Pension planning advice for couple nearing 60s

[Deleted User]

i would appreciate any suggestions about pension planning as we approach our 60's

My husband aged 58 has and old pension plan worth £200k.
He is currently paying about £600 a month into a new plan which is placed in a cash fund. He intends to retire in about 10 years Is this the best fund for him to place this money?

I will only have the (full) state pension as I haven't worked since having children. Is there anything we should be doing now to provide for me?


Should we take the 25% in cash from the the old plan in 2 years time leave it where it is? We have savings of about £70k in ISAs and £50k in shares but are not saving at the moment due to family commitments

Linton

A cash fund is only really suitable for short term parking. If your husband's cash fund is anything like one I had the return at the moment will be approximately 0% - suggest you check his most recent statement. The cash funds I have seen are based on the money market and thus on the BoE rate, not bank interest rates.

For relative safety but limited returns there are gilt and bond funds. But 10 years is a pretty long time and so your husband could reasonably have some level of exposure to shares.

As to whether you should take the 25% 8 years before you retire. It really depends on what you want to do with the money. There is no point in taking the money out of a tax protected environment (which is what a pension is) and investing it somewhere else.

On the other hand if you have an expensive debts then they could be worth paying off. However you would appear to have a reasonable amount of savings anyway.

All IMHO of course.

dunstonh

Should we take the 25% in cash from the the old plan in 2 years time leave it where it is?

That would bring the 25% into a taxable environment and reduce death benefits on the other 75%.

He intends to retire in about 10 years Is this the best fund for him to place this money?

What will he be doing with the pension fund in future? Use a secured income option or unsecured pension income option? Will he take the pension in phased drawdown or in one go?

My guess is that perhaps at this stage you dont know. However, you need to start thinking about it as the investments that should be in place will vary depending on what the plans are.

Loughton_Monkey

Sadly, you do not make it very easy to answer. Some 'pointers' have already been given - and I would agree with the very 'questionable' aspects of (a) investing in a cash fund for yet another 10 years, and (b) taking a 25% cash sum early.

There is no real alternative for you other than to sit down with pen and paper [spreadsheet would be better]. Sensible 'answers' will only come from looking at:

1. How much you currently spend on lifestyle [bills, housing, motoring, food, entertainment, holidays, clothes.....]

2. How much you might spend for 'short term' things [remaining mortgage, the 'family commitments' to which you refer......]. i.e. those things that will be a drag on savings/income, but only up to retirement age.

3. What income stream you will have 'autiomatically' - which would be husbands remaining salary until retirement, your state pension, and his state pension when he retires.

4. Assumed income that will derive from interest on current savings, investment growth on current investments, investment growth on current pension pots and subsequent contributions, and annuities when those pensions are actually crystallised.

Yes, you will have to make a few assumptions about investment returns, inflation, and annuity rates etc. but this should produce a reasonably accurate 'cash flow'. It then depends how this stacks up. If it broadly adds up, then your issues are mainly about timing. If it doesn't add up at all, then you might have serious shortfall problems and thus the need to save a bit more and/or reduce lifestyle expectations.

As a general rule, it is a good idea to have more than one pension. One can be taken as a 'backbone' of income, to be supplemented by savings. Others can be left (and even contributed to after retirement) and only taken when you have seen significant rises in the equity markets. It's very valuable to have those options and flexibility.

[Deleted User]

Thank you for the replies.

I was very concerned about the cash fund so will look into changing this.

I was looking at annuities as he was going to retire at 60 but things have changed and I think the drawdown schemes seem more attractive if he works longer.

If we go for a drawdown what sort of investment strategy should I look at?

My husband has access to some sort of pension advice through work but I have to prime him with the questions as he has little interest in finance.

[Deleted User]

Thank you Loughton Monkey. My post crossed with yours.

My commitments are a child at uni so that will cease next year and we will be able to save £3000 per annum until retirement as we have no mortgage or other debts.

I have the spreadsheets for my current expenditure and one for retirement, which my family thinks very amusing, and think that if we can get £10000 a year in addition to state pension we will be living well.

I believe that this is possible with the pension funds my husband will have so it is a question of how we go about it I suppose.

dunstonh

I was looking at annuities as he was going to retire at 60 but things have changed and I think the drawdown schemes seem more attractive if he works longer.

Actually its more the other way around. Annuity gets more attractive as you head towards 70. Although the recent changes to death benefits post 75, have made drawdown even more attractive.

If we go for a drawdown what sort of investment strategy should I look at?

There are several recognised ones. It really depends on what your opinion and risk profile is.

My husband has access to some sort of pension advice through work but I have to prime him with the questions as he has little interest in finance.

Be wary, if its via a union or trade association then these are usually nothing more than sales type advisers. A local adviser is more often the best option. You dont want a sales rep that changes company every 3 years. You want stability and someone that is there for the rest of your life (as much as you can plan that!)

Loughton_Monkey

Other thoughts emerge.

Is his £200K pension a 'Final Salary' one? If so, with a Normal Retirement Date of 60, it is usually wise to take it at that stage. You can sometimes defer them but I'm not sure you get equivalent value. But if he takes it at 60, watch the danger of getting into higher rate tax when added to his salary and savings income. Check if it gives 50% widow's pension.

You might consider putting the bulk of your spare money into a pension in your own name. This is allowable up to £3,600 [£2,880 net] despite you having no earnings. Because of the 25% tax free lump sum, this type of investment is over 6% 'better' than an equivalent Stocks & Shares ISA investment. Your strategy might be to keep paying this in, even long after retirement. You would live on his company pension, plus his other pension(s) for which he would get higher annuity rates in his single name. In the event of your earlier death, your pension fund would become his. In the event of his earlier death, you would only get 50% of his 'main' pension but could then invoke your own fund for extra income.

But joint life annuities, and/or drawdown facilities are also legitimate instruments to consider.

I would caution you (as you probably will anyway) to make a decision, overall, about what proportions of your assets you have in 'equities' [investments that can lose value]. Since early retiring, I try to keep such exposure down to about 40% and within that 40%, I have a small backbone of less volatile funds. As I get older, this percentage will tend to reduce.

Apart from that, it's mainly about timing.

[Deleted User]

No his pension is not a final salary so I will have to decide what to do with the money at some stage!

The idea of putting the spare money in a pension for me sounds good as I would feel more comfortable having something in my name.

With regard to the assets invested in equities I will investigate something other than a cash fund for his new pension but perhaps gilt/bonds as I have worried in the past his old pension being in equities.

Thanks again. I can now consider some questions for the company advisor (who my husband thinks is independent but will check)

kidmugsy

I second the idea of your buying pension for yourself, not least because you will presumably be a tax-shelter until your husband's death, because your Old Age Pension will be smaller than your Personal Allowance against income tax. In fact, since you're presumably not a tax-payer now, get cracking right away, remebering that you can draw pension as soon as you are 55 if you want.

Also, check whether your husband's pension contribution is getting tax relief at the higher rate (40%) or is attracting an employer's contribution. If neither of these is true, consider instead investing the money in your name so that the returns are tax-free. That will be better than eventual pension returns on which he will have to pay income tax.

[Deleted User]

Thank you kidsmugsy. My husband is in a salary sacrifice scheme and the employer is contributing a bit.

Currently most of our savings (those not in ISA's) are held by me so it worth considering how we divide our income later from the tax point of view.