Financial advisors?

Just remember, they all make money by selling you stuff. There is no such thing as an independent financial advisor, and no advisor will say 'pay off your mortgage' as they'll make nothing from it

Do you have a pension already?

Much will depend on how much the inheritance is and what your attitude to risk is. Right now you can get about 6% in savings accounts so if you are on a fixed-rate mortgage of (say) 3%, you may be better off investing the money. And you could put the max amount away each year into an ISA - currently you can get about 5% (tax free).

We have had various over the years with various levels of 'advice' for us. They have fallen in to 3 categories

1. Only in it for them - the ones trying to just get a commision

2. Ones who have had some knowledge on mortgages ie which companies are likely to lend, which take the least time etc.

3. Actual ability to advise on the so what but ie predictions on what our pension pot may be worth if we do x, y or z. Predictions on what we do if we over pay on our mortgage by £200, £500, £1000 etc

All of them want to sell you something because thats how they make money. We have only come across 1 who fits criteria 3.

In a nutshell pensions is the most tax efficient way of saving your hard earned cash, but you need to be cash rich to do it ie not want access to the money. Are you working still ?

Go to an advisor, let them gather info from you, expect them to go away and come back with options, but explain the options. Then go away, think, research their response.

If they try to get you to sign up when they first come back with their recommendations, run for the hills is my experience.

But we also have a mortgage

When is the current period ending? It could go up £100's per month, and how long left to pay? If you have a cheap mortgage I wouldnt rush to pay it off. If however your rate will go up soon, maybe pay off the mortgage and pay the equivalent of mortgage payment in to a pension as that will be more tax efficient on the money you earn.

I’ve never used one but seen the advice given to family members. Some of it was fine, if totally obvious and not really worth the fee. Some of it was appalling and to be avoided at all costs - which thankfully I managed to persuade said family member to do.

The major benefit of a pension is saving tax on salary when you pay in. The downside is locking it away. I wouldn’t be looking to put a lump sum into one.

The major benefit of a pension is saving tax on salary when you pay in.

But obviously, an inheritance isn't taxable so I wonder if a pension would be the right approach here?

I am always dubious of the value of financial advisors unless you have a lot of money or a very complicated financial set up.

For most people who are at least slightly financially literate, they should be able to look at various options such as pensions, ISAsm property and other 'normal' investments and come to some conclusions themselves. (by 'normal' I mean not cryptocurrencies, emu farming or all the other scam adjacent investments out there)!

For most people there is sense in having some savings in easily accesible format that would cover 3-6 months of spending in an emergency such as if you are unable to work. Exact amounts may depend on other things such as critical illness/redundancy insurance, but the basic idea of an emergency fund is a good one.

Pensions are usually one of the best investments, as the government gives you free money on investing, and this is usualy worth more when you come to draw it out. Again this will depend on your age, pension type (defined benefit or defined contribution) and if it is a DC scheme how your money is invested. Again most people can do a bit of resarch to figyure this out, and there are plenty of pensions calculators available to give you an idea of how much you may need to retire on at what age.

Paying off a mortgage is often not the most effective financial strategy. As others have said there are safe investments that sill give you a higher return (depending on your mortgage rates, how long you have left on a fixed rates, early repayment fees etc). However the psychological benefit of actually owning your own house is not be under-estimated, and is really important for some people.

TLDR - know what your plans are (when do you want to retire for example?), understand the financial products you already have (mortgage, pension) and what else is available such as ISAs, and make some decisions based on that.

EDIT TO ADD - also bear in mind that you can do several of these - pay off some of the mortgage, put some into a pension, and some into a stocks and shares ISA. It doesnt have to be all or nothing

But obviously, an inheritance isn’t taxable so I wonder if a pension would be the right approach here?

