Lump Sum / Pension advice

Brock_and_Roll

Dear Board,

My mother is shortly to sell her business and retire. She does not have any private pension arrangements in place but is in receipt of the state pension.

After buying another house, she will have lump sum in the bank of circa £400k.

The plan is to invest the money in a balanced portfolio to provide a return, preserving the capital as much as possible and for as long as possible.

The question I have is - are there any rules that say that you have take out an annuity or make other formal pension arrangements?

Its not going to happen, but theoretically she could (and perhaps should) enjoy herself over the next few years, spend all the money then throw herself upon the State for long term care etc

mania112

There are no rules to buy an Annuity and I suppose many people blow the money while they are still fit and healthy and rely on the state thereafter.

grey_gym_sock

depending on how much income she's like to generate from that capital, there may well be scope to enjoy herself and spend a bit of the money over the next few years. and i'd say that's a good idea if she can.

spending all of it would be much less sensible. though i can see how ppl starting with a much smaller pot might end up doing that.

Brock_and_Roll

Thanks guys,

I will be investing the money for her (I am a banker - boo!), so I will make sure she enjoys herself while she is fit enough to do so!

Obviously the trick is going to be getting the right balance between risk, growth & yield etc in her investments

jamesd

If she's content with an income in the £20,000 a year range this shouldn't be too challenging. 5% of capital.

Be sure that she has one to three years of planned investment income in savings accounts to provide income smoothing regardless of what the investment income is and when it arrives. Paying the investment income into a savings account and then the regular income from the savings account can be a useful technique.

atush

Also, does she still have an income for this tax year? Has she filled her ISAs? She could open a personal pension/Sipp and put in 50K or her total income for the year whichever is lower.

Would give her tax relied and she could immediately vest it and take tax free lump sum (or not) and use Drawdown with the rest.

For the cash you put aside, she should get as much into ISAs as possible

Brock_and_Roll

james d - great advice with regards to how to achieve "smoothing" that was an issue I was worried about.

atush - thanks. good ideas. I have only just discovered than since my father's death 30 months ago, she has had £200k in a bank account....paying 0% interest! So quite a lot of work for me to do here!! (in fairness to the bank, they did keep telling her to move the money!)

jamesd

Good to read that the bank kept on about moving the money. A welcome contrast to the tales we more commonly read.

Do be sure that you explain the way markets move up and down, complete with pretty graphs showing it for real investments, and explain how the focus needs to be on the combination so it moves to a degree consistent with how much she can sleep with. Ups and downs aren't a problem so much as people not knowing they will happen and being unprepared for the routine drops in value that happen.

atush

If you open a sipp for her with some of the money, at least the tax relief will help with the lost interest on that 200K- yikes!!!

Let us know how you get on.

xylophone

Has she thought about consulting an independent, unrestricted financial adviser?
http://www.unbiased.co.uk/
https://www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser