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    • JNW1918
    • By JNW1918 12th Jul 17, 9:01 AM
    • 3Posts
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    JNW1918
    10k inheritance
    • #1
    • 12th Jul 17, 9:01 AM
    10k inheritance 12th Jul 17 at 9:01 AM
    Hi


    I am 35 and have just been left an inheritance of 10k, which should be used to provide retirement income. It came with advice from an IFA, who has proposed investing the money into an Aviva managed pension, with a 50:50 split between two actively managed funds.


    My concern is that with a find management fee of 0.8% and an ongoing adviser fee of 0.75%, once inflation has been factored in, the investment really wont grow that much in real terms. In fact in Aviva's key facts document they estimate that with a 2.1% growth, once fees are taken out and inflation factored in, the 10k will be worth 11k in 30 years!


    I feel it would be better invested through ISA wrappers into passive tracker funds, minimising fees and enabling me to move the funds as I wish and work them harder to get a better return.


    Any opinions would be really helpful!!


    James
Page 1
    • Shashy
    • By Shashy 12th Jul 17, 9:34 AM
    • 33 Posts
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    Shashy
    • #2
    • 12th Jul 17, 9:34 AM
    • #2
    • 12th Jul 17, 9:34 AM
    I feel it would be better invested through ISA wrappers into passive tracker funds, minimising fees and enabling me to move the funds as I wish and work them harder to get a better return.
    Originally posted by JNW1918
    I agree.

    Did the inheritance come with any conditions for how you'll use the money? If not then you're free to do with it as you please, and since the annual ISA limit is 20k you can go ahead and stick it straight in one (assuming you haven't yet used more than 10k of this year's allowance).

    One quick note on your 'passive' approach: when you say "move the funds as I wish and work them harder" you're really, in my view, talking about actively managing your portfolio. Not that it matters, but what counts as 'passive' is always an interesting discussion point on here.
    • ColdIron
    • By ColdIron 12th Jul 17, 11:13 AM
    • 3,191 Posts
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    ColdIron
    • #3
    • 12th Jul 17, 11:13 AM
    • #3
    • 12th Jul 17, 11:13 AM
    I feel it would be better invested through ISA wrappers into passive tracker funds, minimising fees and enabling me to move the funds as I wish and work them harder to get a better return.
    Originally posted by JNW1918
    Have you dismissed using a SIPP instead of an ISA? You could invest in the same thing with similar charges and still get the advantages of a pension wrapper
    • badger09
    • By badger09 12th Jul 17, 11:59 AM
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    badger09
    • #4
    • 12th Jul 17, 11:59 AM
    • #4
    • 12th Jul 17, 11:59 AM
    Have you dismissed using a SIPP instead of an ISA? You could invest in the same thing with similar charges and still get the advantages of a pension wrapper
    Originally posted by ColdIron
    Or some in a LISA? Especially if OP is a first time buyer.
    • bostonerimus
    • By bostonerimus 12th Jul 17, 1:01 PM
    • 506 Posts
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    bostonerimus
    • #5
    • 12th Jul 17, 1:01 PM
    • #5
    • 12th Jul 17, 1:01 PM
    Hi


    I feel it would be better invested through ISA wrappers into passive tracker funds, minimising fees and enabling me to move the funds as I wish and work them harder to get a better return.


    Any opinions would be really helpful!!


    James
    Originally posted by JNW1918
    I agree with you, although I would not move the funds much after they are invested in a multi asset fund like VLSxx or your simple tracker portfolio.

