Prudential with profits investments

shovel74

Hi.
I am new here and do not really understand the world of high finance so I am looking for some feedback. I have just retired and commuted 25% of my pension fund to generate a tax free sum of just over £101.000. I need to invest this money to supplement my monthly pension. I have sought the advise of an independent financial adviser who has advised me to invest it with "Prudential with profits", which he will do on my behalf. He has informed me that this will return around 5.5% p.a. and is a safe investment, ( safety is one of the things that I have insisted on ) I also wish to have access to the capital should I need it. Can anyone offer any advise as to whether these figures are correct and the safety of the investment.

Regards.

Drp8713

I have some thoughts.

1. Is he advising you to wrap this in ISAs and pensions? (Isa limits, recycling rules etc permitting)
2. Is a with profits fund suited to providing a regular income? Doesnt sound quite right to me, compared to high yield equity, infrastucture, bonds etc
3. There is often penalties for taking with profits before the intended date, if that is the case then that wont suit your easy access needs.
4. It is safe as with profits smooth returns but 5.5% is a random stab in the dark and surely he is just using this as a growth assumption.
5. Why are you paying somebody to invest your money if they are jusy going to put it in one multi asset fund.

xylophone

I am rather puzzled by this.

Did you have a defined benefits/final salary pension?
If so, was it compulsory to take the lump sum?
If you did not have to take the lump sum, and given that you have said you want to supplement your pension, why did you commute?

shovel74

Yes it was a final salary pension , I took the maximum tax free lump sum as if I die my wife will get half my monthly pension amount before commutation. I was intending to invest the lump sum, the return of which when added to my monthly pension would bring me close to a non commuted pension and still have the lump sum for some security for my wife and family should I die first.
Drp8713- He didn't state how it was to be invested but I know ISAs were not mentioned, just said it was safe, accessible and gave me a % return.
Any more advise appreciated

Linton

I have held Prudential WP for the past 12 years. The average return in that period is a fairly consistent 5.4%, 6.8% in the past year, with minimal fluctuations. These figures are with income re-invested and would be lower if the income was taken as cash. The returns include the final bonus and so are what one would get if they were sold now.

I agree with your IFA's description of the investment and would regard it as suitable for a fairly risk averse investor. Certainly safer than equity (share) funds and better performing in recent years than bond funds. If it was my money I think I would want it in more than one fund though. Prudential is a solid company but better to spread the risk.

If held as investment bonds any stated returns should be largely tax free. You will need to check when you can access the money, I seem to remember one doesnt want to take any out in the first five years.

I share Xylophone's puzzlement as to why you took the lump sum. Doesnt do you much good now but for other people: you may have been better off in the long term taking extra index linked pension.

shovel74

Yes I can see the index linking point., I retired at the age of 52 and my pension will not be index linked until I reach 55. I was advised to take the maximum tax free amount, I was also told that the monthly amount that I take from the investment will be tax free until I hit the 40% tax bracket, something to do with being to be able to take 5% of the investment for 20 years. I also intend to work again so may not even draw on the investment unless I have to. Just want to understand it a little better and to hear someone else's view on it.

xylophone

How old are you? How old is your wife?

What is your situation in regard to state pension?

https://www.gov.uk/new-state-pension/overview

Had you considered stocks and shares ISAs for you and your wife?

This would use £30,000.

Some reading http://www.telegraph.co.uk/finance/personalfinance/investing/firsttimeinvestors/10749809/Low-risk-funds-for-first-time-Isa-investors.html

http://www.thisismoney.co.uk/money/diyinvesting/article-1616089/ISA-INVESTING-TIPS-Fund-trust-ideas-income-investors.html

http://www.thisismoney.co.uk/money/diyinvesting/article-1718291/Pick-best-cheapest-investment-Isa-platform.html

You might then think of spreading the balance around some high interest paying current accounts and consider using your ISA allowances again in the new tax year.

Santander 123 sole each and joint?

A sole account each and a joint account with TSB?

Three BOS sole accounts each?

Club Lloyds sole and joint accounts?

You need to set up the necessary standing orders/direct debits but with a little effort it can be done.

https://forums.moneysavingexpert.com/discussion/5114616

https://forums.moneysavingexpert.com/discussion/5114302



This strategy would give you cash at instant access which pays interest and income paying stocks and shares investments with the possibility of growth.

Is your IFA looking at your situation in the round or just considering the lump sum?

And what about your/your wife's tax situation?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

Has IHT planning been taken into consideration?

Linton

shovel74 wrote: »

Yes I can see the index linking point., I retired at the age of 52 and my pension will not be index linked until I reach 55. I was advised to take the maximum tax free amount, I was also told that the monthly amount that I take from the investment will be tax free until I hit the 40% tax bracket, something to do with being to be able to take 5% of the investment for 20 years. I also intend to work again so may not even draw on the investment unless I have to. Just want to understand it a little better and to hear someone else's view on it.

In your specific circumstances it may have been right to take the lump sum, we dont know your details. For many people with DB pensions though it isnt.

Yes, with Investment Bonds you can take up to 5% of the initial bond cost basic rate tax free each year, though you may have to pay tax if you take more than that. So the money should last 20 years or a bit extra given slightly higher than 5% return.

xylophone

Having now seen your latest post I am more than ever convinced that you need to discuss your situation in the round with your IFA.

Does your wife work? Will she have a pension?

If she does not work and has no earned income, is it worth holding non-isa income paying investments in her name?

If she does not have a pension, is it worth starting one for her?

Even a non - earner can contribute up to £3600 gross (£2880 net) into a personal pension/stakeholder.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/301563/Pensions_fact_sheet_v8.pdf

shovel74

Thanks to everyone that took the time to reply, I will have to sit down and take a long ,hard look at the reply's and links supplied, then go back and see my IFA. I was hoping I could just put it all in one place and receive an income, obviously not that simple.

xylophone

I was hoping I could just put it all in one place and receive an income, obviously not that simple.

You could indeed do that - at the most basic you could just put the lot into NS&I income bonds for example!

The question is though whether such a move would be the best for you and your wife/family taking all your circumstances into account.

You might finally end up with the Pru!

But it is worth some thought first?