Advice needed - parents!

ed67812

A few weeks ago my parents asked me to have a look at their finances. They have done really well to have any savings at all given their relatively low paid employments, paying off the mortgage of a really nice big house and other life events.

They will be going to an IFA next year but before the end of this financial year, I wanted some general advice.

Dad is 64 this year, fit, healthy and has no intention of retirement currently.
Mum is 62 this year, she has been made redundant as a teaching assistant. She wants to find a new job.
- Luckily they both seem much younger and God willing have a good few years left.

Dad has £75,000 in a stocks and shares ISA / savings accounts and CASH ISA.

Mum has £20,000 in a stocks and shares and about £6,000 in a CASH ISA. She will get a redundancy of around £19,000 and start drawing a local government pension of about £4,000 with about a £5,000 lump sum.

Neither had ever used a private pension it appears and so missed out on 20pc tax relief!. To that end, they have both recently opened stakeholder pensions and now have about £13,000 each in them currently.

They live frugally and will meet current living costs by Dads income and Mum's small LG pension.

Questions;
1) Should Dad max out his pension allowance for the coming years to get 20pc tax relief (and indeed this year)?
2) Should Mum max out her pension allowance for the coming years (and this year)? Although this will be lower whilst she is out of work?
3) Am I correct in saying that Dad could not use unused allowances from previous years as he hasn't been in a pension at all during those years, but Mum could as she was in the LG pension?
4) Does anyone know what happens to Mum's LG pension if she gets another job within local government?

Any advice will be taken in good faith and I appreciate that they really need to see an IFA. I just want to get some ideas and check whether there is anything obvious to do before the end of this financial year.

Really appreciate any help
ED

jem16

ed67812 wrote: »

Neither had ever used a private pension it appears and so missed out on 20pc tax relief!.

Your Mum would have received tax relief on her LGPS unless she earned less than the personal allowance each year?

1) Should Dad max out his pension allowance for the coming years to get 20pc tax relief (and indeed this year)?

Seems sensible, yes.

2) Should Mum max out her pension allowance for the coming years (and this year)? Although this will be lower whilst she is out of work?

Your Mum is slightly different in that she is already receiving £4k pension. That plus the state pension will take her above the personal allowance so she will be paying tax on any other pension income. She will get the benefit of 25% tax free though but that's it.

3) Am I correct in saying that Dad could not use unused allowances from previous years as he hasn't been in a pension at all during those years,

Correct.

Does your Dad's employer offer a scheme? If not yet they will soon have to.

but Mum could as she was in the LG pension?

Yes but Carry Forward only allows you to contribute more than the annual allowance of £40k. It does not allow tax relief more than 100% of relevant earnings in the tax year the contribution is made.

4) Does anyone know what happens to Mum's LG pension if she gets another job within local government?

Depends on how much she earns. You do have to notify the LGPS though.

http://www.lgps.org.uk/lge/core/page.do?pageId=101650

System

I know everyone is different but if I were in your parents' position I would retire completely. They have no mortgage, decent savings and an income you say they can live on. The one thing they cannot buy is time and health. Enjoy both while you can.
I certainly want to be retired before 60, too little time left and still lots to do and try. I will not have 'mega money' but enough to live on with out the stress and constraints of employment.
Just my thoughts and not intended as criticism.

xylophone

Have your parents requested state pension forecasts?

Your mother will become eligible for state pension in the new scheme -will your father?

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

kidmugsy

ed67812 wrote: »

. Dad has £75,000 in a stocks and shares ISA / savings accounts and CASH ISA.

Mum has £20,000 in a stocks and shares and about £6,000 in a CASH ISA. She will get a redundancy of around £19,000 and start drawing a local government pension of about £4,000 with about a £5,000 lump sum.

they have both recently opened stakeholder pensions and now have about £13,000 each in them currently.


Questions;
1) Should Dad max out his pension allowance for the coming years to get 20pc tax relief (and indeed this year)?
2) Should Mum max out her pension allowance for the coming years (and this year)? Although this will be lower whilst she is out of work?


Any advice will be taken in good faith and I appreciate that they really need to see an IFA. I just want to get some ideas and check whether there is anything obvious to do before the end of this financial year.

(1) They could each apply for their forecasts for their State Retirement Pensions. That's vital information for their planning. It could even be that armed with that, and a helpful child to talk to (i.e. you) they could manage without an IFA. That might matter, because many IFAs would not be interested in customers with only modest amounts of money. Even if they found an IFA they might find his charges rather high as a proportion of their portfolios.



(2) There's been a lot of political discussion about ending the 40%/20% tax relief and replacing it by a uniform 30% (or even 33%). I could conceive of that happening as early as April '16 or April '17. So they might be best to wait until as late as possible in each tax year before they make a pension contribution, while events play out. For example, in the new tax year they might want to await the budget statement in March 2016.

(3) However, that's hypothetical. In the present tax year they might like to calculate whether they have any capacity left for further pension contributions and then use it (they'll need to be quick).

(4) Will either of them reach State Retirement Age by 05/04/2016? If so they might want to consider deferring their state pension for a little while. The return is an extra 10.4% on their state pension for every year of deferral, and much of it is heritable. That's awfully good.
If their dates fall after that the terms change substantially for the poorer: 5.8% and not heritable.
https://www.gov.uk/deferring-state-pension/what-you-may-get

hyubh

ed67812 wrote: »

4) Does anyone know what happens to Mum's LG pension if she gets another job within local government?

