£40k Comming soon.

taurean

I’m sure this question has been asked before, but if you will bear with me as this is my first post.
I’m shortly about to receive a lump sum of £40k from my final salary pension, and would appreciate some advice on what are my best options, as I already have savings in place for next year's ISA allowance. Do I use a savings account and see it slowly reduce in value due to inflation, or start to invest, which as I’ve never done so before I would only consider the very safest of bets.
Thanks for any advice.

droopsnoot

A lot depends on how long you can afford to leave the money, for an investment you really need to be looking at leaving it in place for five or more years.

xylophone

Do I use a savings account and see it slowly reduce in value due to inflation, or start to invest, which as I’ve never done so before I would only consider the very safest of bets.

It is very difficult to have your cake and eat it.

You can have capital security but (at a time when interest rates are lower than inflation) erosion of buying power (NSILCs being unavailable at the moment) or some protection against inflation, a growing income, but possible loss of capital value by investing in the stock market.

It is possible to purchase index linked gilts ( but these are complex financial instruments see https://www.share.com/shareholder/Q409/gilts-explained.pdf)

Many people choose to keep a cash cushion for security/emergencies and then invest in the hope of higher income/capital gains over the long term.

Savings rates - http://www.thisismoney.co.uk/money/saving/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

You might read "Smarter Investing" by Tim Hale.

fredz

Hi,

Unless you need the £40k to, e.g. pay off mortgage (it sounds like you don't if you're considering saving or investing it) then you might be better considering not taking a lump sum at all.

As you have a finaly salary pension, it could work out better in the long run to take a full pension instead (guaranteed income, rising in line with inflation, no risk of losing value, etc.)

kidmugsy

If you are old enough to draw your State Retirement Pension, then one of the best investments you could make (depending on your circs) is to defer that pension and later, when you restart it, take your reward as Extra Pension. It's like buying an annuity that returns 10.4% index-linked.

Archi_Bald

Taurean, as has already been commented, if you don't need the cash, don't take it now, defer it.

If you do need it, you want it in a secure account that pays you as much interest as you can get - Club Lloyds, TSB Plus, Santander 123 are all good candidates.

However, it all massively depends on what your requirements and circumstances are. Just don't trust anyone who suggests you can make much more than 5%, and certainly don't entertain any suggestions of offshore investments. They are all evil sharks.