    However, before you do that pay off all your high interest debt ie credit cards and then put at least 6 months spending in the bank. If anything is left put it in an ISA.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 12th Jul 17, 1:03 PM
    • 506 Posts
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    bostonerimus
    • #6
    • 12th Jul 17, 1:03 PM
    • #6
    • 12th Jul 17, 1:03 PM
    Have you dismissed using a SIPP instead of an ISA? You could invest in the same thing with similar charges and still get the advantages of a pension wrapper
    Originally posted by ColdIron
    If this is an inheritance the the money is tax free to the OP so I don't see any advantage of the SIPP
    Misanthrope in search of similar for mutual loathing
    • zagfles
    • By zagfles 12th Jul 17, 1:11 PM
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    zagfles
    • #7
    • 12th Jul 17, 1:11 PM
    • #7
    • 12th Jul 17, 1:11 PM
    If this is an inheritance the the money is tax free to the OP so I don't see any advantage of the SIPP
    Originally posted by bostonerimus
    If the OP has at least 12,500 relevant earnings (basically employment income) after any other pension contributions, then he can put the 10k into a SIPP and get tax relief added.
    • bostonerimus
    • By bostonerimus 12th Jul 17, 1:17 PM
    • 506 Posts
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    bostonerimus
    • #8
    • 12th Jul 17, 1:17 PM
    • #8
    • 12th Jul 17, 1:17 PM
    If the OP has at least 12,500 relevant earnings (basically employment income) after any other pension contributions, then he can put the 10k into a SIPP and get tax relief added.
    Originally posted by zagfles
    Ahh, that's a nice bump in value immediately.
    Misanthrope in search of similar for mutual loathing
    • ColdIron
    • By ColdIron 12th Jul 17, 1:26 PM
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    ColdIron
    • #9
    • 12th Jul 17, 1:26 PM
    • #9
    • 12th Jul 17, 1:26 PM
    If this is an inheritance the the money is tax free to the OP so I don't see any advantage of the SIPP
    Originally posted by bostonerimus
    That's because you are in the US. In the UK HMRC will rebate basic rate tax of 2,500. Depending on the OPs circumstances after 55 any withdrawals may also be free of tax. The IFA, who knows more facts than we do, concluded a pension was the best way forward, the OP is (rightfully) questioning the charges
    Last edited by ColdIron; 12-07-2017 at 1:28 PM.
    • JNW1918
    • By JNW1918 12th Jul 17, 1:41 PM
    • 3 Posts
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    JNW1918
    Thanks everyone.


    To pick up on a couple of points, I own a house already, and have no debts and have accessible savings for a rainy day.


    I am self employed on a very relaxed basis (my wife is the main breadwinner) and earn c10k pa. How does this affect the tax relief benefit of the SIPP over an ISA?


    And the IFA knew about the same amount as you when he came up with this proposal!


    Thanks
    • zagfles
    • By zagfles 12th Jul 17, 2:59 PM
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    zagfles
    Thanks everyone.


    To pick up on a couple of points, I own a house already, and have no debts and have accessible savings for a rainy day.


    I am self employed on a very relaxed basis (my wife is the main breadwinner) and earn c10k pa. How does this affect the tax relief benefit of the SIPP over an ISA?


    And the IFA knew about the same amount as you when he came up with this proposal!


    Thanks
    Originally posted by JNW1918
    You can't put more than your earned income gross into a pension. (technically you can, but you can't get tax relief on it which generally makes it a bad idea).

    If you earn 10k then you can only put 10k gross into your pension, ie 8k net. So you couldn't put it all into your pension. Did the IFA advise you should put it all into a pension for you? If so he sounds incompetant.

    You could put some into your wife's pension.
    Last edited by zagfles; 12-07-2017 at 3:03 PM.
    • ColdIron
    • By ColdIron 12th Jul 17, 5:03 PM
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    ColdIron
    You can't put more than your earned income gross into a pension
    Originally posted by zagfles
    You can with carry forward if you haven't maxed out your previous 3 years allowance
    • atush
    • By atush 12th Jul 17, 5:08 PM
    • 16,093 Posts
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    atush
    8K into your pension, 2K into a S& isa, or 2K extra into Wife's pension.
    • zagfles
    • By zagfles 12th Jul 17, 6:07 PM
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    zagfles
    You can with carry forward if you haven't maxed out your previous 3 years allowance
    Originally posted by ColdIron
    No you can't. The earnings limit (100% of earnings/3600) can't be carried forwards.

