Please help large amount of money coming and dont know what to do with it!

clare25

Hello all,

A strange title I know but bear with me this is a long one!

It’s not actually mine it’s my dad. Basically his pension at work has ended and new one starting, he was due a very large pay out at retirement but has the option of taking it now (but not as much) plus a monthly payment of £400 and then start paying in to the company’s new scheme. He is 53.

Well he has decided to take the payout now and start up a new scheme. He is now going to receive £26,000 in April!

Basically he doesn’t know what to do with it. He intends to pay off debts which come to £5,000 including overdrafts so has around £21,000 remaining. Ideally he wants to put it away to so it earns interest and so he can still use it if needs be in a emergency but add to it as well basically so he still has most of by retirement.

What would you suggest?

Many thanks for reading if you got this far!

Primrose

As your Dad's going to continue working and remaining a taxpayer, it sounds as if he'll have around £20K in April to put by for his retirement, so using up his £5100 annual Cash ISA allowance might be a sensible option. It sounds as if he might be risk averse, so using up the remainder of his annual £5100 allowance in an equities ISA might not be what he wanted to do, even though his eventual retirement age could be sufficiently far off to make investing in equities an option. If he picks an easy access ISA, he could use that for emergency money. The remaining £15,000 he could perhaps put in a one year fixed term bond, and when it matures, roll another £5100 of it into another year's Cash ISA allowance, putting the residual £10,000 into another one year bond, until the whole amount is gradually transferred over into tax free savings. He will then have a tax free £20K nest egg for when he eventually retires. He needs to bear in mind though, that in the possible 10+ years until his retirement, if we have high inflation, the value of his cash savings could depreciate considerably.

Another option, although he would lose access to the money until he retires, would be to use some of the money to make a voluntary additional contribution into his new pension scheme as the money would be grossed up for tax, helping him to gain a larger pension later on, to compensate for the low pension he is now receiving. At least that way, some of his spare money could be invested in equities and benefitting from any stockmarket rise. He could find that by the time he finally retires, inflation has vastly eroded the value of his £400 monthly pension and it won't stretch as far as he thought.

He might want to consider getting some professional advice if he's worried about the damage inflation could make on his savings until he's old enough to retire.

EdInvestor

What's he planning to do with the £400 a month?

clare25

EdInvestor wrote: »

What's he planning to do with the £400 a month?

Im not sure think he would like to pay that into some sort of saving scheme too.
who would have thought getting money would be such a difficult thing

evenasus

clare25 wrote: »

who would have thought getting money would be such a difficult thing

Money can be a pain, as I've said before.
Finding homes for maturing bonds not knowing whether to go for fixed terms or not.

Your father could put some into the Newcastle 3 year bond paying 4%. He could access this money without penalty by giving 90 days notice. http://newcastle.co.uk/savings/fixedratebond39?ref=ad3a