Help! 200k to Invest!

Al.

Sunday_Girl wrote: »

Thanks Al. Your thoughts are much appreciated.
Still not sure what to do now. Feel a sense of 'panic' coming on now - this Tax Year is drawing to a close - has my Mum missed the ISA Boat for this year? And anyway, are ISAs the best investment? Heard the interest rate isn't great - maybe better off changing to a Savings Account?
Not sure I am confident in helping my Mum find the best Investments - as you say, the money's not making anything languishing in the bank..
Work is a necessary evil - my Mum feels it will give her some kind of routine, but would happily do without it. Best to stick with the devil you know!
Thanks again for your help.

The ISA is of limited value to most basic rate tax payers, your mum has an annual personal savings allowance which gives her the first £1000 free of tax anyway. But, having an ISA isn't a bad thing, so you can always open an ISA with the bank (to claim it for this year) and you can always move it to an investment one, later.

My advice? Open a cash ISA for now, and then just let the dust settle a little. Don't panic, you have no need to address everything immediately. You run the risk of analysis paralysis. Ref money shops, point taken completely.

dunstonh

Pension Investment - bit of a sore point... My Dad didn't make it to 61 - and had fully paid up into National Insurance - so didn't get to feel the full benefit of his contributions all those years.

Do not mistake the state pension with a money purchase personal pension. With personal pensions, the full fund value is paid out to the beneficiary on death.

BTW... Bank has been NO help at all. Don't want to give advice - just when my Mum needs it the most. Hence my enquiry here. Thanks.

Banks pulled out of advice because they found that they could not operate compliantly and profitably and the fines the regulator were dishing out were too high for the level of business they were getting.

If you want advice, you wouldnt go to the bank, You should use an IFA.

BTW - renaming Banks 'Money Shops'...
Still wouldn't be right... In a shop you usually get helpful advice with which items to buy...

So, go to a proper "shop" that gives advice then.

enthusiasticsaver

A personal pension as Dunston says is different to the state pension and I understand where your mum is coming from having lost my own Dad at age 63 before he reached retirement. His private pension though has meant my mum enjoyed a very comfortable retirement and is still going strong 24 years later at age 82 (she was 57 when my dad died). We did a combination of things when my dads pension paid out and I would advise the same for your mum.

Paying off the mortgage would help your mum see clearly how much or how little she would need to live off each month to help her decide when to retire. Interest rates may be low now but at some point it will need to be paid off and interest rates in savings accounts are so pitiful she will struggle to get anywhere near what she is paying on the mortgage unless she is willing to get involved in high interest current accounts and shuffling money around.

Investing a proportion of her lump sum in sipps or stocks and shares isas in the long run would normally give her a much better return. It is easily accessible but if the markets were low it is not advisable to withdraw at that point so a decent emergency cash fund is essential. How much depends on the questions below.

Does she intend to spend lots on travel, new car, new home or gift it to children?

What are her present pension arrangements and does she have an occupational pension in her own name? How much will she receive monthly from your dads pension? How long does she want to work for?

What is her attitude to risk? If she was to invest (either through stocks and shares isa wrapper or a sipp wrapper) would she panic if the market fell by 20-30% My mum invested in a balanced portfolio (unwisely through a high street bank as she trusted them) and although it doubled and tripled in value over the 15 years it was invested the fees were extortionate and as the years went on she gradually moved it out with the view of simplifying her finances.

With that large amount it would not be a bad idea to use an independent financial advisor unless you or another member of your family were willing to put the time into researching stocks and shares. I did this before my husband retired last year and we both now have stocks and shares isas and sipps in a balanced portfolio invested worldwide in equities and bonds(fixed term assets).

As she is recently bereaved though this may be too soon for her to be thinking about all this. We left my mums money in national savings for a year to give her a chance to really think about things and recover a little.

TCA

As your mum has an offset mortgage, does she have any existing savings offsetting the mortgage balance? If minimal or not at all, you could always use some of the £200k to completely offset the mortgage. The interest rate on her mortgage may be as much as 4%, so you could move £90k (if that's the mortgage balance) into an account within the offset arrangement. This has the effect of nullifying any mortgage interest, i.e. no further interest would be added, therefore she'd pay off her mortgage quicker and effectively be earning the mortgage rate of interest (by not having to pay it). She would however still have access to that £90k and could in fact just use that to the pay the monthly mortgage payments. It gives the security that the home is paid for but the funds can be accessed at any time because they're just sitting in a savings account. Obviously depleting the funds means interest starts being added back to the mortgage.

