company scheme
Aims: To make the most of an inheritance

Nicky Philpott inherited money from her grandparents but much of it was quickly used to get a car and meet solicitor's fees for buying a flat.

Today she has £10,000 left and wants to be sensible before it all goes: 'I guiltily think I should do something more positive with this money but I am ignorant as to what and I occasionally still dip into it. For example, I only got the statutory minimum maternity allowance when my son Ruben was born and needed money to stay at home.'

Nicky and her partner Adam work in the voluntary sector. Nicky works three days a week as a campaign adviser for the NSPCC: 'I earn £30,000, well I could if I worked full time. It is a toss-up between spending enough time at home and bringing in some money.' She realises that she ought to tie up the inheritance money so she cannot get her hands on it and believes she can afford to: 'Between us we pay £1,600 into a joint account to cover expenses like mortgage, our son's nursery fees, bills, food etc. This leaves me with, in theory, a spare £300 to £350 a month.'

The reality is less convincing: 'I normally pay off my credit cards every month but having a child has seriously affected my financial status and I can go overdrawn now if I am not extremely careful. We get caught out by regular bills. I have just had to pay for the breakdown cover on our car which I had completely forgotten about.'

Although they need a larger home, they cannot afford to move: 'I think we ought to keep a couple of grand in case we have some huge problem, like the roof caving in.'

Nicky wants to earmark some money for Ruben: 'I want to start a regular savings account to help Ruben through university but it depends how much money we have left over and obviously it is not that much.'

And she wants to plan her pension: 'Pensions have been a nightmare. I thought I had been a good responsible citizen when in 1995 I took out a pension. I moved jobs and kept up some payments myself. I ended up at Age Concern England and joined their pension scheme, using my previous pension to buy into it. I left them in February 1999 after about 18 months and was offered about £700 which I took and used while on maternity leave.'

She is now in the NSPCC pension scheme: 'This is non-contributory so I assume I will get peanuts. I am aware I may never be able to afford to retire, although it is something I want to do early. I need to sort out some supplementary pension arrangements, especially as I am a part-time worker and my pension is correspondingly small.'

Adviser 1: Christopher McWilliams

Nicky feels that ?2,000 is a reasonable cash reserve, but she could increase this to at least ?3,000 for unplanned expenditure. She should repay her credit card debts and overdraft as the interest rates are high. She can then divert her monthly repayments to other needs, saving any surplus.

Any money she may need within five years should go into a deposit account paying a good rate of interest - a mini cash Isa would be best as it is tax free. A notice account helps avoid temptation to touch the funds.

If she can hold the money for more than five years, a stocks and shares Isa provides potential tax-free growth. Nicky may like an ethical fund given her interest in social issues.

Nicky's pension is a valuable benefit which will not necessarily give her the peanuts she expects. She could pay Additional Voluntary Contributions (AVCs) but, as she earns less than ?30,000, is better with a stakeholder pension, either through her employer or independently. These have low charges and she can contribute up to ?3,600 a year or ?2,808 after tax relief. The scheme is hers to take with her should she change job. It also offers a range of investment options, including ethical funds.

A regular-saving unit trust is suitable for Ruben's university costs. This offers potential medium to long-term stock market growth with the ability to take money out as required, either gradually or in a lump sum.

Christopher McWilliams works for Sedgwick Independent Financial Consultants

Adviser 2: Anna Bowes

There are several ways for Nicky to improve her circumstances, especially as she is sensibly addressing her future requirements now.

Non-contributory pensions are good, as the employer makes all the contributions, but Nicky should still boost her retirement savings. She could add to her company pension through the main scheme if possible or through Additional Voluntary Contributions. Or, as she earns less than ?30,000 a year, she could invest in a stakeholder pension and take 25 per cent in tax-free cash on retirement. This is not possible with AVCs.

Also, stakeholder pensions are portable. She can invest up to ?234 a month net. We recommend Norwich Union or Standard Life.

If Nicky leaves her inheri tance accessible, it is likely to be frittered away. Anyway, cash is not great at the moment as interest rates are low.

She must keep some money for emergencies: internet bank Cahoot is paying 6.20 per cent gross. There are more opportunities for the remainder of the money as she is prepared to invest for a few years. She can save up to ?7,000 in a maxi stocks and shares Isa, using unit trusts or investment trusts such as ABN Amro UK Growth, Investec European Portfolio and Credit Suisse Transatlantic, or a global fund such as Fidelity International. She can use these funds outside an Isa if she has already used her allowance.

Anna Bowes works for Bath-based Chase de Vere.

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