Retirement strategy for parents (57 years old) - not keen on S&S

redlfc

Hi All - just wanted some advice as Ive had great help on here since joining

My parents are 57 - one of them has around 130k and the other has around 90k in their current accounts. They have literally just kept this money in the bank all these years - never put anything into ISA or even a savings account to earn interest! Having read up a lot on this forum/Monevator I know what a big mistake this has been and will not be doing the same.

My dad is self employed sole trader for last 3 years and mum is civil servant for local council who pays into pension (she knows she pays 167 pounds a month of her 30k annual salary into it but knows nothing about employer contribution/ whether DC/DB etc)

They have said they are happy to put a significant proportion of this money in their accounts into methods to increase it - their current salary is enough for all their expenses such as bills/mortgage. The only thing theyd need is money for deposit for my sisters house which she is hoping to buy in London in next couple years

As they are 57 - I would not be happy putting their money into S&S - I just cant fathom the possibility of losing some of that money and whilst I know cash returns are poor - I would be devastated if they gave me the money and I lost it. Even with very low risk bonds there is still a theoretical risk

Trying to decide what their best options going forward to maximise this money. Currently Ive told them both to put 20k each into best paying Cash ISA (1.7% interest for 1 year fixed no access) - otherwise best rate is 1.38% any time easy access ISA. Ive also told them to put the rest of their money into Marcus earning 1.5% . Issue with cash ISA is poor rate is losing to inflation and with Marcus the same plus will be taxable as the amount earned will go over 1k PSA limit - but both are better than the money just sitting in their bank accounts doing nothing.

So I thought about SIPP but again if its going to be cash only rather than funds is that a non starter? Also with SIPP - I know you can contribute a maximum of the lower figure between salary/40k gross annual allowance this tax year in order to get max tax relief. Ive read you can also claim allowances for 3 years prior to this aswell - is this only applicable if youve exceeded the 40k allowance i.e earn more than 40k per annum or for everyone? I also realise shed have to minus any workbased pension contributions from the 30/40k.

Would be very helpful if someone could let me know how much maximum she could contribute this tax year based on her 30.5k salary for this and previous 3 tax years - her tax contribution is listed earlier in the post. If she isnt able to contribute more than 30.5k gross this year (i,e 24,400 of her own money and 6,100 tax relief) then obviously I already know the answer - im asking specifically in relation to the 3 year backlog. I understand if you exceed this limit you pay tax on the excess at your marginal rate which basically youll get tax twice - i.e from net pay and from pension + also potentially when withdrawn. - hence want to make sure she doesnt pay too much if she goes down this route.

Also am I right in thinking if you plan on just investing in low cost index tracker such as VLS/ FTSE Global All Cap - SIPP is an expensive way of doing this and a personal pension would be better?


Anyone in a similar position in terms of age and risk profile? They do not have a clear retirement age but they have both worked very hard all their life and I would love any suggestions for best potential retirement strategy in the next 3-5 years using their available money

dunstonh

I just cant fathom the possibility of losing some of that money and whilst I know cash returns are poor - I would be devastated if they gave me the money and I lost it. Even with very low risk bonds there is still a theoretical risk

They are losing money though. They are suffering shortfall risk and inflation risk.

Ive read you can also claim allowances for 3 years prior to this aswell - is this only applicable if youve exceeded the 40k allowance

She doesnt have the earnings use C/F

Also am I right in thinking if you plan on just investing in low cost index tracker such as VLS/ FTSE Global All Cap - SIPP is an expensive way of doing this and a personal pension would be better?

Clearly, they wouldn't invest in such a fund given their investment experience and risk profile. However, the wrong SIPP would be an expensive way of doing it. The right SIPP would be ok. A personal pension could be very cheap but you would need an IFA to put that in place.

crv1963

What are their retirement income needs? When do they want to retire?

Have those figures and work backwards.

Your Mum can find out from the local authority when she is entitled to retire and how much she will get. I would have thought she will be in a DB scheme and the employer will be putting in a significant amount to her pension- nominally only as she will not have a personal pot but a promise to pay if it is an unfunded scheme.

Your Dad- does he pay into a pension? Or has he previously? If so he needs to track these down finding how much he has saved.

Moving forward they can open a cash SIPP pitiful interest but, with it being topped up by the HMRC it may be worth doing given the short timescale.