You could put the inheritance into a decent savings account with a monthly standing order withdrawal for your living expenses then put 100% of your salary into the pension each month and just live off the inheritance for a while - pound cost average the fund and very tax efficient. I'm clearly not an accountant tho. Also, Op - sorry for your loss

Are you saying it's either pension and/or mortgage?
If yes, I would say you don't need a FA.
Is/are your pension(s) work-based or SIPP?
If work-based you will be constrained by the scheme rules.
As for mortgage, you could check the impact of paying off a lump sum and/or monthly overpayments - if either or both options are available.
Do you have a 'financial cushion' to cover 3-6 months of living costs? If not, that would be a good start point before deciding what to do with the rest.
As for FAs - search online and use ratings to compile short list; request initial free meeting with each - they will give you c30 mins but will be non-commital and very general; be prepared to answer questions about your appetite for risk; use a chartered financial planner in preference to a FA.
Without knowing more about your circumstances I don't think it's possible to say anything more - other than...if you decide to use an FA, avoid St James' Place.

However the psychological benefit of actually owning your own house is not be under-estimated, and is really important for some people.

Agreed - even if you have savings enough to cover the full cost of a mortgage, actually owning your own home must be a great feeling.

But obviously, an inheritance isn’t taxable so I wonder if a pension would be the right approach here?

As far as the gvernment is concerned it is your salary that is paid into the pension (and gets the tax benefits), and you can then spend the inheritance on living costs. At the end of the day it is all money!

As far as the gvernment is concerned it is your salary that is paid into the pension (and gets the tax benefits), and you can then spend the inheritance on living costs. At the end of the day it is all money!

Yeah I did wonder about that, but that would assume the OP currently pays tax I guess.

I'm with ji above but having been brought up to be comfortable with money and investments (thanks to my father) gave me a bit of a head-start. Trickling it into your pension may be the best option for a long-term return but you may want to keep some out of that to be more available. Paying down the mortgage is another obvious possibility.

(Although the inheritance itself isn't taxed and therefore no point pensioning it directly, you can spend this money on your living expenses and simultaneously put a larger part of your salary into the pension, which amounts to the same thing but gives a tax boost. Hence my comment about trickling it in, as it may take a few years depending on the amounts involved.)

To echo others, every time I've spoken to a financial advisor, they've tried to sell me something  and not really given me any useful information.

If you know that you need a certain product then they can be useful.

Martin Lewis et al give better general advice IMO.

It is possible to get truly independent financial advice, although the lower limit is £1 000 000 and they're called "wealth management" at that level.

Are you saying it’s either pension and/or mortgage?

...mmm...  Pretty much, yes. I think. Or something like S&S ISA's. But I feel like that could make things more complicated than they need to be?

Some more context, in response to the questions above!

Yes we do work and pay tax, and are in our mid-late 40s
The mortgage is 3% until summer 2025. This isn't enough to pay it off, but would make a big dent in it. Otherwise it's probably got another 10-12 years.
We do have pensions, but only since the last 10 years or so. Mine is a DB Local Govt jobby where you can buy extra pension for a fixed amount. MrsDoris' is a DC one which her company put the bare minimum into, and which doesn't appear to be doing an awful lot.
We do have 6 months living costs squirreled away. We're pretty lucky really. This feels like such a 'first world problems' thing to be typing out. But most of my adult life has been a complete financial shitshow so it's uncharted waters!

...and thanks for all your helpful comments so far, it's really going to help me figure things out 🙂

Just remember, they all make money by selling you stuff.

Pretty sure the commission model isn't allowed anymore and they have to charge up front for advice, which probably means you get better advice.

