Advice on lump sum pension portion please .

alfmurph

My wife and I intend to retire the same day around july next year 2019 . We both have defined benefit pensions in different companies . She will be 62 and myself 66 .
My pension forecast is 12k with 30k lump sum or 9k with lump sum with 70k lump sum .Public sector . I intend taking the first option as added to my oap I will receive same pension as my wages .
My wife has a forecast of of 12k plus 80k lump sum or 15k and no lump sum . Private sector . I find it strange that with the 15k offer she gets no lump sum whatsoever but it is what it is .
We intend to live on our joint pensions probably the 12k offer for both of us .
This would leave us 30k and 80k to invest . We intend to use this for extra's like holidays and xmas .
We have our savings of around 70k in virgin 2 year isa .
We have no mortgage or loans .
Anyway my question is would it be better to just keep investing our 110k in another isa for security or would an investment company be able to make us more money .
I am thinking isa at 2% versus investment at 5% but paying 2% commission amounts to the same .
I would welcome all advice as I am far from an expert .

Linton

2% annual ongoing charges is extremely high. For £100K you should expect less than half that. Given the £70K in cash it would be reasonable to invest with a view to the medium/long term and so not over cautiously. This would certainly mean a significant % in share funds.



Are you looking to spend your cash/investments in your lifetime or are you thinking about leaving money for your beneficiaries? Before talking to an IFA you need to have thought through what you want the money for.

Audaxer

alfmurph wrote: »

Anyway my question is would it be better to just keep investing our 110k in another isa for security or would an investment company be able to make us more money .
I am thinking isa at 2% versus investment at 5% but paying 2% commission amounts to the same .

If you put the £110k in a fixed term Cash ISA, 2% is okay but still below inflation, so your cash value would be falling a bit in real terms. I assume the 5% is the forecast return for the investment, but if the charges are 2% that is very high. As your income needs are covered by the pensions, and you have £70k in cash savings, I would be looking to invest most of the £110k in a S&S ISA using your full allowances over the next few years. You should get much better returns in the long run as opposed to adding the money to Cash ISAs, but I definitely wouldn't invest at 2% commission.

I think it would be worth you considering investing in a low cost passive globally diversified multi asset fund with a percentage of equities to match your risk/volatility tolerance. Some examples of these funds are Vanguard LifeStrategy, HSBC Global Strategy and L&G Multi Index funds. All have low ongoing costs and are available on good online investment platforms/brokers. The costs and returns for these sort of products are much better than you would get by going through a bank for investments. Most people on here would advise either DIYing your investments in that way or going through a good Independent Financial Adviser rather than a bank which are more expensive and have less products on offer.

It would be worthwhile learning about DIY investing on this forum and sites like Monevator before making a decision. Multi asset funds are a good and straightforward option to get started with if you are new to investing.

kidmugsy

alfmurph wrote: »

My pension forecast is 12k with 30k lump sum or 9k with lump sum with 70k lump sum.

My wife has a forecast of of 12k plus 80k lump sum or 15k and no lump sum.

Just to be clear:

Your wife has to do without a tax-free lump sum of £80k to get an extra £3k p.a. of pension. That seems pretty expensive to me. In her shoes I'd probably take the smaller pension and the big lump sum.

You have to give up £40k of lump sum to get an extra £3k of pension: much cheaper. So in your shoes I'd probably opt for the bigger pension and the smaller lump sum.

This combination is just what you propose. And now your question: what to do with the £110k of capital?

My first suggestion is that there will probably be no hurry - don't put yourself under pressure to invest it. There would probably be little harm if you started most of it off in savings accounts. You could consider putting a small sum each into a personal pension of some sort. Perhaps your wife would like to transfer the unused bit of her Personal Allowance against income tax to you for the tax year 20/21.

Maybe each of you will put £20k into a Stocks and Shares ISA in the tax year 19/20, expecting to do it again in 20/21.

