IFA - do we need one?

sylblake

My husband is about to take early retirement, we are considering taking lump sum plus pension (final salary scheme). We have two choices, one to take lump sum plus pension, the other is to take lump sum with a larger pension now ie £1757 pa more now but would reduce by £4381 when he is 65, he is 58 now. The lump sum would be £12,000 more with this option.

We are considering investing part of redundancy payment £28967 (taxable part) into pension, this would save 40% tax ie £11,000. We could take cash free sum of £5652 plus additional pension of £848 pa. We do not know whether it would be better to do this or just pay the £11000 tax and we would have £17000 to invest where we liked. Pension is linked to RPI up to 5% pa.

We have to make these choices in the next week or so, should we consult an IFA, if so where and how would we find one. I have looked on SAGA site, they offer this help but do not say how much the charges would be.

Any advice would greatly appreciated.

dunstonh

We have to make these choices in the next week or so, should we consult an IFA, if so where and how would we find one. I have looked on SAGA site, they offer this help but do not say how much the charges would be.

Do you know what you are doing? If yes, then you dont really need an IFA. If you don't know, then yes you do.

Any advice would greatly appreciated.

Can't give advice here. Breach of board and FSA rules. We can discuss things though and give suggestions for you to investigate.

We are considering investing part of redundancy payment £28967 (taxable part) into pension, this would save 40% tax ie £11,000. We could take cash free sum of £5652 plus additional pension of £848 pa. We do not know whether it would be better to do this or just pay the £11000 tax and we would have £17000 to invest where we liked. Pension is linked to RPI up to 5% pa.

That has it's pros and cons. It could be potentially disastrous depending on your financial circumstances and future events. Although it could also be good value for money as well. It would depend on your overall situation as to whether that is best or not.

sylblake

What circumstances could lead it to be a disastrous decision?

EdInvestor

What other pensions/savings investments do you have? How about your state pension? Have you looked at the tax situation if you put more money into pensions ( don't forget pension income is taxed).

You need to look at the impact of pension income ( versus ISA or other income) on your tax allowances.It's quite a complicated equation, it might be sensible to see an accountant for some advice.

dunstonh

What circumstances could lead it to be a disastrous decision?

One example of many...Plough all your money into pensions in one name. That person then dies not long after retirement and all the pension income can die with them. Leaving the surviving partner with limited income and having to adjust to a lifestyle on low income.

You need to look at the impact of pension income ( versus ISA or other income) on your tax allowances.It's quite a complicated equation, it might be sensible to see an accountant for some advice.

Not sure what good an accountant would be. This is an IFA area, not an accountant area.

sylblake

The reason for ploughing an extra £28000 into pension fund was to give a lump sum of £5670 and also an extra pension of £840 pa, we would not have to pay £11000 tax (as this £28000 would be at 40%).

We have other savings and a property.

Trying to work out whether it would be better to pay the £11000 tax and have a lump sum of £17000 now to invest where we liked (we are 58 & 56 yrs) or to take the pension option which would rise by RPI, also giving spouse half pension on death.

EdInvestor

It may be worth doing a breakdown of your income when you are 65, taking into account all sources for both of you - pensions, rents, dividends, interest etc . Then taking into account both age allowances, see what is the optimal way to structure the income from the tax point of view.

Quite often people end up with too much income in taxable pensions and not enough in tax free ISAs or non taxable direct investments or too much in one person's name rather than shared, thus leading to losses.

It can be helpful to "work backwards" so as to get it right.

dunstonh

You should also take into account who gets paid what on death to make sure the income is not lop sided.

sylblake

Thanks to both of you for your time, will sit down and take all this into consideration.