Where to place monthly saving of £4000 but cash needed in 7 years

property.advert

If I had £4000 to invest each month from within a pension / SIPP etc. it seems to me to be neither short term or long term investing but I would need the investments returned to cash in around 7 years.

Obviously I can take some risk and I know that in year 7 and perhaps even year 6, the investment will just be in cash or very near cash. The problem is that the ability to diversify only comes as the need to be more conservative and return to cash arrives.

I might change the timespan but I would not know until perhaps year 5 and I guess the amount invested will increase by about 5% to 10% per annum, starting at around £50,000 a year.

I have some thoughts of my own but I would welcome any comments.

welshmoneylover

Give it to me.

Sorry, I couldn't resist that one

lr1277

I think the timespan you are looking at is short-term, well not long enough term for investing in shares.
This is because you want this money for your pension. Most company pensions start moving equities into bonds in the last 10/5 years. Then in the last couple of years into cash.
Since your timespan is 7 years, that is probably not long enough to invest in equities.

Btw: are you looking for the return of the money plus some interest or a reasonable amount of growth that could only be achieved by investing in the markets?

If the money is in a pension/sipp, then your options are limited in my view. You should talk to a specialist in investing for pensions. Money market accounts and the like.

If the money is available, then I would suggest a bunch of regular savers or index linked bonds from the government.
With the regular savers just make sure you meet the conditions every month/year.
Don't know much about the index linked savings other than that they exist. You should do your own research.

Or if you are prepared to put the work in and the money is in a SIPP, you could invest the money but you need to be aware you could make losses that you can't recover within the time period.

chesky369

You can't get saved pension money back unless it's in the form of a ... PENSION.

property.advert

chesky369 wrote: »

You can't get saved pension money back unless it's in the form of a ... PENSION.

Well that is simply not true. You'll be saying people have to buy annuities next.

property.advert

lr1277 wrote: »

I think the timespan you are looking at is short-term, well not long enough term for investing in shares.
This is because you want this money for your pension. Most company pensions start moving equities into bonds in the last 10/5 years. Then in the last couple of years into cash.
Since your timespan is 7 years, that is probably not long enough to invest in equities.

Btw: are you looking for the return of the money plus some interest or a reasonable amount of growth that could only be achieved by investing in the markets?

If the money is in a pension/sipp, then your options are limited in my view. You should talk to a specialist in investing for pensions. Money market accounts and the like.

If the money is available, then I would suggest a bunch of regular savers or index linked bonds from the government.
With the regular savers just make sure you meet the conditions every month/year.
Don't know much about the index linked savings other than that they exist. You should do your own research.

Or if you are prepared to put the work in and the money is in a SIPP, you could invest the money but you need to be aware you could make losses that you can't recover within the time period.

Sorry, to expand. This is all linked with a potential move to PAYE and paying (cough) tax on earnings. I detest this and see a transfer into a SIPP (any other pension vehicle would do but it is a SIPP for me) then I could reclaim 40% (at current rates). Thus, £30,000 of commuted salary means £50,000 of pension contributions. Given the options available, the "loss" of control paying it into a pension is a price which has to be paid to avoid paying 40% tax.

I'm looking at some covered warrants as a way of gearing up the cash and gaining exposure to the equity but protecting the portfolio from too much downside risk.

I guess I can pretty easily get 5% today and nearer 10% per annum over the term but I don't really want to lose out to equity markets if they advance 30% or so in a short time.

bendix

property.advert wrote: »

Sorry, to expand. This is all linked with a potential move to PAYE and paying (cough) tax on earnings. I detest this and see a transfer into a SIPP (any other pension vehicle would do but it is a SIPP for me) then I could reclaim 40% (at current rates). Thus, £30,000 of commuted salary means £50,000 of pension contributions. Given the options available, the "loss" of control paying it into a pension is a price which has to be paid to avoid paying 40% tax.

I'm looking at some covered warrants as a way of gearing up the cash and gaining exposure to the equity but protecting the portfolio from too much downside risk.

I guess I can pretty easily get 5% today and nearer 10% per annum over the term but I don't really want to lose out to equity markets if they advance 30% or so in a short time.

Have you factored in the changing pension tax relief rates on this? Do you earn more than £130,000 per annum?

If you do, your plans aren't going to work.

property.advert

bendix wrote: »

Have you factored in the changing pension tax relief rates on this? Do you earn more than £130,000 per annum?

If you do, your plans aren't going to work.

Yeah, I know about the £130k cap but am confused about the £255k figure. My limited reseach seems to provide conflicting answers.

If figures do change, which is possible and more likely now we have the Liberals running the show, then it brings the whole benefit of PAYE into question. However, I see much more to be gained from whittling away at benefits than hitting pension provision in political terms. I do expect it to be altered though I hope it will not or at least tapered.

bendix

I could be wrong about this - and I've yet come across anyone (even IFAs) who truly understand what the new arrangements are going to be - but my understanding is that if you earn over £130k, the £255k annual limit no longer applies. In that sense, the 255k is redundant.

My understanding is that anti-forestalling measures mean that you're now no longer to put in more than £20k a year unless you had been putting in more than that prior to April 2009. In other words, they are trying to stop people dumping in a huge amount before the higher rate pension tax relief is lost in 2011.

It seems palpably unfair, though, that someone earning 129,999 a year can put his entire salary into a pension and get the best possible tax relief and will be able to going forward also.

I shall be lobbying for a salary cut.

property.advert

I have read, although only online, businesses stating that the 255k refers to the maximum increase a pension fund can make tax free, with any extra attracting a 40% tax charge. That just seems plain wrong and is in the minority of opinions. The contrary viewpoint is that 255k is the maximum amount which could be contributed to a pension fund in one year without attracting a 40% tax charge. However, that does seem totally at odds with the 130k limit.

Another viewpoint is differential between salary and pension contributions where someone with a less than 130k salary could, in one year, receive a 255k pension fund contribution.

I agree with your understanding about forestalling and the 50% relief rate. At the moment, the 40% relief rate is still available, though it may well fall by the wayside.

I have also spoken with an IFA who just discounted the 255k but without any conviction in his explanation.

This article http://www.mifa.co.uk/cms/document/Pension_leaflet.pdf though dated, seems to suggest that the (now) 255k limit is the combined contribution of your pension fund contributions and those of your employer

You can now contribute up to 100% of your earnings.
Your employer may be able to contribute more and the
overall annual allowance is £215,000 in 2006/07 – this
will rise in later years.

I've just had a long conversation with Skandia. They have confirmed quite a few things. The 255k limit pre-dates the 130k and 150k limits. From 2011 the 255k limit will essentially be meaningless as employer contributions to pension schemes will count towards the 130k limit. Thus, they are counting it as salary for this purpose. This is quite a blow as I was hoping it would be 130k of your salary and then employer contributions up to the annual 255k limit. The guy went through 5 tests you have to pass and at the end is a catch all category statement which will swoop and mess it all up. Great. Tax us at a rate where we cannot contribute to pensions. Now bring on the creative accountants and watch the tarmac light up as even more people head for the exit.

My initial feeling here is that the 130k will become like the 250k stamp duty threshold where no-one earns between 130k and say 150k, it being better to earn 129k than 135k for instance.

At rough maximum 40% contributions, someone on 130k could put in 90k (54k net) but to put in 90k when on over 130k would need to sacrifice salary of 72k at 20% rebate. My quick and not checked figure seems to bring parity at 152.5k per year. At amounts over this example, you lose 20% of any additional pension contributions. Perhaps the 255k limit still exists for this, at the end of pension tax relief at basic rate ?

Currently, with 18% on capital gains, you would be better off receiving immediately in the money share options. "Losing" the 18% is actually better than losing the 40-20% tax credit and though you would lose 20%, to receive it in cash now, rather than in a pension, may be more beneficial.

property.advert

This technical guide from HMRC might be useful

http://www.hmrc.gov.uk/budget2009/pensions-technical-1550.pdf