Under the rules introduced after RDR, firms are no longer permitted to earn commission from new advised business but they can still receive commission from legacy (pre-RDR) business subject to certain conditions and from non-advised business.

https://international-adviser.com/commission-makes-revenue-uk-ifas/

Financial advise is a good idea. You can claim the tax back on your earnings for money you put into your pension (ie: of you earn 50k this year and pay a lump £20k into your pot you can claim the tax back), but this only applies up to the point where you're paying tax (ie not the last 12k) and you can claim back national insurance. Better to put the funds against your mortgage or in an ISA (one each) and then salary sacrifice your salary down to siphen money from there into your pension at the highest rate of tax efficiency

It's also worth noting that the max you can pay off your mortgage above the base payments is often 10% of the remaining value. If you get a premium bonds account each you could put a total of £100k in, with no risk (interest isn't guaranteed but the base will remain), for 3 years, and it should be worth more than if you paid off your mortgage (4% return on bonds, tax free at the moment).

As I said the best thing that our financial advisor did was give us some predictions on our pension pots, and monthly income post retirement, on a best, medium, worse basis, retiring at 60/65/68

We are both NHS (although different and complicated pensions) but it gave us financial confidence to plan for our future.

It sounds like you have £10s'k of inheritance rather than £100s'k of inheritance. Whatever you do saving or investing wise isnt going to get you a big return quickly.

As has been said above if you want to increase your pension, you are best doing that from your salary, but that leaves you with less cash month to month. All you can do is overpay on a mortgage and keep the payments the same, or reduce the term when you next remortgage. So in essence you use the cash from inheritance to live off, maybe accessible from some for of quick access ISA

I was in a similar position due to a compensation payout.

Mainly due to mad Liz Truss I wound up paying off the mortgage completely. The biggest difference for me is that I am now lumping much more into S&S ISA and savings, but drip feeding in monthly which being a bit risk averse means I should in theory smooth out the ups and downs.

I use Vanguard and echo avoiding St James's Place. I had an ISA with them and fees were a joke to be honest.

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For a DB pension you'll have to do some sums to see if the per-year cost is a good deal or not.

I've used one and found him to be invaluable in researching, tracing and then consolidating all my pensions - he even gave me free mortgage advice. Sadly he retired and the the jury is still on the new guy but i'll check back at the end of August.

We have ended up with 'a bit of all' - so we are

1. dropped a lump sum off our modest 1.19% mortgage 18months back.
2. opened two S&S ISA's with lump sums which, after a poor start, are now doing OK.
3. opened up two cash savings accounts which we pay into monthly at 5.5%
4. I was fortunate enough to get a recent payrise and had my company move to salary sacrifice - so have upped pension payments each month AND further increased payments due to the new system.
5. mrs_oab is on a Scottish teachers pension.

Depending on how everything goes we are aiming to pay off the mortgage within 5 years using ISA's and savings, and contribute a bit more to my pension ongoing.

We are of course in a very fortunate place financially - and while the increases in savings and overpaying are totalling the hundreds, not thousands, it will pay off long term.

Pretty sure the commission model isn’t allowed anymore and they have to charge up front for advice, which probably means you get better advice.

They can no longer work on commission, but they can charge an ongoing fee for advice. This is usually a percentage (around 1-1.5%) of the portfolio under advice, and that percentage is, you'll never guess, exactly the same as the commission percentage they used to take. The amount they take hasn't changed, and it's still paid for by you directly out of your investment, they just changed the name from commission to fee and have to be more upfront about it.

As I said the best thing that our financial advisor did was give us some predictions on our pension pots, and monthly income post retirement, on a best, medium, worse basis, retiring at 60/65/68

There are many online pensions calculators that will do this for you.

Paid the mortgage off. Very liberating being mortgage free. Lots more holidays, less worry, can happily tell middle managers to get lost and leave me alone to do my job, sack me if you don't like it.

Could have had a bigger pension but I like an active lifestyle and we're all in a slow physical decline and gambling how long we will live for.

Not sure you really need a Financial advisor as on a smaller amount any advice is likely to cost you any benefit it might bring.

Pay what your can (example 10%) off your mortgage, put 20k in each of your ISAs and lock the rest up in a bond for a year. Next year repeat until all the money is gone.

Why do I say this, DB pension is a nice secure benefit which you will be able to count on later in life. But it will not be accessible to you until 57 or maybe later depending on the scheme rules. If you want to do something earlier even if its taking a sabbatical and heading round the world for 6 months having money in ISA's and no or a low mortgage will enable this.

(I am not a financial advisor!)

max you can pay off your mortgage above the base payments is often 10% of the remaining value

depends on the mortgage- ours was with Nationwide and it was based on 10% annual overspend of the initial advance.

Could have had a bigger pension but I like an active lifestyle and we’re all in a slow physical decline and gambling how long we will live for.

Yep I’ve known a few people gear up for a happy retirement which they never reached.

Ended up happier for the replacement hubbys thou 🙂

Putting it into a pension is still a risk though right? What if that company goes under?

It sounds like you have £10s’k of inheritance rather than £100s’k of inheritance. Whatever you do saving or investing wise isnt going to get you a big return quickly.

That's right, it's in the 10's.  Just over a year's salary. I'm not after a big quick return really, or even squeezing every last £1 out of it -just being reasonably smart!

Could have had a bigger pension but I like an active lifestyle and we’re all in a slow physical decline and gambling how long we will live for.

Aha, now here's the real spicy one, which I need to scratch my head over.  It would make Yossarian grin. I have two chronic medical issues. One of them is probably permanent and means I cannot count on good health in my later years. Maybe I'll be lucky. Or maybe I won't! Who knows! Fingers crossed! So that suggests I should try and 'live life to the full' now.

But my Long COVID means I can't 'live life to the full'. I can't go MTBing or hiking, and the idea of an exciting 3 weeks in the Alps is exhausting just to think about. A 90 min drive requires a lie down afterwards. Two pints makes me feel sick. I gave up drumming. Hopefully I'll recover in the next few years. Maybe I'll be lucky. Or maybe I won't! Who knows! Fingers crossed! Maybe if I do recover, an earlier retirement will help me catch up on lost fun!

Without wishing to be too morbid, your circumstances sound like they might be more in the "get your mortgage paid off, enjoy things while you can" camp than the "plan for a long and active retirement" one.

IHN +1. I'd suggest you balance what the cash would let you do right now to make life better vs what might it enable in the future.

With the NHS in free fall, it can be handy to have a fund in place to pay for private consultation too.

Good shout FunkyDunc. I spent a few hundred squid last year to shave about 12 months off a waiting list. Which I felt guilty about, but hopefully by opting out of that NHS queue it moved everyone else forwards by 1...

Without wishing to be too morbid,

Nope, not morbid at all! Appreciate all the comments.

Putting salary into a pension and living of the inheritance may be a good idea. If your employer will put more in when you do, go for the employer pension, if not, open a SIPP. Note the annual allowance of £40k, total per year across all pensions, but you can carry forward unused allowance from the previous 3 years. The real value when putting salary into a pension if if you're paying 40% - put enough in to get below the threshold.

With a company pension there's no point putting in salary that's within your personal allowance; you're not being taxed on that anyway. For a SIPP, you put in your after-tax earnings and the Government boosts them up 25% (ie, to what you'd have had before 20% tax). I'm not sure about this, but you might be able to get that boost on anything, even if it wasn't all taxed at 20%. But you can't put in more than you earn.

In recent years I've become more about enjoying life now while healthy and working less. So less pension later on. If I need to do more work later in life I will. People then say, "But what if you're not healthy enough to work when you're older?" Well, if I'm not healthy enough to work, I'm also not healthy enough to do the things I really enjoy, so might as well get paid to sit at a desk when I cant be doing anything else.

> annual allowance of £40k

60k this tax year, 40k previously (assuming you don't earn enough to get tapered).

> I’m not sure about this, but you might be able to get that boost on anything, even if it wasn’t all taxed at 20%. But you can’t put in more than you earn.

This is correct (though where 'earn' = 'relevant earnings', e.g. doesn't include pension income, rental income, divis etc.) .  The earnings also are only for the current tax year - so although you can carry forward unused allowance, you cannot 'carry forward' previous years earnings in order to get more tax relief.

The moneysavingexpert pension forum is very good for this kind of thing.

With a company pension there’s no point putting in salary that’s within your personal allowance; you’re not being taxed on that anyway. For a SIPP, you put in your after-tax earnings and the Government boosts them up 25% (ie, to what you’d have had before 20% tax). I’m not sure about this, but you might be able to get that boost on anything, even if it wasn’t all taxed at 20%. But you can’t put in more than you earn.

Well, higher rate tax isn't a worry at least!

I think I might understand this - are you saying that if you lived off the inheritance for a year and earn, say, 36k, you could salary sacrifice 24k into the work pension and put the other 12k (ish) into a SIPP?

If you are higher rate tax payer, pension returns on top of tax relief will always better than mortgage rate (or we are all doomed). I'd pay all you can afford up to £60k per annum each into pension whilst you can, then live off the inheritance and finally take the cash at retirement as 25% of pot each and pay the mortgage off as needed.

IANAFA

I'd say it probably depends on how much we're talking about and are you looking at investments as well? If it's £250k+ and you want to invest a good chunk of it (outside of a pension) an FA could be worth it.

I inherited a decent amount myself 18 months ago (but less than £250k), used some for a car, some for some home improvements and will pay off my mortgage next month (waited until my fixed rate deal ended).

The remaining amount I'll likely just invest in a mix of relatively safe managed funds and some high risk gambles (have already maxed out ISAs with it), have also made sure it's not sat in a single bank account above the protected amount whilst I procrastinate (anything I've moved has been to 'high' interest accounts with 60-90 day notice periods).

I've raised my pension contribution significantly but I don't intend to put any lump sums directly into my pension. Firstly it loses all liquidity then and secondly my pension's been under-performing vs some of the popular managed funds so without the tax incentive I don't really see the point (I'm over 10 years from retirement, maybe if I was closer to retirement it would make more sense). The main thing I'm not factoring in is capital gains tax...

Given what you have said about your physical health, this is the best advice:

Without wishing to be too morbid, your circumstances sound like they might be more in the “get your mortgage paid off, enjoy things while you can” camp than the “plan for a long and active retirement” one.

You get the benefit now, rather than a benefit in 20+ years time.

This frees up cash now, and gives you the flexibility to either spend on fun stuff or putting extra into a pension (along with any additional employer contributions)

Ihave not read all the replies but I am in this position myself. there is a possibility I might need to access it fairly soon

I have put a load in premium bonds ( with a big sum you will almost certainly get a halfway decent return not hthat much less than other safe ways of investing and a chance of a big payout) maxed out an ISA and the rest is going in an interest bearing current account - bar a bit I gave to my dad to play with shares with as he has a fine record with shares

If it turns out I do not need it all soon then I will look at putting some more into an ISA next year and then seek advice on the rest

I aim to have the lot spent in ten years

I might need to access it fairly soon

Ah, that explains the young lass’s motive behind the wining & dining!

tj - I can help you spend your money; let me know.

@tjagain - Quote "with a big sum you will almost certainly get a halfway decent return not [that] much less than other safe ways of investing"

In reality this is not really true. With 'average' luck you get less than 4% on sums of £5K+ invested. These days it is easily possible to get this as a guaranteed return (safe link to Moneysavingexpert, not a get rich scheme).

Of course you may win a million tax free. You may have already maxed out your annual tax free savings interest amount. You may be paying a higher rate tax of tax, but the majority of people are not doing any of these things and Premium bonds are not a "halfway decent return"

@ the OP. I listen to Pete Mathews Meaningful Money podcast. He is a UK Financial Advisor who has been doing podcasts for years. He thinks most people will not need a financial advisor except in exceptional circumstances and I think you are in one of them; Listen to his podcast linked above.

I am a mortgage broker - if I am asked the first answer is pay off your mortgage.

