General Retirement Plan Question.

Flimber

My Mum is due to receive her first pension payments from next February and wants to put the money away for at least a year without touching it (and possibly for as many as five years worth of payments).

What is the recommended thing to do in this situation ? I believe some institutions offer a bank account tailored towards pension savings but are they the best option ? The amount of money we're talking about is around £100/wk.

I'm sure this question will be covered elsewhere on MSE and I will search thoroughly when I get a chance but in the meantime I'd appreciate any help, advice or pointers to past threads etc.

Thanks,
Mike.

dunstonh

My Mum is due to receive her first pension payments from next February and wants to put the money away for at least a year without touching it (and possibly for as many as five years worth of payments).

Does she have to take the pension? If a personal or stakeholder pension, then it can be left beyond the original selected retirement age upto a maximum age of 75. Benefits are further growth, better annuity rates when she does retire and if she was die before commencing it, the full lump sum value would be paid out.

What is the recommended thing to do in this situation ? I believe some institutions offer a bank account tailored towards pension savings but are they the best option ? The amount of money we're talking about is around £100/wk.

Not they dont. Indeed, commencing a pension to fund a regular savings contract could be considered a mis-sale under certain circumstances. If the pension absolutely has to commence, then it gets paid into her account. If she then wishes to commence a regular savings contract, then an ISA would make sense as the first point off call for this money.

margaretclare

If she really doesn't need the money i.e. she is planning to put it away and not touch it, then she might be well advised to defer taking it.

Have a look at this:

https://www.dwp.gov.uk/mediacentre/pressreleases/ 2005/apr/state_pens_rules.asp

Apparently if people defer, for one year or longer, they get more when they do start claiming it. Your Mum will have to decide whether this increase will be more than she might get in interest if she takes the money and puts it into e.g. an ISA.

HTH

Aunty Margaret

EdInvestor

If it's a state pension, then the advice seems to be that it's better to take it and save/invest the money than to defer.

If a personal pension, it may be best to defer, BUT depending on what it is invested in ( especially With profits funds) be very careful about how this is done, as you can incur exit penalties.

This idea is probably too complex for the OP's Mum, but others in this position could consider moving the money into income drawdown in a SIPP, taking the 25% tax free cash and getting that invested an ISA, while leaving the other 75% invested in the SIPP in until needed, as you now are not required to take a (taxable) income when in drawdown.

The same advantages as DH mentions above, expect that if you die in drawdown your dependants won't get the full fund returned.Instead they will get a lump sum minus a 35% tax deduction - or an annuity on the full remaining fund.