They could put the money into National Savings or Premium Bonds?

redlfc

dunstonh wrote: »

They are losing money though. They are suffering shortfall risk and inflation risk.



She doesnt have the earnings use C/F


Clearly, they wouldn't invest in such a fund given their investment experience and risk profile. However, the wrong SIPP would be an expensive way of doing it. The right SIPP would be ok. A personal pension could be very cheap but you would need an IFA to put that in place.

Thanks! any recommendations for best way they could invest this money then? They are fairly clueless with these thing but trust me - so if i went and invested all the money and made a loss id be devastated

Would Vanguard Retirement strategy be a safer idea?

Also what did you mean by use c/f?

redlfc

crv1963 wrote: »

What are their retirement income needs? When do they want to retire?

Have those figures and work backwards.

Your Mum can find out from the local authority when she is entitled to retire and how much she will get. I would have thought she will be in a DB scheme and the employer will be putting in a significant amount to her pension- nominally only as she will not have a personal pot but a promise to pay if it is an unfunded scheme.

Your Dad- does he pay into a pension? Or has he previously? If so he needs to track these down finding how much he has saved.

Moving forward they can open a cash SIPP pitiful interest but, with it being topped up by the HMRC it may be worth doing given the short timescale.

They could put the money into National Savings or Premium Bonds?

they have no specified retirement age - mum was trying to get early retirement from work but they rejected it
tbh i feel the amount they have currently probably isnt enough to retire on - i really doubt theyd want to work another 10 years though

thanks for the reply! Would a SIPP be a good idea given shes basic rate taxpayer and would only get 20% tax relief?

Not seen National savings/premium bonds on MSE website - are these guaranteed returns at rates better than 1.5%? also presuming they are taxable?

OldMusicGuy

redlfc wrote: »

They are fairly clueless with these thing but trust me - so if i went and invested all the money and made a loss id be devastated

Considering all investments can go down as well as up and we appear to be at the end of a very positive market, then if what you say is true, you should not be investing. Just set up a fixed rate savings ladder. That is better than having the money sat in a current account.

redlfc

OldMusicGuy wrote: »

Considering all investments can go down as well as up and we appear to be at the end of a very positive market, then if what you say is true, you should not be investing. Just set up a fixed rate savings ladder. That is better than having the money sat in a current account.

thanks - when you say fixed rate savings ladder - do you mean putting it in the 1 year 1.7% rate i mentioned?

crv1963

Putting funds into a cash SIPP will get the uplift so yes 20% which is considerably more than the 1.5% you are aiming for, the National Savings and Premium Bonds can easily be turned back to cash in the bank- in full if needed. As they are Govt. backed.

Use all the 5% savers you can, read a bit on threads on other boards to learn a bit more?

xylophone

Has your father no pension provision at all outside the state pension?

Have both your parents obtained new state pension forecasts?

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

Even if he chooses not to invest, your father could pay up to his net relevant earnings (within annual allowance) into a SIPP and benefit from tax relief - he could simply regard the TR as "interest".

HL do not charge for holding cash.

https://www.hl.co.uk/pensions/tax-relief/calculator

Linton

redlfc wrote: »

thanks - when you say fixed rate savings ladder - do you mean putting it in the 1 year 1.7% rate i mentioned?

No - some in a 1 year account, some in a 2 year acount .... up to the maximum which is generally 5 years.
Then when after 1 year you can set up another 5 year account etc etc. The effect being that eventually all your money comes to you as annual payments after 5 years at the highest interest rates available at the time (ignoring special loss-leader offers).

redlfc

xylophone wrote: »

Has your father no pension provision at all outside the state pension?

Have both your parents obtained new state pension forecasts?

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

Even if he chooses not to invest, your father could pay up to his net relevant earnings (within annual allowance into a SIPP and benefit from tax relief) - he could simply regard the TR as "interest".

HL do not charge for holding cash.

https://www.hl.co.uk/pensions/tax-relief/calculator

thanks ill ask them to check that out!
i believe he has a small 8k per annum pension from a previous job

as a sole trader - is there any other rules to be aware of regarding SIPP? i.e hes a post master so doesnt get a salary per se - how would he work out if hes able to contribute more than 40k via the back-dating system - dont want him to get taxed by overcontributing