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  • FIRST POST
    • lauragriff
    • By lauragriff 8th Jul 17, 4:11 PM
    • 4Posts
    • 1Thanks
    lauragriff
    Pension help for daughter trying to help parents?
    • #1
    • 8th Jul 17, 4:11 PM
    Pension help for daughter trying to help parents? 8th Jul 17 at 4:11 PM
    Hi
    My parents are unsure of the best step to take In Regard to their private pension. They are 63yrs and 62 yrs however my mother has been diagnosed with dementia.
    They are looking at either:-
    Take out 25% tax free lump sum of £21 k and then have a monthly income of £230
    Or
    Take the full cash lump sum of £61k.

    They had planned to just take the £21k out but now with my mums diagnosis they're unsure. They will use the money to pay £10k off my brothers tuition fees (retook a year in uni), £8k to pay their car loan/debts.

    Will the savings affect their state pension?
    My mother currently also gets ESA (£5k per year) and she has PIP.
    They own their own home which they are also looking to sell as it's too big so will have surplus cash from this too.

    Any advice, they've seen financial advisors but just keep going around in circles and are so indecisive. This is really stressing my mother out as she is worried if they take the full sum of money out they will end up with no regular income if they then use the savings up.
    I don't know of the best way to advise them?
    Tia x
Page 1
    • xylophone
    • By xylophone 8th Jul 17, 4:44 PM
    • 23,470 Posts
    • 13,648 Thanks
    xylophone
    • #2
    • 8th Jul 17, 4:44 PM
    • #2
    • 8th Jul 17, 4:44 PM
    Take the full cash lump sum of £61k.
    Had they considered the consequences in terms of taxation?

    Whose pension is this, your mother's or your father's?

    An appointment with Pension Wise might be useful.

    https://www.pensionwise.gov.uk/styleguide/pages/appointments

    If means tested benefits are required, cash gifts could be considered as deprivation of capital as could paying off debts without necessity.

    http://www.justadviser.com/documents/means-tested-benefits-and-pension-flexibility-1312231.pdf

    https://www.sheffield.ac.uk/polopoly_fs/1.531608!/file/pension_flexibilities_dwp_benefits.pdf

    Have your parents each obtained a new state pension statement?

    https://www.gov.uk/check-state-pension
    • xylophone
    • By xylophone 8th Jul 17, 4:47 PM
    • 23,470 Posts
    • 13,648 Thanks
    xylophone
    • #3
    • 8th Jul 17, 4:47 PM
    • #3
    • 8th Jul 17, 4:47 PM
    Has your mother considered LPA while she is still able?

    https://www.gov.uk/power-of-attorney/overview
    • lauragriff
    • By lauragriff 8th Jul 17, 5:36 PM
    • 4 Posts
    • 1 Thanks
    lauragriff
    • #4
    • 8th Jul 17, 5:36 PM
    • #4
    • 8th Jul 17, 5:36 PM
    Yes it would be £61k after tax.
    It's my Dads pension.
    • bigadaj
    • By bigadaj 8th Jul 17, 7:42 PM
    • 10,734 Posts
    • 7,018 Thanks
    bigadaj
    • #5
    • 8th Jul 17, 7:42 PM
    • #5
    • 8th Jul 17, 7:42 PM
    Yes it would be £61k after tax.
    It's my Dads pension.
    Originally posted by lauragriff
    Are you sure it's after tax, the numbers are normally quoted gross.

    It would probably be best to draw the sum down over a number of years, normally 25% is tax free and the rest is taxed as income. So if it is drawn over a number of years then tax could be minimised or even avoided.

    Is your father still working?

    In terms of using the money then paying off their own debts would be fine but best to avoid paying for the student loan, that wouldn't be a good use of the pension money.
    • xylophone
    • By xylophone 8th Jul 17, 8:46 PM
    • 23,470 Posts
    • 13,648 Thanks
    xylophone
    • #6
    • 8th Jul 17, 8:46 PM
    • #6
    • 8th Jul 17, 8:46 PM
    http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-position-when-i-take-money-my-pension-flexibly

    Are you sure about the tax?
    • seven-day-weekend
    • By seven-day-weekend 9th Jul 17, 6:52 AM
    • 29,711 Posts
    • 55,541 Thanks
    seven-day-weekend
    • #7
    • 9th Jul 17, 6:52 AM
    • #7
    • 9th Jul 17, 6:52 AM
    It will not affect the State Pension, but may affect any means-tested Pension Credit (*if they get that).
    To love someone is to learn the song in their heart and to sing it to them when they have forgotten it
    'I believe in Christianity as I believe that the sun has risen. Not only because I see it, but because I see everything by it': C.S. Lewis
    'Let me tell you this one thing. When you fall out, as you will, don't get blaming each other. Look inside yourself first'. - Hilda Ogden, to Sally on her wedding day to Kevin, Coronation Street 1986. '
    • tomhill
    • By tomhill 9th Jul 17, 11:00 AM
    • 49 Posts
    • 11 Thanks
    tomhill
    • #8
    • 9th Jul 17, 11:00 AM
    • #8
    • 9th Jul 17, 11:00 AM
    Hello,

    A few thoughts from me. I think that you'd do well to jot down what you think their income, capital and expenditure is likely to be going forwards. So for example:

    Capital
    Dad's pension: £60k
    Excess capital from downsizing: £50k
    Other savings: £3k

    Income
    Dad's state pension: e.g. £8300
    Mum's state pension: e.g. £5000
    ESA: £5000
    PIP: ???

    Expenditure
    Food:
    Travel:
    Heating etc:
    Debts: e.g. £200 month for X years.

    From this, you should be able to see how much you've got to play with and how much you need.

    On the limited information that you've provided I'd be thinking about the following things:
    - Do both of your parents have full NIC contributions? If not, how much would it cost them to top them up and how much would it earn them?
    - Is it worth dropping (some of) the excess money from their (potential) house sale into a pension? For every £8k that they put in the Government would add another £2k to the pot. That could come in handy.
    - How much are the car loans costing them in percentage terms. Is there a cheaper way for them to finance this (e.g. regular unsecured loan)?
    - Are your parents entitled to carer's allowance on the basis of your mother's diagnosis?

    As other's have said, it's unlikely that taking the full amount out as a cash lump sum is the best idea as you'll be stung for higher rate tax at the higher amount. You'd be better off taking the tax free lump sum and then filtering the rest of the money out over several years.

    Another option you might want to consider would be to leave the £60k in the pension and top it up with some of the proceeds of the downsized. Say that that took the value up to £100k. If your parent's then took roughly 4% a year out of that then they could be relatively confident that that would be sustainable and last them for the rest of their lives. You'll obviously have to consider how that money's invested though, but there's other threads and discussions that can help with that.
    • sleepless saver
    • By sleepless saver 9th Jul 17, 2:58 PM
    • 2,668 Posts
    • 2,398 Thanks
    sleepless saver
    • #9
    • 9th Jul 17, 2:58 PM
    • #9
    • 9th Jul 17, 2:58 PM
    If they are going to have capital from downsizing, do they need to take the pension now? And is your father still working?
    • sleepless saver
    • By sleepless saver 9th Jul 17, 3:01 PM
    • 2,668 Posts
    • 2,398 Thanks
    sleepless saver
    Hello,

    A few thoughts from me. I think that you'd do well to jot down what you think their income, capital and expenditure is likely to be going forwards. So for example:

    Capital
    Dad's pension: £60k
    Excess capital from downsizing: £50k
    Other savings: £3k

    Income
    Dad's state pension: e.g. £8300
    Mum's state pension: e.g. £5000
    ESA: £5000
    PIP: ???

    Expenditure
    Food:
    Travel:
    Heating etc:
    Debts: e.g. £200 month for X years.

    From this, you should be able to see how much you've got to play with and how much you need. ...
    Originally posted by tomhill
    She won't be able to get ESA once she reaches state pension age. The PIP will carry on.
    • AnotherJoe
    • By AnotherJoe 10th Jul 17, 8:58 AM
    • 7,600 Posts
    • 8,201 Thanks
    AnotherJoe
    Paying off the student loan is a poor idea since it may never need to be paid and even if it is, the son has a lifetime of earnings to pay it off from, why take it from the parents who need it right now?
  • jamesd
    I'll write you when I really mean them because it's really them I'm writing to.

    If the student loan is a standard one, read this site's guide and don't pay it off. If you want to help, a property deposit helps much more, in part by cutting living expenses.

    It's a bad idea to take the taxable money from the pension in one lump because that just increases the income tax bill and wastes money. Instead, spread it over at least two tax years so only basic rate income tax is due. Looks as though it may be three years until he reaches state pension age so he has two or three tax years where he can probably take out over 10k a year of taxable money tax free because it's within the allowance. After he claims his state pension he may still have personal allowance unused and could use that to get more money out tax free.

    Taking money out doesn't mean spending it all. It can be put onto an ISA to generate ongoing tax free income.

    I suggest learning about Ablrate and MoneyThing peer to peer lending. With both you can reasonably anticipate ten percent or so interest after allowing a couple of percent for bad debt after the security for the loans has been taken and sold. Ablrate expects their ISA in a few weeks, MoneyThing in a few months. I expect them to be able to generate £6,000 a year from say £60,000 this way, tax free.

    Between 55 and 74 people can pay £2880 net into a pension and get basic rate tax relief added even if they aren't tax payers. Then tyou can take out the £3600. An extra £720 a year of no risk income for a person with sufficient income tax personal allowance to cover the whole taxed portion, else £180 if no personal allowance is available. You can both do this to get a nice income boost.
    Last edited by jamesd; 10-07-2017 at 10:20 AM.
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