CARE scheme pension definitely won't be abated, final salary pension (i.e., for membership up to April last year) could be (whether to apply abatement rules or not is an administering authority discretion). Best way to get an answer is for your mum to contact the administrators and ask, and get a reply in writing.

ed67812

Thanks for all the help, it really is very much appreciated.
I've replied to some of the points that you raised. I'm really starting to feel like I'm getting a clearer idea about what they should do for the best. Thanks again.

Your Mum is slightly different in that she is already receiving £4k pension. That plus the state pension will take her above the personal allowance so she will be paying tax on any other pension income. She will get the benefit of 25% tax free though but that's it.

Still worth doing it though surely?

Does your Dad's employer offer a scheme? If not yet they will soon have to.

No, very small company so its not yet compulsory.

I know everyone is different but if I were in your parents' position I would retire completely. They have no mortgage, decent savings and an income you say they can live on. The one thing they cannot buy is time and health. Enjoy both while you can.
I certainly want to be retired before 60, too little time left and still lots to do and try. I will not have 'mega money' but enough to live on with out the stress and constraints of employment.

Never going to happen. Both feel younger than their age and they constantly tell me about younger friends who 'have decided' to get old. They don't feel that they have the money to live retirements filled with expensive activities. I think ideally they will both be working PT in the coming months, giving more time for family and grandchildren but still going out to work. Mum especially loves her work. I mean really loves it.

Have your parents requested state pension forecasts?
Your mother will become eligible for state pension in the new scheme -will your father?

Will either of them reach State Retirement Age by 05/04/2016? If so they might want to consider deferring their state pension for a little while. The return is an extra 10.4% on their state pension for every year of deferral, and much of it is heritable. That's awfully good.
If their dates fall after that the terms change substantially for the poorer: 5.8% and not heritable.

We'll request forecasts when I go over to see them this week. Neither of them reaches SRA by 5/4/16 – Dad reaches it in Oct 16 and Mum not until Nov 18. Is the 5.8% increase compounded year on year?

There's been a lot of political discussion about ending the 40%/20% tax relief and replacing it by a uniform 30% (or even 33%). I could conceive of that happening as early as April '16 or April '17. So they might be best to wait until as late as possible in each tax year before they make a pension contribution, while events play out. For example, in the new tax year they might want to await the budget statement in March 2016.

I had no idea about that. We'll avoid paying into pensions next financial year until this is confirmed happening or not.

However, that's hypothetical. In the present tax year they might like to calculate whether they have any capacity left for further pension contributions and then use it (they'll need to be quick).

We'll get this done this week.

CARE scheme pension definitely won't be abated, final salary pension (i.e., for membership up to April last year) could be (whether to apply abatement rules or not is an administering authority discretion). Best way to get an answer is for your mum to contact the administrators and ask, and get a reply in writing.

Mum called the administrator. Apparently she would be able to keep drawing her full pension even if she went back into a LG employer with the opportunity to start a new pension pot in the CARE scheme. I think that we'll get this in writing though.

kidmugsy

ed67812 wrote: »

Is the 5.8% increase compounded year on year?

The present wonderful 10.4% isn't: it's "simple interest" rather than "compound interest". I imagine the same will be true of the 5.8%.

I think the 5.8% implies that pension deferral under the new-style pensions will be probably not be much used except by people deferring to avoid income tax. That would make it pretty attractive, especially for anyone who will receive his/her extra pension after stopping work, and still be below the personal allowance for income tax.

chiram2015

Hi Ed


Both myself and my husband have managed to save for our retirement but now have decided to carry on working. Like your parents we like to keep as active as possible while we can. Anyway, I just wanted to mention that we use the Retireeasy Lifeplan for planning our future finances and it is a great free service and helps when we meet our IFA. Hope you get your parents sorted.

ed67812

chiram2015 wrote: »

Anyway, I just wanted to mention that we use the Retireeasy Lifeplan for planning our future finances and it is a great free service and helps when we meet our IFA. Hope you get your parents sorted.

I'll defo have a look at that once we've sorted out the immediate things that need doing before the end of this financial year. Thanks.

I think the 5.8% implies that pension deferral under the new-style pensions will be probably not be much used except by people deferring to avoid income tax. That would make it pretty attractive, especially for anyone who will receive his/her extra pension after stopping work, and still be below the personal allowance for income tax.

They both might end up deferring - we'll compare likely investment returns vs the 5.8% at the time.



Thanks again for all the help.

margaretclare

Well done to your parents. It just shows what can be done if you put your mind to it.

Oh how I wish DH and I had made similar decisions to those made by your parents, in our younger years. DH was telling my granddaughter when we saw her at the weekend, before he was out of his apprenticeship he was paying a lot of tax, because of piece-work. Paying a lot of tax, he earned a lot! Where did all that go to? Old cars, old motor-bikes, 2 disastrous marriages, go figure. Me, I don't even want to think about how much hard-earned money was wasted on trying to do up an old cottage in the Pennines and a husband who hadn't a clue about money management.

I remember seeing a newspaper ad for something called 'Save and Prosper' back in the 60s. This was one of the early unit trusts, what I now have as part of a S&S ISA. I recall thinking 'what a good idea, only £20 a month...' but there were always other places where that £20 a month needed to go, sadly.

One of the best decisions I ever made was to pay full NI contributions in the times when I needn't have, was laughed at: 'don't you want the money in your hand now'. And for being a member of the NHS pension scheme.

DH and I could have been rich. We're not exactly poor, but an awful lot of money just slipped through our fingers and was wasted.

Now, GD is part of what's called the 'working poor'. She just can't afford to save at all.