Retiring in 3 months: what to do with pension pot?

El_Selb

My Dad is retiring in May and I keen to offer him help in making the right financial decisions if I can. My Mum is already retired and without a pension.

My Dad was a gardener and paid in as much as he could through his working life to accumulate a pension pot of around £100K. Their mortgage is paid off.

What is the recommended advice these days - he consults with a Financial Adviser and they help him select and buy an annuity that pays out a fixed amount for the rest of his life?

Or could he buy a selection of assets; bonds, maybe a few equities, that would pay a regular income?

I am keen to help and have an interest and basic understanding of investments (and am keen and willing to learn more) but at the same time I know I do not have enough knowledge or experience (right now at least) to completely arrange my parents' financial future.

I am also keen, however, for my parents to avoid acting off any poor advice, and I am concerned they may not seek out as many information sources (such as here) that would be needed to make the best set of decisions. I know they are planning to speak to a FA in their village soon, but any advice or info they could take into that meeting would be helpful. How reliable/worthwhile are FAs these days?

If anyone could offer anyone thoughts/hints/advice it'd be much appreciated!

bigadaj

If you choose an annuity option then it's probably best to consult an ifa. They have access to teh whole market and can get a better deal, and their fees will effectively be paid out of the fund commission, if they didn't shop around the insurance company would just pocket it.

However there is teh option of capped drawdown. This allows them to retain the capital and withdraw up to a limit, which often isn't far off the annuity option where the money is handed over and lost. Drawdown means continuing to manage investments in a similar way to a pension or isa, and splitting the money between shares and bonds and funds. The maximum amount is determined by the gad limit which is a function of a persons age and the gilt yield, this increase as you get older but you have to pay your drawdown holder for calculating it, and of course your funds can fall so there's no guarantee.

If your father died first your mother could continue to take the money, and is money is left on her death the remainder would be paid out with a 55% tax charge.

Most people recommend that you need a decent cash buffer with drawdown in case markets drop and don't recover for a while. When crystallising the pension your father can take 25% tax free of course! and at that point there's no need to take a regular income, some or all of the drawdown oayment can be left in the fund to grow.

kidmugsy

A good way to begin is to try to see how to exploit your mother's lack of income: her personal allowance against income tax is currently going unused. So probably the 25% tax free lump sum should be gifted to your mother who should use it to generate income - for example, she could use those interest-bearing current accounts that pay 3% p.a. and more.

That leaves the 75% in the pension pot. if your father is still relatively young (65, say, rather than 75) it might be attractive to use Income Drawdown rather than buying an annuity just yet. Do you think you could learn enough by May to advise him on that? At least with Income Drawdown he will be at liberty to change his mind and buy an annuity: once he's bought an annuity, at least of the conventional kinds, there is no going back.

xylophone

My Mum is already retired and without a pension.

What is her position regarding State Pension?

El_Selb

My Mum's about 60 and won't be eligible for about another 4 years for the state pension, she doesn't think she'll be getting much of a state pension as she hasn't always been paying tax - so maybe due about £40 a week.

My parents aren't actually sure now, Dad being due anything between £70-100K pension pot!

They've had their first consultation with an IFA already (haven't paid anything yet) and my parents said their risk profile would be cautious, so I think me investing for them is out the window. But I can still offer them guidance.

IFA would charge 1.5% of pension pot (after taking tax free lump).

Think an annuity might just be the way to go for them?

Triumph13

El_Selb wrote: »

My Mum's about 60 and won't be eligible for about another 4 years for the state pension, she doesn't think she'll be getting much of a state pension as she hasn't always been paying tax - so maybe due about £40 a week.

Your mum should get a state pension forecast as she's likely to be pleasantly surprised. Assuming she claimed child benefit whilst looking after you for 18 years that would be about £66 pw for starters. Add in any years before and after that when she earned the equivalent of about £5 1/2k and she could be very close to the full £110

xylophone

she hasn't always been paying tax -

Do you mean NI? She might have been credited with NI contributions under certain circumstances.

She should request a statement https://www.gov.uk/state-pension-statement and see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf