Not sure what to do

mondeoglx

Hi we have 25k but not sure what to do
No Morgage or debt no cars loans
Have 25k to invest
58 yrs old still working
I have a private pension which I still pay into
Would it be advisable to pay extra payments into this account till I'm 65 or would it be better to invest the lump sum off 25k we do have other savings if we needed any money urgent
Many Tks steve

justme111

Keep emergency fund of a feq months expenses in high (er) interest paying bank accounts. Invest the rest. It may help you to retire earlier if you add it to a pension.

AnotherJoe

There would seem to be very little downside and a lot of upside if you paid at least some of that into your pension. Are you a standard or higher rate tax payer and how much per year do you currently pay into your pension and how large is the pot?

xylophone

In the circumstances you describe, I'd be inclined to consider adding to your/your spouse's pension/opening additional pension to access when required before age 65.

Audaxer

If you are already happy with the level of your private pension, you could consider opening an S&S ISA with a view to investing the money in a low cost passive global multi asset fund at your desired level of risk. Some examples of such funds are Vanguard LifeStrategy, L&G Multi Index and HSBC Global Strategy funds.

bowlhead99

Audaxer wrote: »

If you are already happy with the level of your private pension, you could consider opening an S&S ISA

As he is 58 and already over the age at which private pensions can be accessed (and doesn't need the money now in any case), it would seem a no-brainer to put the money into a pension for the tax relief, subject to the annual limit (generally the lower of your entire annual earnings or £40k a year can go into pensions).

As a basic rate taxpayer £25,000 paid in gives £31,250 in the pension. If you draw 75% of it out at basic rate tax (after first taking a 25% tax free lump sum) you will have more total money than you started with. If you draw it out in a year when your salary or other pensions are below your annual income allowance, at least some of the 75% drawing will be tax free too.

If you are a higher rate taxpayer the prospects are even better because the tax relief is even greater (£25k can give £41,667 in the pension pot, although if you are not as far as £41,667 above the higher rate tax threshold it might take you several years to get it all in, in smaller annual chunks).

So, if someone is 58 now and will get a new £20k ISA allowance every year, there doesn't seem to be much point scrambling to stuff the £25k into an ISA now and miss the free tax relief. Pensions have the same investments available as ISA so the underlying investment returns would be the same except one is boosted by free government money in the form of tax relief and the other is not.

As a 58-year old who is already allowed to access the pension money (but doesn't need to) it usually makes more sense to stick it into a pension now and then only put it into an ISA after taking it out as income in the future. It doesn't have to go into the existing private pension, it could go into a different one (or more) if preferred.

fiisch

Wait, what?


I understand the tax relief side - but where is the "extra" coming from? Is this equivalent value, or is there some form of tax rebate?


I'm a higher rate tax payer (£59k/annum), but weighing up contributing a higher percentage (15-20%) to reduce tax liabilities and qualify for child benefit. If there's additional benefits over and above, it's definitely a no-brainer....

mondeoglx

So would you say my best option would be too sent a payment to my private pension about £200 per mth then leave it there till 65 your help many tks steve

kidmugsy

mondeoglx wrote: »

So would you say my best option would be too sent a payment to my private pension about £200 per mth then leave it there till 65 your help many tks steve

Maybe. Check your wife's pension provision. It may be more effective if the pension contribution is made for her.

mondeoglx

She not has a pension private or company would you suggest I open one for her with this money
She's 59 so could do one for her till she's 65

Audaxer

bowlhead99 wrote: »

As he is 58 and already over the age at which private pensions can be accessed (and doesn't need the money now in any case), it would seem a no-brainer to put the money into a pension for the tax relief, subject to the annual limit (generally the lower of your entire annual earnings or £40k a year can go into pensions).

As a basic rate taxpayer £25,000 paid in gives £31,250 in the pension. If you draw 75% of it out at basic rate tax (after first taking a 25% tax free lump sum) you will have more total money than you started with. If you draw it out in a year when your salary or other pensions are below your annual income allowance, at least some of the 75% drawing will be tax free too.

If you are a higher rate taxpayer the prospects are even better because the tax relief is even greater (£25k can give £41,667 in the pension pot, although if you are not as far as £41,667 above the higher rate tax threshold it might take you several years to get it all in, in smaller annual chunks).

So, if someone is 58 now and will get a new £20k ISA allowance every year, there doesn't seem to be much point scrambling to stuff the £25k into an ISA now and miss the free tax relief. Pensions have the same investments available as ISA so the underlying investment returns would be the same except one is boosted by free government money in the form of tax relief and the other is not.

As a 58-year old who is already allowed to access the pension money (but doesn't need to) it usually makes more sense to stick it into a pension now and then only put it into an ISA after taking it out as income in the future. It doesn't have to go into the existing private pension, it could go into a different one (or more) if preferred.

Very interesting as I haven't really looked into SIPPs before. If a 58 year old was not planning to draw his private company pension until 60 and they opened a SIPP now at 58, would they still be able to contribute to a SIPP when they turn 60 and in receipt of the private pension? If so how much each year could they contribute to it?