What do you do when there is not enough money?

Linton

Joey_Soap wrote: »

You are an adviser, I presume? Kindly refrain from the insults.

It's no business of yours, but I do very successfully run several SIPP portfolios for my immediate family.

I repeat - I will not allow an IFA to leech money away from a relative who cannot afford to keep the typical adviser running his Mercedes E Class as they all seem to do.

......

You are unlikely to get the suggestions you seek from the people with most experience to help you if you insist on insulting them.

Stubod

..our IFA drives a 6 yr old "average" car, is very supportive and knowledgeable and has made us more money than I could have made for myself, so I don't think you should rule this out as an option unless you are extremely knowledgeable about investments yourself...

redux

I don't see why this thread should become a war against or for IFAs.

I am not one, but I can see some potentially useful advice could come from some of them, especially considering that you discuss annuity as a possibility, so a comment not to buy one until it is only for the survivor is pertinent, even if it risks you considering it patronising as you'd already entirely discounted this.

I don't see why you suggest setting initially aside £70,000 to be taken as £6000 a year for 11 years. Is this as cash? It looks like it might be as there is no gain.

If the £180,000 is left well invested, it seems a reasonable prospect to draw £5500 to £7000 income a year from it without depleting the capital.

So having that running from soon, augmented with say £7000 of part time work now and £8000 a year of pension after retirement, looks slightly better to me than the 70/110 split, unless I misunderstood this. If the 70 is also invested so part remains at 11 years I don't see a reason for any distinction.

It could be a problem if there is not enough work to start with, but it should be possible to claim some state benefit to help tide things over.

dunstonh

The car one drives is no indication of anything. A person may enjoy having nice cars. They may spend less on them than a smoker or drinker or a hobby. They may put the car through their business for tax purposes making a decent car more affordable. They may run a successful business that they earn more from that side than they do their own clients. They may live a more frugal lifestyle in other areas. They may be upto their neck in debt in an attempt to keep up with the Jones'. They may have saved for years and struggled to build the lump to treat themselves. They my have had an inheritance or other wealth. The spouse may be the main earner. And plenty of other scenarios.

it is a very shallow mentality when you start measuring the quality of an individual by the quality of their car.

zagfles

Joey_Soap wrote: »

Well, as per the heading. A relative has found themselves in a very difficult situation and though I am not an adviser I am the only person they know who can even half sensibly try to plan a way through the mess. They simply cannot afford to pay an adviser.
This married couple have worked all their lives and raised a family on a very poor income. The home is paid for but not worth a lot of money, maybe £160k perhaps. The adult children have left home. The only debt is a smallish personal loan. I am not sure how much, but it won!!!8217;t be a lot. There are virtually no savings to speak of. There is no life insurance.
One of the couple has always worked fulltime in a low paid job and has accrued a very modest defined contribution pension pot. The value of the pot is about £180k I understand, but the final figure is not yet certain. The other person has only ever had low paid casual work the last 30 odd years and no pension pot.
Sadly, one of the couple (the one with the pension pot) is very ill and has been recently diagnosed with a terminal condition. Less than a year to live almost for 100% certain.
Presently, the couple live on benefits, it is impossible for ether of them to work, one of them is a fulltime carer, obviously.
At the present, the DC pension is not yet in payment. The default annuity is pitiful. Even more pitiful is when the person passes, likely in less than a year, the joint annuity pays only 50% to the survivor.

What kind of DC pension is it?

This would be the only source of income for that person, the benefits would cease.

I presume you've investigated that - I don't know what the position is with inherited pension funds, whether they'd count as capital for the purposes of benefits or not. Capital in a pension before pension age is not counted normally, but not sure about inherited pensions. This is something you want to be certain of before making any plans.

Try the benefits board if you're not sure and can't find the answer. Or perhaps pensionwise or the TPAS

https://www.pensionwise.gov.uk/en

https://www.pensionsadvisoryservice.org.uk

Clearly, this person has no option but to seek work in the future. With 11 years to state retirement the person will have to in fact contribute NICs for all those years too to qualify for the full state pension.

Pension credit would top up pension to the full state pension if no other income/capital. https://www.gov.uk/pension-credit

Of course that's current rules which could change, but personally I can't see it changing much for the worse for political reasons.

It seems to me that a transfer of the DC pot to a SIPP is essential, urgently in fact, to protect the capital.

Why would that change the ability to protect the capital?

The capital will not be drawn down on as they are managing (just) on benefits.
I think at the present, the couple manage on an income of about £1000 per month and this is the target income once the very ill person passes.
The way I see this happening is to set aside say £70000 as a pot to live off at a rate of £6000 per year for the next 11 years until state pension age. This would therefore be £500 a month, half what is required. The other £500 a month will have to come from employment. At minimum wage (that is very likely the best that can be hoped for) that is going to require approximately 67 hours a month of paid work. With a total earned income of just £6000 clearly there will be no tax to pay. I do not know about NICs on such a low salary.

That is only just above the NI LEL, which you need earn for it to be a qualifying year for the state pension. No NI would be payable, if the income was evenly spread.It would be important to earn above the LEL every pay period with such a small margin over the LEL, a week/month earning below would mean that entire week/month would not count.

Has this person had a state pension statement?

kangoora

It's good that you are starting immediately as I've got a cautionary tale from my own experience.

My sister was given a year to live a few years ago but didn't immediately start arranging her affairs, including a will. I can understand why in a way but only 3 months after the prognosis she was rushed into a hospice and then spent the next month on morphine (palliative care) until she passed away. It was a nightmare trying to get everything done before she passed away and whilst she was still aware enough to complete transfer forms etc.

As an aside, the IFA we engaged to help us out transferring her DB pension(s) was wonderful and went above and beyond what we expected in terms of responsiveness and engagement - even though he knew it was only going to be a one-off fee with no ongoing management as her husband needed the cash to cover debts and pay off their mortgage as he could never have kept the house on his minimum wage job (she was the main earner by a long way).

I view an IFA as no different to getting my car serviced every year and any repairs done - i have zero interest in cars apart from getting me from A to B and pay for the expertise required because I can't be bothered to learn it. My neighbour, conversely, regularly has his car in bits and almost never pays for anything from a garage apart from the MOT certificate because he enjoys it.

I struggle to understand the extreme vitriolic responses to IFA's on this forum from some people, calling them leeches etc. There are tens (100's?) of thousands of people who have no idea about finance and who do not wish to learn. For the vast majority of these an IFA plays a valuable service for which they get paid.

and I am not an IFA

xylophone

Both the relatives are well under state pension age?

Help each of them to obtain a state pension statement.

https://www.gov.uk/check-state-pension

See also https://www.gov.uk/bereavement-payment

Your relative has a DC pension - there should be no compulsion for an annuity of any description to be purchased.

Have you read the policy/consulted the provider to check on the position if the policy holder dies before drawing the pension?

The relatives are on means tested benefits?

It would be advisable to read this

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

before any decision is taken concerning bringing the pension into payment.

Thrugelmir

dunstonh wrote: »

it is a very shallow mentality when you start measuring the quality of an individual by the quality of their car.

Initial appearances are important. No need to flaunt when conducting business.

zagfles

xylophone wrote: »

It would be advisable to read this

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

before any decision is taken concerning bringing the pension into payment.

Useful but doesn't totally clear up the question as to whether an "inherited" pension would count as capital (while under SPA).

I suspect not, the legislation (for UC) does state rights in any pension scheme are disregarded as capital. https://www.legislation.gov.uk/ukdsi/2013/9780111531938/schedule/10

Actually taking income would almost certainly count as income for the purposes of benefits though, even if not taxable.

margaretclare

Agree don't go for an annuity. Much better options available nowadays.

Agree don't slag off IFAs. At different times in life, we have had excellent outcomes by consulting an IFA. They have the advantage of being able to survey the whole market-place and they sometimes come up with options you never thought of.

If there is an occupational pension then the situation is a lot less dire than many other people's.

Make sure wills etc are in place ASAP.