Best investment for retirement

Francophile

My OH is 55 and hoping to retire at 60. He has a pension from previous employer of about 20K per annum. Current employment earns £34K pa so some of his earning are taxed at 40%. He's on the standard tax code. We have about £200/£300 per month to invest. Anybody advise should he go for AVC's, ISA or any other suggestions would be welcome. We are not very savvy when it comes to finances.

Thanks in advance

dunstonh

Both have pros and cons and it also depends on the type of AVC and how it is treated against the main scheme.

It really isnt possible to tell you what is best without knowing a lot more information.

Techno

I personally would make good use of the pension option (as dunstohn says he will need to investigate whether main or AVC) getting 40% tax relief so for every £60 your OH puts in generous Mr Brown puts in £40 and unless he is very lucky and has enough pension to put him in the higher tax bracket he will probably only be paying 20% on the way out!!

jamesd

Do you have a pension in your own name?

What is the likely pension from the current employment at the moment if he makes no additional contributions? What about the income from the state pensions? Some of the decisions depend on the total income in retirement, like the choice between investment bonds, ISA and pension use.

dunstonh

James beat me to that. pension planning should be arranged jointly and not top heavy with one half.

Francophile

jamesd wrote: »

Do you have a pension in your own name?
[What is the likely pension from the current employment at the moment if he makes no additional contributions? What about the income from the state pensions? Some of the decisions depend on the total income in retirement, like the choice between investment bonds, ISA and pension use.

Yes, I will have a pension of about £6k pa from BT and a small (very small) pension from my current employer.


MY OH will have a pension from his current employer which is final salary scheme. He will have 9 years service if he retires at 60 and it would be 9/80th I think so wouldn't be that much.

We have some cash which we could invest in an ISA as well if that would be worthwhile.

Thanks everyone for your comments.[/COLOR]

dunstonh

You may want to start looking at stocks and shares ISA instead of pension as a way to build up your capital. Plus they can be used to provide a tax free income in retirement. Cash ISAs are fine for emergency fund, short term money and the cash element on a larger portfolio but they are not very good for providing income in retirement.

omg_3

Are you sure he is paying 40% tax? This factor will obviously influence your decision.

jamesd

It looks as though a stocks and shares ISA with a range of funds is a good idea, second choice a personal pension in your name.

He's at the point where his income in retirement may cause age allowance reduction and he should carefully consider the benefits of taking a lump sum to reduce his taxable income (he could invest the money in a stocks and shares ISA so it keeps on growing). Carefully consider doesn't necessarily mean "do it", since the trade off between pension income and lump sum sometimes favors the higher pension anyway.

You look as though there's a fair chance that you'll be paying tax on your own pension income after a few more years of contributing to one.

That makes the flexibility of ISAs look interesting, together with the fact that income taken from them is tax free when you take it.

One way to look at the ISA money is a way to build up a lump sum fund to cover major unexpected expenses.

Francophile

Yes definitely he pays 40% on a part of his income

Francophile

jamesd wrote: »

It looks as though a stocks and shares ISA with a range of funds is a good idea, second choice a personal pension in your name.

He's at the point where his income in retirement may cause age allowance reduction and he should carefully consider the benefits of taking a lump sum to reduce his taxable income (he could invest the money in a stocks and shares ISA so it keeps on growing). Carefully consider doesn't necessarily mean "do it", since the trade off between pension income and lump sum sometimes favors the higher pension anyway.

You look as though there's a fair chance that you'll be paying tax on your own pension income after a few more years of contributing to one.

That makes the flexibility of ISAs look interesting, together with the fact that income taken from them is tax free when you take it.

One way to look at the ISA money is a way to build up a lump sum fund to cover major unexpected expenses.

Thanks for that Jamesd. We'll look into your suggestions.