Best options for low-risk return on £100k

kevkevkev12

Hi,

An elderly relative is in a care home due to illness and we have now managed to sell her home. After assessing her income (pensions etc) and outgoings (mostly fees) it is going to cost approx £500/month to keep her where she is.

From the sale of her home we are left with approx £140k to look after her, £40k of this is either invested in ISA's or being used as readily accessible cash for fees etc.

What are the best options for the remaining £100k? She is only expected to live for another 3-5 years and we want fairly low risk options but ideally want to be able to make up as much of the monthly shortfall as possible. As I said we have used her ISA allowance and the next best option I can see is a 5-yr fix with Scottish Widows at 4.65% with no penalty if the person dies. Am I missing anything obvious with a decent rate of return?

We have power of attorney btw, one other question I've failed to get answered when I asked the bank is how easy it is to open accounts on her behalf? Are there any exceptions or restrictions?

Many thanks in advance.

dunstonh

What are the best options for the remaining £100k? She is only expected to live for another 3-5 years and we want fairly low risk options but ideally want to be able to make up as much of the monthly shortfall as possible.

Annuity or investment are usually the two options considered. Both have pros and cons. Savings tends to be used less in general as erosion of capital tends to happen faster with them.

It is impossible to know which one will end up being the best as the date of death is unknown. Annuity is probably the best for the relative but you often find the beneficiaries are not keen.

Linton

I believe an annuity of some form is the only way she can guarantee inflation matching income for the remainder of her life and it could be the cheapest way of meeting her needs if she confounds the medics and lives longer than expected

But of course it would use up some of the £100K capital.

I had no problem setting up an account with Lloyds for a relative for whom I hold a POA. All that was required was a certified copy of the POA documentation and the usual identification documents for myself and so it needs to be done in branch.

jamesd

I'm assuming that the £500 is on top of her existing income and that you have all £140,000 available to generate that income target of 500pcm/£6,000 a year.

There are investments like Invesco Perpetual Monthly Income Plus that pays out 7% income in the form of interest. That's tax free inside a S&S ISA, taxable as interest otherwise. While you shouldn't use just one investment that one could produce £7,000 a year from £100,000 with £40,000 in savings accounts to smooth income. That should provide some margin for inflation and the unexpected.

Investment capital values vary. How much depends on the investment. Various bond funds differ depending on the types of bonds that they invest in. Others like Invesco Perpetual High Income use shares and pay out dividend income that is more appropriate for money outside an ISA, around 4.5% for this one.

Overall you need about 4.2% income from £140,000 and that's not particularly difficult provided you don't restrict yourself to only selecting savings accounts.

Rather than saying low risk you should characterise the up and down percentage change in capital value that you will accept.

The main concern for the volatility is if she wishes to preserve capital for future inheritance. Buy an annuity and that's 100% capital value lost in exchange for the income so if capital loss is a concern it's at the top of the risk range even though it has low volatility of capital value and income level. For investments the variation can be tailored by selecting investments and it's not particularly hard to select a combination that would even in a bad year be down by 10-20% at most, quite likely significantly less. How much just depends on the particular blend chosen, some of which would normally be savings accounts.

Given the apparent ability to meet her needs without purchasing an annuity I don't think it's appropriate to accept losing the capital by buying an annuity.

If it wasn't possible to meet the income need then some spending of capital to buy an annuity that could pay part of the income need indefinitely would be more appropriate.

xylophone

http://www.sharingpensions.co.uk/annuity_long_term_care.htm
Might be of interest for information.