Money makeover: "I want to protect my assets for retirement in eight years' time"

14 December 2016

Graeme (pictured below) earns about £37,000 a year as a controller for BT, while Geraldine earns about £43,000 a year as a teacher. Graeme’s son and foster daughter are financially independent.

He has already repaid the mortgage on his home. He last updated his will a year and a half ago. Nothing has changed since then.

Graeme has accrued the following assets (excluding his home) totalling £174,500:

  • £87,700 in BT shares
  • £24,000 in a stocks and shares Isa managed by himself
  • £31,800 in a stocks and shares Isa managed by Wealth at Work
  • £28,000 in a savings account
  • £3,000 in a current account.


Graeme’s private pensions

Graeme also has some good private pension provision. This includes:

  • a defined benefit BT pension projected to yield income of £16,000 a year from age 67; plus a tax-free lump sum of just over £31,000;
  • an additional voluntary contribution (AVC) pension with BT, to which he contributes £200 a month, estimated to be worth about £45,000 at age 60; and
  • a defined benefit civil service pension projected to be worth £1,652 a year from age
  • 60, plus a lump sum of just under £1,000.


Adam Liddelow, an independent financial adviser (pictured below), has stepped in to review Graeme’s situation and give his advice on how Graeme can achieve his financial goals.

Adam works for Liddelow Financial Services, a London and Isle of Wight-based advisory firm that specialises in providing independent wealth management and financial planning advice. This is what he had to say.


Diversify your current investment portfolio

Graeme has around 60% of his investments held in just one company in the form of BT shares. This investment is very high risk, because as we have seen with companies such as Tesco and easyJet recently, big blue-chip companies are not immune to sharp falls in their share prices.

Diversification is key to any successful investment strategy, so Graeme should consider selling these shares and re-investing them in a portfolio of well diversified investment funds.

Graeme has not used his individual savings account (Isa) allowance this tax year. This means £15,240 of any reinvestment can be held in a stocks and shares Isa, and benefit from tax-free growth. Any income taken in future would not be liable for income tax.

This investment could be implemented using the Cofunds investment platform, which charges 0.23% as part of a bespoke deal we have with the platform.

Moneywise says: Cofunds can only be used by clients of financial advisers. However, plenty of investment platforms cater for investors who are making their own decisions without an adviser.

Graeme has expressed an interest in investing in funds exposed to Asia. However, even if he had scored as adventurous on our risk scale – he scored moderately adventurous – it would not be advisable for him to invest a large proportion of his portfolio in a single market.

It is very important to maintain diversification in a portfolio across lots of different markets and sectors. I would not be comfortable suggesting funds in a single market.

A well-diversified portfolio is essential to producing consistent long-term gains. I would recommend the SEI Balanced fund as appropriate for Graeme’s needs. This fund invests in different asset classes, mainly shares and bonds, in various regions globally, including 5% in Japan, 3.9% in emerging Asia and 1.2% in developed Asia.

As you move up the risk scale of the SEI funds, you will find a larger exposure to Asia – with the SEI Aggressive fund, for example. However, given Graeme’s investment term of eight years and the fact that he is starting to think about retiring, I would not recommend he do this – a more balanced approach is more appropriate.


It’s worth noting that whenever you sell an asset, it is vital to do a capital gains tax (CGT) calculation to establish whether CGT would be payable on the disposal. Graeme should be able to get relevant information from the BT share scheme provider.

If there is any CGT due, I would suggest selling the shares over several tax years to use the annual capital gains tax allowance, which is currently £11,100. This way you may be able to sell your shares without paying any CGT.

To help reduce risk even further, Graeme could think about making new investments at regular intervals over six-months or so. This process is called pound cost averaging. It helps to smooth out the fund price paid over a given period.

Graeme says: “I’m not looking to generate any more money, but I want to protect the money I have. My plan is to invest the £15,240 I have in cash savings into a stocks and shares Isa this tax year and then use the next tax year’s higher £20,000 Isa allowance by selling as much of my BT shares as I can in the next tax year without incurring CGT. I’m planning to follow Adam’s advice to invest in the SEI Balanced Fund.”

Request an early retirement illustration

Graeme is a member of the BT pension scheme. This pension is a defined benefit arrangement, which means the pension payable at retirement is based on Graeme’s salary and length of service. The pension is index linked, which means it will increase by at least the level of inflation each year, which is a very valuable feature.


Between him and his employer, Graeme contributes £191 a month to the pension. The normal retirement date for a BT pension is 67. Graeme is set to receive a pension of just over £16,000 a year and a tax-free lump sum of just over £31,000.

Graeme plans to retire at 60, but although early retirement is possible in the BT scheme, this will reduce the projected pension at retirement. I suggest Graeme requests an early retirement illustration so that he can see what he would be due to receive at age 60. This can be taken into account when planning for his future.

Graeme says: “I have checked this with BT. Its forecast suggests I’ll get more than £11,000 a year plus a lump sum of more than £16,000, or just over £9,000 a year plus a lump sum of just over £61,000 if I take my pension from age 60.”

Top up your pension with cash savings

It is important to maintain an adequate emergency fund. Although individual needs and circumstances vary, a fund equivalent to six times your average monthly expenditure is often considered appropriate.

However, it is wise not to hold too much money that you do not envisage needing over the long term in cash because of the destructive effect inflation can have on savings.

Graeme has £31,000 in savings and current accounts. I suggest leaving around £15,000 in his savings to act as his emergency fund and investing the remaining £16,000.

Graeme could consider making a lump-sum contribution into his AVC pension scheme. The lump sum would attract tax relief at his marginal rate of income tax, which is 20%. This means that for a contribution of £16,000, with tax relief added, £20,000 will actually be invested in his pension and would benefit from tax-free growth.

Graeme says: “I’m happy with my pensions as they stand. My main BT pension is expected to be worth between £9,000 and £11,000 a year from age 60 and I only need about £1,000 a month to live on. So I don’t see the point in adding more to my pot. I don’t want to accrue a massive pot that I won’t use before I die.

I’m planning to convert my house into two separate flats, one for myself and my partner to live in and another to rent out so that I will earn an additional income from this.”


Moneywise says: When we checked if Adam thought buy-to-let was a good idea, he said: “Graeme will not be affected by the more severe changes to buy to let, namely the increase in stamp duty, which took force in April 2016, and the reduction in mortgage interest tax relief phased in from April 2017, because he will not require a mortgage or need to purchase a property to complete the conversion.”

Graeme says: “Overall, I’m very pleased with the money makeover experience, and I’m very happy with the service I’ve been given by all parties involved. Thank you all.”

Key recommendations for Graeme

  • Diversify your current investment portfolio so that it’s not
  • weighted so heavily to BT shares
  • Consider topping up your AVC pension with cash savings
  • Request an early retirement forecast from BT


None of the above should be regarded as advice. It is general information based on a financial report conducted by Adam Liddelow, an independent financial adviser at Liddelow Financial Services in London.

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