    We have this discussion on the pensions board regular as clockwork, there's a lot of misinformation out there.
    • HardCoreProgrammer
    • By HardCoreProgrammer 12th Jul 17, 11:59 PM
    • 102 Posts
    • 36 Thanks
    HardCoreProgrammer
    I do not know how the charging structure of the IFA, but I feel that you have been given inappropriate advice:

    1. You are on a low income, so your savings may be low. By putting the money into a pension, you cannot access it even in an emergency for at least the next 20 years.
    2. Don't forget that while you get a tax credit while you pay into a pension, you may have to pay tax when cashing out. You have a low income paying 20% tax, so you get 25% tax credit, which will be wiped out if any future withdrawal brings you above the income tax allowance.
    3. As others pointed out, the ongoing adviser fee will eat into the returns. If current predictions are correct, returns in future will continue to dwindle and this 0.75% will become more of a drag on returns.
    4. The IFA mentioned management fee, but not "platform fee" if using a SIPP (e.g. Hargreaves Lansdown charges 0.45%).
    5. Did the IFA ever mention a LISA (where you get the same tax credit but do not have to pay tax when cashing out, unless tax rules change)? This should be a more appropriate option because you can access the funds in the next 20 years if needed (although you will lose the tax credit in this case). If the answer is "no", I would not touch this IFA with a bargepole.

    Please ignore the advice to put it into a pension. It is not appropriate even if there is no adviser fee to pay. Open a LISA and buy some cheap tracker funds. If you do not need the money in the next 20+ years, you gain 25%. If you do need the money, you are no worse off than putting it into an ISA anyway.
    • kidmugsy
    • By kidmugsy 13th Jul 17, 1:13 AM
    • 9,368 Posts
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    kidmugsy
    If you plan to wander through life in low-paying, self-employed work, then a pension is a decent idea because you may well end up drawing money down tax-free by use of your Personal Allowance. But I don't see any need to rush the decision: you are at least 20 years away from being able to draw the money down. Why not use an ISA now, with a view to moving the money into a pension later? Or even use a LISA and move the money into a pension at age 60? That latter scheme sounds good. Even if growth only equals inflation, then in real terms:

    4k -> 5k -> 6.25k. Trebles all round.

    As for "a fund management fee of 0.8% and an ongoing adviser fee of 0.75%", pah! And pah again. Phooey. baloney. Not on your nellie.
    • JNW1918
    • By JNW1918 13th Jul 17, 2:11 PM
    • 3 Posts
    • 3 Thanks
    JNW1918
    Thanks everyone. Seems as though my scepticism was well founded. I'll ignore the IFA's advice and proceed as above!
    • zagfles
    • By zagfles 13th Jul 17, 7:22 PM
    • 11,981 Posts
    • 9,939 Thanks
    zagfles
    I do not know how the charging structure of the IFA, but I feel that you have been given inappropriate advice:

    1. You are on a low income, so your savings may be low. By putting the money into a pension, you cannot access it even in an emergency for at least the next 20 years.
    2. Don't forget that while you get a tax credit while you pay into a pension, you may have to pay tax when cashing out. You have a low income paying 20% tax, so you get 25% tax credit, which will be wiped out if any future withdrawal brings you above the income tax allowance.
    3. As others pointed out, the ongoing adviser fee will eat into the returns. If current predictions are correct, returns in future will continue to dwindle and this 0.75% will become more of a drag on returns.
    4. The IFA mentioned management fee, but not "platform fee" if using a SIPP (e.g. Hargreaves Lansdown charges 0.45%).
    5. Did the IFA ever mention a LISA (where you get the same tax credit but do not have to pay tax when cashing out, unless tax rules change)? This should be a more appropriate option because you can access the funds in the next 20 years if needed (although you will lose the tax credit in this case). If the answer is "no", I would not touch this IFA with a bargepole.

    Please ignore the advice to put it into a pension. It is not appropriate even if there is no adviser fee to pay. Open a LISA and buy some cheap tracker funds. If you do not need the money in the next 20+ years, you gain 25%. If you do need the money, you are no worse off than putting it into an ISA anyway.
    Originally posted by HardCoreProgrammer
    You are worse off, as there's a 6.25% exit penalty (on top of loss of the govt bonus) so you'd be better off with a normal ISA if you need the money before age 60 or to buy a house.
    • A_T
    • By A_T 13th Jul 17, 8:24 PM
    • 106 Posts
    • 37 Thanks
    A_T
    Hi
    My concern is that with a find management fee of 0.8% and an ongoing adviser fee of 0.75%, once inflation has been factored in, the investment really wont grow that much in real terms. In fact in Aviva's key facts document they estimate that with a 2.1% growth, once fees are taken out and inflation factored in, the 10k will be worth 11k in 30 years!
    Originally posted by JNW1918
    For that I would demand an advisor with a crystal ball!

    If you intend using it to save for retirement I would put it in a SIPP - assuming you meet the requirements.
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