I am a mortgage broker – if I am asked the first answer is pay off your mortgage.

So you can sell them an equity release product in a few years time? 😉

In reality this is not really true. With ‘average’ luck you get less than 4% on sums of £5K+ invested.

I'm gettin 4.6% on my isa ( maxed out my allowance)  3.5% on a savings account.  4%ish on the premium bonds is not far off that with a chance of a big payout - and the bonds can be redeemed instantly

yes I am a financial ignoramaus.  I was not really recommending a course of action - I was saying what I as a financial ignoramus had done in a similar situation to the OP 🙂

4%ish on the premium bonds is not far off that with a chance of a big payout

Trouble is the 4% average includes that big payout so it pushes the average up. Most people don't win the big prize so most people get a much lower annual return.

I like watching Meaningful Money on YouTube and James Shack, both have different styles but both seem pretty canny.

I have a general mistrust of FA's, no idea if this is justified.

We have just been through the same process as you. Inherited £175,000, we have paid of a BTL that was on a flexible tarrif and had reached 5.9%.

We have put aside £67,000 to pay off the other BTL as it comes due in October.

Put £20,000 in a cash ISA, £25,000 in my pension (will add a bit more once I get my books done) and the rest in the best interest accounts we can find with withdrawals a year.

At 52, our focus is trying to sort out my previous stupidity at not understanding how compound interest works and why I shouldn't have stopped paying into my pension years ago.

I also feel pretty strongly that we shouldn't worry too much about every single penny as that seems like a great way to make yourself unhappy.

Why oh why do schools teach us so many things that we will never use but don't teach us the things we will definitely need.

I grew up in a family with no spare money and plenty of credit card debt. My family didn't have any money to invest to pass on the knowledge.

Perhaps most importantly, we put £2880 into a SIPP for our 12 yr old and will endeavor to do this each year.

So you can sell them an equity release product in a few years time?

Equity Release gets a bad rep, but there's nothing wrong with it as a concept - you get to spend and enjoy some of the cash that's wrapped up in the value of the property you own.

I think most of your questions have been answered here, but if it was me, ( and not knowing the amount ) I'd be spreading it around. A bit in the pension, a bit off the mortgage , ISA's and and cash you can get hold of should you need it. I don't know if you have kids, but starting a pension now for them with say 10k in, would benefit them greatly in the future.

Update: we didn't see a financial advisor.

We did go through this - https://ukpersonal.finance/flowchart/ - and a couple of other useful links.

After topping up the emergency fund and ringfencing some coming expenses - the roof needs work, our '09 car may need replacing at some point - there really wasn't enough to bother a professional with. So we just split the remainder between pensions and mortgage.

Thanks for all the viewpoints! 🙂

That's a nice flowchart! I have seen something similar before, but that one seems more comprehensive

Used several IFAs over the years. Helpful.

Before engaging one figure out your financial goals. Any book on the subject will help if this is new to you (Alvin Hall’s for example). Or moneysavingexpert.

My thoughts always go to tax efficiency: how can I get  most of the value.  Once you’ve accounted for any unavoidable losses (inheritance tax?) that often means pension savings, but that’s fairly long term. Though if you are a pension ‘late starter’ you’ll get the advantage of compounding.

you could put the max amount away each year into an ISA – currently you can get about 5% (tax free).

ISAs may make sense. But the tax savings are limited and there are many constraints. Moneysavingexpert and IFA would help here.

I've used one, intermittently - actually, over the years, several.

Some so-so - and the ones through work were uniformly sharks.

One up here was so-so - they wanted me to transfer my pension over to them which I was not prepared to do.

As a couple, we have had a review - paid for (a decent amount of work went into it) - and some of that was pension related too. In the end we picked the bits we wanted, but ignored the actual "transfer" parts of their proposals.

The same one, for balance, advised my mum and was spot on - sure they got commission, but it was stuff I would;'t have worked out or organised.