There are three great rules. (i) Don't be scammed out of your money. Pay no heed to cold calls, exotic little-known opportunities, or the like. (ii) Keep charges down. 1% per annum doesn't sound huge but it could easily be 25% of the income that your investments will generate. (iii) Try to avoid tax: that gives you a cushion against any disappointing or mistimed investments that you make.

You will have nearly a year to learn a bit about investing. I suggest you consider reading the following.

(a) The monevator blog. http://monevator.com

(b) The reports at Personal Assets Trust: it's an investment trust i.e. a company whose business is investing in shares, government bonds, gold, and whatnot. Its chosen purpose is first to avoid losing you money when prices are high in the stock markets, and secondly to make you money when stocks and shares are cheaper. You need never invest a penny with them: you can get a free investment education just from reading their reports. It'll seem unfamiliar at first; you should persevere. Here's a particular example:
https://www.patplc.co.uk/sites/default/files/documents/88.pdf

Here's a collection: https://www.patplc.co.uk/literature

(c) Similarly you can learn a lot from reading the reviews by Ruffer Investment Company.
https://www.ruffer.co.uk/about/investment-review

Do I own shares in either company? No: but if I were a newcomer to investing I might think them a reasonable place to begin. If nothing else they are a useful contrast to the investments that monevator likes.

xylophone

You might each consider paying £2880 per tax year into a SIPP - it will be topped up by tax relief of £720.

You could choose to invest this or leave it in cash, regarding the £720 as interest.

Discussion here

https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired

You might choose to transfer your cash ISAs into stocks and shares ISAs

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-isa

http://monevator.com/using-vanguard-lifestrategy-funds-life/

in the hope of growth and keep your lump sums in cash deposits as your emergency and "jollies" fund.

Savings rates here

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

kidmugsy

And another thing: you each have DB pensions. So you were probably contracted out of the State Second Pension for a while. This may mean that you will not receive the maximum State Pension. It's worth checking, and considering whether to invest in buying more State Pension.

zagubov

kidmugsy wrote: »

Just to be clear:

Your wife has to do without a tax-free lump sum of £80k to get an extra £3k p.a. of pension. That seems pretty expensive to me. In her shoes I'd probably take the smaller pension and the big lump sum.

You have to give up £40k of lump sum to get an extra £3k of pension: much cheaper. So in your shoes I'd probably opt for the bigger pension and the smaller lump sum.

OP, is your wife's pension index-linked? (I'm presuming yours is).

If she took the pension but no lump sum it looks like she'd have to collect the pension for almost thirty years to collect as much money as if she took the lump sum. As kidmugsy says, the upfront lump sum might look better in her case.

In your case if you took your max pension you'd only have to live around fifteen years to get more money than if you took your full lump sum. You may both need to make very different decisions and think about both pensions very much separately from each other.

I'm sure others will be along to correct the obvious errors in my calculations and offer better advice.

xylophone

It's worth checking, and considering whether to invest in buying more State Pension.

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

https://www.royallondon.com/global/documents/goodwithyourmoney/topping-up-your-state-pension-guide.pdf

alfmurph

I thank you all for your help . Food for thought .
I still think we will go with the options I suggested in my original post but you guys have opened my eyes to investing away from an isa . I think though we would let an expert do the work for us . We would like to leave something to our son from our nest egg but that all depends on our future longevity .He is getting the house anyway .
One other thing - my wife's company is offering to buy out her pension completely . What would be a good offer . She is 62 next april and would get 12k with 80k lump sum as i have said before . Both are index linked with half being paid out when one of us dies .
I have been contracted out but my oap pension is £144 weekly .
I should not see much difference but my wife is dropping from her 46k wages to 12k pension with no oap until 66 .

Audaxer

alfmurph wrote: »

I still think we will go with the options I suggested in my original post but you guys have opened my eyes to investing away from an isa . I think though we would let an expert do the work for us.

What type of expert did you have in mind? An Independent Financial Adviser would be a much better choice than for example going through a bank's investment service.

alfmurph

yes agreed .