Mum's pension - what to do?

Daniel_Elkington

I would call up her current pension provider and see if they have applied an 'actuarial revaluation' as she would be retiring before the normal retirement date (NRD).

In some cases you can apply the redundancy payment to eliminate that revaluation - which in some cases can be about 10-30% of the income.

Unless they definitely need the cash lump sum now I would strongly consider looking at buying an income with it as it is index linked and guaranteed by government. You cannot buy this income anywhere else for very good reason and it is probably the only time you have the option so think excessively carefully about it.

jamesd

Daniel, who are you thinking the income should be bought from, the LGPS pension scheme? Quite possibly a good thought if so, I haven't looked at the cost and income levels this close to retirement. Likely to be considerably better deal than buying an inflation-linked annuity.

Premium Bonds are a choice that might be used for someone who says they have a low risk tolerance and a low capacity for loss. Minimal chance of losing the money, so it's a safe choice even if not a very productive one.

Paying off a mortgage usually is not the best idea for pension lump sum money. That's because a blended mixture of investments usually can grow and/or pay out more than the mortgage interest rate, so you end up making yourself worse off by paying the mortgage. But paying the mortgage has the advantage of complete certainty, while investing has ups and downs of capital value. She should be prepared to see ups and downs of 20-30% in capital value and know not to worry about them, they are just a fact of life when investing. Some people are really keen on the certainty of the mortgage option or just want to see that mortgage gone and be rid of it, others are happy to take the better prospects of investing and/or use investment income to overpay on the mortgage, just depends on the person.

If she was interested in the investing approach, a fund like Invesco Perpetual Distribution might be a useful one to use inside a stocks and shares ISA to pay interest income to her. That's just one fund, more should be considered. I mention that one because it pays monthly payments and that's nice to see for someone who might be more used to interest-paying savings accounts than investing.

Annuities tend not to be a good deal at relatively young ages like hers and in general seem not to be offering good value at the moment, in part due to low interest rates and fiscal easing. Buying more LGPS income would probably be a substantially better deal. If she can stand the ups and downs of capital value that go with investing - which can be managed to some extent when picking the mixture of investments to use - that'll probably be a better deal than an annuity, maybe not better than LGPS. Taking income from investments has the advantage that her husband gets the money if she dies and it can be inherited by others, while an annuity or LGPS either vanishes (if single person) or pays whatever income is arranged for the second person until their death, if any.

bigfreddiel

margaretclare wrote: »

[/B]OMG. Are there really IFAs around who give this kind of advice? No wonder so many people are leery about them. Stupid, stupid, stupid.

i'm afraid there are many ifa's this stupid - sadly they have very many more ignorant people to prey upon

fj

bigadaj

bigfreddiel wrote: »

i'm afraid there are many ifa's this stupid - sadly they have very many more ignorant people to prey upon

fj

Freddie, read your response and that of jamesd's above. One is a balanced and sensible comment, the other is a tabloid rant putting a single point of propaganda across, guess which is yours?

kgall

Thank you all!
Not easy stuff. A few basic questions if I may (sorry):

1. What is an actuarial reevaluation?
2. How would she "buy" an income?
3. Would this be with the severance lump sum (and not the pension lump sum next year)?

If it makes a difference, here are the mortgage details:

House value: £400k
Outstanding mortgage: £140k
Of which £70k is repayment and £70k is interest only
The mortgage ends when my father is 68 - December 2018 (my mother is a few years younger)
It is currently on a 3% fixed deal that ends in 2 years
They currently pay £1,403 a month
They have two endowments, which they currently pay in to. Based on the minimum projections:
1. Matures December 2016 - £30k
2. Matures August 2017 - £12k

dunstonh

OMG. Are there really IFAs around who give this kind of advice? No wonder so many people are leery about them. Stupid, stupid, stupid.

I really dislike Premium Bonds. However, I have in the past recommended someone use them. Basically because of the limitations put on me by the individual and their refusal to use any of the conventional investment options.

I think it is unfair to make a judgement on the adviser, whether its an FA or IFA (OP says FA) without knowing the basis of advice.

jem16

kgall wrote: »

Thank you all!
Not easy stuff. A few basic questions if I may (sorry):

1. What is an actuarial reevaluation?

With a final salary pension such as the LGPS, an actuarial reduction (revaluation) is applied if you take the pension before normal scheme retirement age. It's usually around 5%pa. Sometimes in the case of redundancy, you are allowed to access your pension without this reduction.

2. How would she "buy" an income?

By using a lump sum to either buy an annuity or extra pension through the LGPS.

3. Would this be with the severance lump sum (and not the pension lump sum next year)?

If it's LGPS extra pension then yes you would use the severance pay as I doubt you would be able to buy it a year after taking the pension.

jem16

margaretclare wrote: »

Well, there are more traditional, safe-sounding forms of investment. National Savings Certificates spring to mind?

Although there are no issues on sale at the moment and haven't been available for some time.

jem16

margaretclare wrote: »

Ooops again. Well, there are NS&I investment bonds, any good?

Are you meaning NS&I Income Bonds? The term Investment Bond has a very different meaning.

They don't pay very much just like most savings accounts these days but do have the advantage of being 100% secure.

mumps

dunstonh wrote: »

I really dislike Premium Bonds. However, I have in the past recommended someone use them. Basically because of the limitations put on me by the individual and their refusal to use any of the conventional investment options.

I think it is unfair to make a judgement on the adviser, whether its an FA or IFA (OP says FA) without knowing the basis of advice.

Someone did explain to me why they could be good idea in certain circumstances, didn't apply to me so can't remember it but I think it was something to do with having a reasonable chance of a win with alot of bonds and the winnings being tax free? Not sure if that was exactly it and thinking about it it might have been to do with student finance and if you are getting interest on savings it would reduce the grant/bursary/loan but if you have premium bonds winnings don't have to be included. It obviously didn't mean much to me as I would have paid more attention but just thought there might be times when it isn't a bad idea, particularly if you just happened to be lucky and win a big prize. No worries about student finance then. Of course you might win nothing and have lost out on interest.