Help Commuting LPG and investing lump sum

Mature_Lady_2

I have looked at similar threads but they don't quite answer my query. I have had some conflicting advice for two finacial advisors I already have a full state OAP and am about to take my LGP I was going to take my full pension and smaller lump sum
One advisor said I should consider taking a smaller pension and a larger lump sum.The rational was that my pension is about £27,000 (lump sum £70,000 ish) but I have been told that if my pension is over £22,000 then I will have a lot more taken back by the goverment in tax. It has been suggested that I take a reduced pension of about £21000 and a larger lump sum of about £140,000. Invest the lump sum plus about £60,000 of other investments in gilts. However this investment will not make up the shortfall in annual pension. He also said i would have to be 95 before I lost out on this method......yet i would be loosing out each month??
The second advisor said NOT to consdier taking a smaller pension unless I expected to live less than 12 years.
I have no mortgage and am married although my husbands pension is small.
Any help would be appreciated as I am so confused and have to make the decision next week!
Thanks

Loughton_Monkey

I don't know what sort of 'advisors' you are talking to.

Go to the bright spark telling you to put £200,000 into gilts and tell him that's a wonderful idea. Basically, they only rise in value when interest rates go down. Ask him when he expects the BOE Base Rate to go down. Take him (or her) a gift of a basket of eggs. This will be an entirely new thing for him.

As to the general question of taking higher or lower lump sum, then taxation is only one of the considerations. The 'equivalent' annuity rate (drop in pension, divided by the increased lump sum) is the 'key' statistic to make a good comparison - it may be a good deal even after tax considerations. I'm afraid that £22K company pension, plus, say, £6K State Pension and a bit of savings income may already 'blow' the age-related tax break anyway.

Also your 'needs' for a healthy lump sum early should also be taken into consideration.

Mature_Lady_2

Thanks so much for the prompt reply., really appreciate it
Think I will take the larger pension and 'smaller' lump sum.
Any suggestions how to invest £100,000?? I don't want to take risks!

Loughton_Monkey

Mature_Lady wrote: »

Thanks so much for the prompt reply., really appreciate it
Think I will take the larger pension and 'smaller' lump sum.
Any suggestions how to invest £100,000?? I don't want to take risks!

That's the rub. If you really mean 'invest', then almost by definition you are taking a risk and could lose money. You would generally expect to gain more value in the longer term - but you must accept the volatility. Personally, I still have 33% in equity funds, despite being retired. But that's my own personal desire.

But the extent to which you want to 'save', then you will have the same problem as the rest of us. Benchmark interest for 'bonus' Internet Accounts is around the 3% mark.

You can improve slightly on this, but only after hard work. But here are all the various 'angles'.

• Use Cash ISA's to the full.
• Use any spouse tax free allowances.
• Take advantage of 'goodies' like Lloyds Vantage, Halifax Reward, and Santander Current [and send £1,000 on its travels regularly every month].
• Consider 2 or 3 year 'fixed rates' - remembering that there is a risk that you are locked in when rates start rising.
• Maximise use of 'gimmic' regular savers.
• Keep your eye out for NS&I Inflation Bonds that are threatening to appear again after April.

Sadly, you will get net rates that fall well short of current inflation. We can only hope it improves over time. Consider a proportion in Equities that have the 'potential' to deliver +30% in a year [or, sadly, -30% occasionally]. I think around 15% was quite achievable last year.