Advice on Investing £8k for 5 Years

Albermarle

Thanks for this, I hadn't realised it was an option. So basically I start a new pension and get govt help?

Effectively yes . If you contribute to a pension HMRC ( taxman ) pays back the tax already paid on that contribution. For low earners they still pay it back even if you have not actually paid any tax ! So any money you contribute to a pension gets an immediate uplift . If you contribute £1000 another £250 will be added. For you free money in effect.
When you take money from the pension you may have to pay tax on some of it ( depends on other income you have at the time ) but it is still a good option.
Also starting anew pension is probably easier than you think . Here is a link to a simple one :https://www.cavendishonline.co.uk/stakeholder-pension
The actual pension is with Aviva who are one of the biggest so safe as houses ( Cavendish is just the agent /broker you have to go through) Or this one with Standard Life,.
https://www.standardlife.co.uk/c1/accounts-and-services/pensions/stakeholder-pension-funds.page

Just like with a Stocks and shares ISA , you will have a choice of investments within these pensions . After you have had a look you can come back with more questions if you need to .

MaxiRobriguez

jez_waterhouse68 wrote: »

Hi does anyone have any suggestions on investing in CryptoCurrency?

Yes.

Don't.

AlanP_2

love_lifer wrote: »

Thanks for the replies. Im 55 next year which is when I can start taking my private/local govt pension, £8k per annum.



Ive had free phone 'advice', which was to spend the svaings and then draw pension but that makes me uneasy.

Who was the advice from?

At 55 your Local Gov pension will be reduced to make up for the fact that you will (typically) be receiving it for longer than normal.

The reduction factor is 4-5% a year so delaying taking it would increase your eventual retirement income but you would need to continue spending down savings to achieve that.

May be a combination approach? Set yourself a "savings floor" that you want to keep in cash for emergencies.

Use the balance to delay taking LGPS and contribute to a new pension and get the tax relief bonus on offer.

You would need to do the sums , but doing this for say 2 years would use up about £25-30K of your savings but increase your annual income form there on.

arwain

love_lifer wrote: »

Re state pension, Im 5 years short on contributions currently but intend to keep working to make that up before i reach 67

If you could afford it, you could pay voluntary class 3 NI contributions for 5 years once you have taken early retirement at 55 next year, so that by the age of 60 you would have got enough years in for the full pension at age 67.

From memory (so check this out for yourself) you need to pay something like £15 per week, in NI contributions and this will earn you close to an extra £5 per week in state pension for each year you pay this contribution. So in todays money paying in the £15 per week for 5 years will give you an extra (close to) £25 week in pension for the rest of your life.

I am sure if I have got some of this wrong someone will put me right.

arwain

[QUOTE=love lifer;76363402
I earned £6k last year before outgoings, £4k after. So with the pension next year I wont be over the taxable income level.
.[/QUOTE]
Wow that's impressive, you certainly weren't exaggerating when you said you were frugal.

Here are some ideas to consider, but I am making the following assumptions.
1. Your £8k pension is not going to be reduced by around 25% for going 5 years early from the local authority pension scheme.
2. You are not looking to try and leave close relatives as much money as you possibly can.
3. You are not going to panic and sell all your investments if there is a big stock market crash and you investment falls by 40 or more percent in a short period of time.

So if these assumptions are correct then have a think about the following.
Put that £8k of savings (this is not your local authority pension money) into an easy access savings account. This will be your emergency money which although you wont get much interest on it, is there just in case you need to get hold of some money in a hurry.

The rest of your money (around £50k) I think, put into one of the on line brokers someone like IWEB who have just £5 dealing fees and no on going charges. Then buy one of the old but dependable income investment trusts. Someone like City of London (CTY), I have not checked recently but I think they yield about 4% per annum, So on a £50k investment that would give you an annual income of £2000.

Add this to you £8k pension gives you and income of £10k a year which it sounds like it will be more than enough for you. If you could afford it I would try and add some funds to the Unit Trust every year so that your income would rise.

Some points to note (CTY) have increased their dividend payout every year for over 50 years this includes through ever stock market crash we have had over the last 50 years. Now admittedly sometimes the increase in dividend might only be very small but never the less that is still an impressive record. So the chances of them not being able to carry this on for the next few years until you get to state retirement age are fairly small (but not impossible).

There are other ITs with a similar record so if you don't want to put all your eggs into Cities basket then you could look to spread your £50k around say two or three of them, but this of course does increase your dealing costs slightly.

Point No 3 above of the assumptions I made however is very important. Even though CTY have increased their payout every year for over 50 years, that does not mean that the value of your investment will not change. If there is a large stock market crash then the value of your investment in CTY could easily half, but you need to keep your money with them and not take it out. You should still be getting around £2000 annual dividends from them but it could mean that less money could be left to someone when you pass away (see No 2 of my assumptions).

bowlhead99

love_lifer wrote: »

Ive had free phone 'advice', which was to spend the svaings and then draw pension but that makes me uneasy.

That does sound sensible, because if you choose to take the 'reduced' pension from age 55 you will be missing out on getting a larger pension for the entire rest of your life which could be three to four decades after you reach your 60s. It can make a lot of sense to use some of your spare savings first to put off taking your pension so that it doesn't get so heavily reduced.

Although this would reduce the cash for emergencies/ extraordinary expenses, the fact that you were then on a higher annual income would allow these to build back up over time and you should reach a break-even point. If you don't reach the break-even point - not a problem, you're dead anyway. If you get past the break-even point - good, the 'insurance against living a long time' will pay off.

It feels like I have to try guess when I'll die in order to make a good decision.

In some sense, yes, because if you know when you are going to die, and how much you might want to live on, you can plan for how much income you'll need for how long and how to create it.

A bad thing to do would be to guess how long you'll live 'on average' and then only plan for that lifetime. As that approach could leave you feeling significantly frustrated when you reach that point and are still healthy enough to do another decade or two, but you had never aimed to create a large income for the long term (instead choosing to take it as early as possible, and suffer a reduction).

Two good ways already mentioned to get a good 'return' on the money currently sitting in savings include:

- using savings to allow you to afford putting your entire salary into a private pension each year, getting valuable tax relief in the process; this seems especially useful as you have headroom within your personal allowance to draw pension income with 0% tax.

- living off savings rather than giving up good pension benefits to access them early.

Someone late in their working life who is on relatively low pay and wants to keep going to 67 might experience one of the unexpected emergencies or exceptional expenditure periods through job loss and it taking longer than hoped to find a new one. So exhausting your 50k savings buffer could be risky. But you probably don't need the whole 50k buffer (ok, the whole 50k -8k proposed investment = 42k buffer). So I would deplete those savings to afford more private pension contributions and put off drawing the db pension. Not to zero, but some compromise should be sought.