Nursing your way to wealth

Natasha, 59, from Cornwall, has taken over the family finances and would like some pre-retirement advice.

I am a nurse working part-time, married to a GP, 61, who is retired but still working two days a week. We both plan to continue working in our present jobs for a couple more years.

I took over our finances when Bob, my husband, became ill two years ago and stopped working full-time. I was helped initially by a friend who works for AXA. But I am slightly concerned that I am not getting an independent opinion.

I would like us to be financially secure when we do retire. Over the past two years, I have paid off our mortgage and outstanding debts. Our home is worth £320,000.

Our investments are as follows: one £20,000 with-profits AXA investment bond, £24,000 in stocks and shares Isas with AXA (now worth a lot less), two cash £3,000 Isas, £1,000 premium bonds, £2,000 savings in a deposit account with Lloyds TSB. We also own a few shares in Sun Life of Canada and Canada Life. My husband receives an NHS pension, but he also contributes £234 a month to an AXA stakeholder pension plan.

My basic take-home pay is £8,253. I am purchasing two extra years in my occupational pension and if I were to retire in 2004, my pension is predicted at £1,673.97 a year with a lump sum of £5,000.

I have an elderly mother of 94 whose affairs I look after. I am sole heir and executor of her will. When she dies, I will consider buying a smaller property in our village, initially to rent out and then to move in when our present house has become too big. Is this reasonable?

We have one dependent daughter of 20, who has just started at university, and still needs to be supported financially, and two other children aged 30 and 28.

I am thinking about making a new will and have been advised to set up a discretionary trust to help avoid inheritance tax. Is this a good strategy? I have no idea.

Action plan

You aren't doing too badly for a novice. Paying off your
mortgage and other debts was a wise decision. And
sheltering your savings from tax within Isas was
another good move.

Putting all your investments under one roof is more
worrying. This is the problem of dealing with financial
advisers who are tied to one company. They can only
advise you about that firm's products. It is better to
spread your risk by investing with different companies.

Neil Moss, of independent financial advisers Maskell
Moss, believes your portfolio should also have been set
up on a more balanced basis so you were less at the
mercy of movements in the stock market. He suggests
transferring your Isa holding to one of the fund
supermarkets, such as Fidelity FundsNetwork, where
you can select a portfolio of several fund managers
within the same Isa.

Your husband could also consider redirecting his
pension contributions to another provider, although
independent financial adviser Gill Cardy, of
Professional Partnerships, questions whether he
should be putting more money into a pension at all at
this stage when he already has an NHS pension. She
says: 'If he is already ill, he may not live long enough
to get the full value from the pension. Natasha, on the
other hand, is not so well provided for and when he
dies she would normally only get half his pension. So
they should consider making further investments in her
name to ensure her financial position is better
protected on his death.'

She says your financial planning should be aimed at
making sure you will have enough money to live on -
not just at retirement, but throughout your life
expectancy, with allowances for contingencies. So you
first need to look at what your income requirements will
be in retirement.

You should distinguish between 'required' expenditure,
money which is necessary to meet all your obligations,
and 'discretionary' expenditure, money for the things
you would like to have if money permits, such as good
holidays. Then you look at the income you already
have, and which you can predict, to find out whether
there is a shortfall or a surplus.

Existing investments can generate extra income when
you retire. Your Isas can be switched to higher-income
generating funds, such as corporate bond funds. The
income will be tax-free.

The advice you have had to set up discretionary will
trusts is sound. Cardy says: 'Discretionary will trusts
are a superb idea for minimising inheritance tax.' She
suggests your mother rewrites her will so that her
money bypasses you into a trust as well. This would
enable both you and your children to benefit from it
without it increasing your potential inheritance tax bill.

As to whether buying property to rent is a good
investment is difficult to answer, says Moss. 'It will
depend on the type and position of the property and
the state of the rental market locally.' You have to
consider whether you are prepared for the hassle of
organising lets and essential maintenance or whether
you would prefer to delegate this to a letting agency. If
you do, this would have on impact on your potential
rental return.

For truly independent advice, consult a fee-based
financial adviser who could carry out a thorough
analysis of your financial position. In particular, you
should ask for a review of your with-profits bond
holding. One prominent financial adviser, Bestinvest,
has recently suggested that many with-profits
bondholders may be better off surrendering their
holdings and investing their capital elsewhere, even if
this means taking a loss. Moss points out that it may
be possible for you to switch to AXA's distribution fund
which is geared towards the provision of income.

Consulting a fee-based adviser would probably cost
you several hundred pounds but it could save you
money in the long run. Most advisers are happy to
arrange an initial meeting at no cost. It is always a
good idea to speak to two or three before deciding
whose advice you feel most comfortable with.

Natasha's plan

1. Look for ways of diversifying your investments,
such as transferring your Isas to FundsNetwork,
which also provides model portfolios (0800
414161, or online at www.fundsnetwork.co.uk).

2. Consider stopping payments to your husband's
stakeholder pension and setting up one in your
name instead, or taking out another Isa.

3. Consult an independent adviser about the best
course of action with your with-profits bond.

4. Contact the Society of Financial Advisers, 020
7417 4442, or The Institute of
Financial Planning, 0117 945 2470, for details of
advisers in your area.

5. Go ahead with using your will to set up
discretionary will trusts, and consider advising
your mother to do the same.

6. Consider the cons as well as the pros of buying
to let.

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