Sunday_Girl_2

Oh my! Thank you all very much for your suggestions - very much appreciated.
Feel quite overwhelmed by all of this though - so will do my best to convey all this information to my Mum!
From what I know, because my Dad knew he was terminal (only a few weeks) he managed to arrange to cash in his 'pension' as a lump sum which was then paid into their joint bank account so my Mum doesn't have a private pension. I believe yhere's now talk of her being given a Defined Benefit Pension from her new employer - so hopefully that will help in the future, but it doesn't take away the pain that my Dad was fully paid up with his State Pension, yet neither of them will see the benefit...
Trying now to be more constructive -
Think the simplest and easiest initial move would be to take out an ISA for £15,240 to make the most of her allowance for this year - could add another one for next Tax Year? Although there seems to be a choice of ISAs on the Barclays website, so not sure which one to suggest...
After that, as you say, think it may be better just to let things settle for a bit, so she can think about what she really wants to do. It's still very early days yet. I know she's had difficulty making decisions, so this make take some time. Had hoped to avoid the expense of an Independent Financial Advisor, which is why I thought I'd ask a few questions, but looks like it will be far too complicated for me to deal with on my own, so probably best to look for one.
Thanks again for all your input... Really appreciate it.

dunstonh

but it doesn't take away the pain that my Dad was fully paid up with his State Pension, yet neither of them will see the benefit...

It is best not to think of the taxation system in the UK being segmented into x% of your tax going to state pension, y% going to teaching, z% going to defence etc. You pay your taxes and for that you get a package of benefits in your lifetime. Some things will benefit more than others.

Had hoped to avoid the expense of an Independent Financial Advisor, which is why I thought I'd ask a few questions, but looks like it will be far too complicated for me to deal with on my own, so probably best to look for one.

Yet you were prepared for the greater expense of a bank tied sales rep?

atush

Pension Investment - bit of a sore point... My Dad didn't make it to 61 - and had fully paid up into National Insurance - so didn't get to feel the full benefit of his contributions all those years.

That isnt the pensions we and Dunston were talking about. WE were talking about the other type, ie work pensions.

Which he had

he managed to arrange to cash in his 'pension' as a lump sum which was then paid into their joint bank account so my Mum doesn't have a private pension.

Which may have been a mistake. As it could have been retained in the pension, in her name. So she would have had one. It also brought the money into his estate. Which is fine, as she inherits w/o IHT but could have been a mistake is she dies soon after. But going forwards if she works, she should join her work pension and contribute to it. She can even funnel some of the extra money that way.

56 is young still. Working might be good for her, and her piece of mind. For now she could put the money into the offset, a cash ISA, and an NSI account for safety.

I would, if the house needs them, have her consider getting maintenance work done on it now rather than later while she has the money for it.

And the NI he paid also paid for the NHS treatment he had all his life and other things as well. Not just his state pension.

badger09

With £200k at stake, your mum should seriously consider consulting an Independant Financial Adviser.

She will have to pay for that advice, but it sounds as though neither she, nor you have any experience of investing/pensions/savings, so it could save her making costly mistakes.

In the meantime - don't panic. Put £15240 into any bog standard instant access cash ISA now to preserve this year's allowance. Put the rest into NS&I Income Bonds.

Best of luck

Al.

Sunday Girl,

Phone The Pensions Advisory Service, Pensionwise etc. Explain that your mum may be stillvulnerable and completely in the dark about money. It's free (well, to you - the likes of me fund it ) and then sit down with a few advisers to get a feel of how they'd look at things. Be honest with them, explain the situation, tell them you're holding a beauty parade and that you're slowly feeling your way. I get the sense that your mum's needs aren't particularly complicated; a combination of saving (still), tax efficient, 'safe' drawdown (eventually) ensuring she won't lose her home, and some relatively simple cash flow modelling which will indicate how long she might have to work to achieve her intended lifestyle.

Sunday_Girl_2

Once again, many thanks for your help - it is much appreciated.
Will get back on the phone and make some enquiries to smooth the way for my Mum. No, my Mum & Dad didn't have an extravagant or complicated lifestyle - they've worked hard all their lives, saving for their retirement. Sadly, not the retirement my Mum was expecting, however once things have settled a bit, hopefully she'll have less financial worries for her future. Their finances don't look particularly complicated, but will still seek professional financial help as don't want to make a silly mistake! It's going to be hard to be frank and honest with personal information, but guess we have to try and trust someone.
Thanks again for all your help - I feel more reassured, and am sure my Mum will too. I'm so pleased I found this Forum, and am very grateful for your advice and kindness - thank you. x