Late retirement planning

therapist

Hi
I am 56 and I am already in receipt of a small pension of £385 per month. I am still working, but on a much reduced salary. I have £132000 in various savings accounts (ISAs and NSI tax-free account for half of this).
I can afford to £380 per month into a pension scheme.
Due to illness, this is my situation.
My questions are:
1. Is this enough to secure a reasonable pension?
2. What type of pension (and/or savings) should I invest £380 per month into?
Many thanks

jamesd

therapist, you should seek financial advice from an Independent Financial Adviser, the site unbiased.co.uk is the best way to find them.

The reason is that you have £132,000 of capital and that should be able to generate you about 5-6% of that as income, including increasing that with inflation. So that should be able to produce around £7900 a year in income. But you seem to have most of it in savings accounts rather than investments, so probably aren't getting that income. You don't need to take the income, you can just let the value accumulate in the investments so you can take it later from the larger pot that will result. Making full use of your whole ISA allowance would be the first thing to do with the savings pot. Full including the stocks and shares part.

Pension investing is what will provide you with the highest income but it'll produce lower capital than the same amount in a S&S ISA. Since you appear to need income and already have substantial capital the pension looks like the better option.

The choice of investments to use would depend on how much up and down movement you can accept and when or if you think you might change from taking income from investments directly to buying an annuity instead.

Since you are over 55 you would be able to change from paying money in to a pension to taking a lump sum of up to 25% and then ongoing income whenever you like.

If you haven't done so you should obtain a State Pension Forecast to find out what you are likely to get from the state pensions when you reach state pension age.

therapist

Hi James
Thanks for this.
I don't need any additional income at the moment (and unlikely for the next ten years or so). Are you saying that I should invest the £132000 plus the £385 per month in a pension, or the £132000 in a mixture of cash and S&S ISAs and the £385 month into a pension? Roughly one third of the £132000 is in cash ISAs already.

jamesd

What to do with the £132,000 depends on how much capital you want immediate access to and what your target income is. A good starting point is getting the £132,000 into S&S ISA investments as fast as possible since those are what will pay more long term and you're looking at a long term target.

For the £385 per month the pension seems best since you already have a lot of capital to get moved into the ISA wrapper.

You might also start using the NS&I inflation-protected certificates if you haven't already started to do that. The after inflation income will probably beat the cash ISA returns.

The growth investments may be fine outside a pension or ISA if you stay within the CGT allowance or just barely use it all each year to avoid accumulating a large gain.

CLAPTON

jamesd wrote: »

therapist, you should seek financial advice from an Independent Financial Adviser, the site unbiased.co.uk is the best way to find them.

The reason is that you have £132,000 of capital and that should be able to generate you about 5-6% of that as income, including increasing that with inflation. So that should be able to produce around £7900 a year in income. But you seem to have most of it in savings accounts rather than investments, so probably aren't getting that income. You don't need to take the income, you can just let the value accumulate in the investments so you can take it later from the larger pot that will result. Making full use of your whole ISA allowance would be the first thing to do with the savings pot. Full including the stocks and shares part.

Pension investing is what will provide you with the highest income but it'll produce lower capital than the same amount in a S&S ISA. Since you appear to need income and already have substantial capital the pension looks like the better option.

The choice of investments to use would depend on how much up and down movement you can accept and when or if you think you might change from taking income from investments directly to buying an annuity instead.

Since you are over 55 you would be able to change from paying money in to a pension to taking a lump sum of up to 25% and then ongoing income whenever you like.

If you haven't done so you should obtain a State Pension Forecast to find out what you are likely to get from the state pensions when you reach state pension age.

what sort of investment provides an income of 5-6% plus inflation?

Linton

CLAPTON wrote: »

what sort of investment provides an income of 5-6% plus inflation?

I read jamesd as saying 5-6% of capital now increasing that each year to match inflation, which is rather different to 5-6% + current inflation=8-9%.

A range of high dividend paying shares could give you that.

As the OP is ill perhaps an annuity may.

But I would agree it does seem a bit ambitious/risky - it would be useful if jamesd can tell us what he would propose. I might adopt it myself.

jamesd

Clapton, a blend of equity and bond investments. Start with things like Newton Higher Income paying 6.7% with more than enough long term capital capital growth prospects to cover likely inflation and a record of having increased the income payment every year for the last nine years. Add some Invesco Perpetual High Income and various corporate bond and equity funds in various markets. Adjust to suit risk tolerance and look at the past returns to see what a reasonable level of income to take might be for whatever mixture you go with. If it's all low risk then 6% would be too high and if it was all cash then it would be completely unrealistic. Keep a year or perhaps two of income in cash or money market funds to smooth out the income.

Emmamumof2

Dont forget you will also get tax relief added to any pension contributions also so for a net contribution of £384 the amount actually invested in any pension would be £480.....

therapist

Thanks very much folks.
In terms of S&S ISAs, I don't have a clue. What is the best way to invest in these? Please stick to basics when describing.

Emmamumof2

You can contribute up to £10200 each tax year, provider wise it would depend upon what you are after and what kind of funds, but for most choice on funds you would want a provider offering a shell ISA to access funds from many different fund managers, dont take one direct with a bank! You would be better consoluting an IFA if you wanted an ISA so s/he can advise on fund choice according to your specific attitude towards risk profile. You could consider putting further funds from those you hold on deposit in a Unit Trust which can then "feed" the ISA at the beginning of each tax year and you can have the funds invested in the Unit Trust for growth, albeit not as tax efficiently as within the ISA. Not forgetting you should keep a lump of the deposit on hand in the bank/BS for an emergency fund.

CLAPTON

jamesd wrote: »

Clapton, a blend of equity and bond investments. Start with things like Newton Higher Income paying 6.7% with more than enough long term capital capital growth prospects to cover likely inflation and a record of having increased the income payment every year for the last nine years. Add some Invesco Perpetual High Income and various corporate bond and equity funds in various markets. Adjust to suit risk tolerance and look at the past returns to see what a reasonable level of income to take might be for whatever mixture you go with. If it's all low risk then 6% would be too high and if it was all cash then it would be completely unrealistic. Keep a year or perhaps two of income in cash or money market funds to smooth out the income.

looking at your link it seems to only quote figures for the last five years

it says the total return (which I interpret to mean change in share price plus dividends ) was 31.8% over the five years of 6.03% per annum.

I don't have an inflation figure to hand but lets say about 10% over that five year period in total

If our OP have infact withdrawn 6% per annum then his capital holding would have falled in real terms by 10%

and of course not risk free...