Should I invest?

Annie1612

Hello

I have been reading the forum for a while and doing a bit of wider research but I am still unsure about what to do for the best with my savings.

I have £170k approximately in easy access accounts at the moment ( Marcus, Premium Bonds, and Tesco). My situation is this: I am 51, not currently working and I live with my husband who is retired on a pension. We have a reasonable monthly income. However, in the back of my mind is the realisation that my own pension provision is very poor. I won’t qualify for a state pension and if anything were to happen to my husband, I think I would probably have enough to live off, but only just. I am also concerned about the effect inflation is having on my savings.

I would like to invest some of the money to provide an income in the future. I was considering opening a Stocks and Shares ISA and investing 20k this year, and the same next year, and keeping that for the long term (10 years plus) possibly adding to it each year. Then, for the medium term, putting some into fixed rate savings accounts, say for 3 and 5 years. A chunk will stay in an easy access account.

I would be grateful if you could comment on my plan. Are there any other investments I should consider? Is it too late for me to be starting to invest? It would be good if I could keep it fairly simple and DIY. I hope I have given enough information.

Thank you

MaxiRobriguez

You can get tax relief on £2,880 of money that goes into SIPP even if you're not currently working, so I would make sure that's the first thing, followed by money going into the S+S ISA.

Never too late to invest, and at 51, you're likely to need the £170k for around 40 years, so I would suggest once in the S+S ISA then it's fairly heavily allocated to equities, but ensure you retain a couple years of expenses in cash, so that you can draw on that in the event of market downturns.

Good luck!

colsten

You can get lots of general ideas here but none of us will be able to give you proper advice as we don't really know your circumstances, and I doubt you'd want to post it all here in an open forum.

There's probably a case to make for at least some investments, incl in pensions. If I were you, I would be paying for professional advice (for both you, and for your husband) from an IFA.


May I ask why you won't qualify for a state pension? You have 15 years to SPA, and even if you didn't have any NI years yet for whatever reason, you could probably make back payments for the last 15 or so years.

Annie1612

Thank you for the quick replies. I did think about getting advice, and you are probably right that I need to. Yes I didn’t want to give too many details out of course. I do have some NI years, and did receive a letter quite a long time ago about topping up qualifying years but I regret I did nothing about it and assumed it is too late. I wasn’t aware I could put money in a pension if not working.

colsten

It's not too late for personal, or for state pension. As already mentioned, you can pay up to £2,880 each tax year into a personal pension, even if you aren't working. Similarly, you can make voluntary NI payments, and currently, you can backdate them for at least 6 years.

NedS

As others have said, absolutely put £2880/year into a SIPP and the government will top it up to £3600 with £720 of tax relief. You can access this pot at 55 onward, and can continue to contribute £2880 up until age 75. This is particularly beneficial for you if you have no other pension income as you should be able to withdraw anything that you put in free of income tax by withdrawing up to your £12,500/year tax free allowance, so that £720/year of tax relief is yours for the taking for the next 24 years (that's a free £15k thank you very much). In addition, any investments inside a SIPP pension can grow and earn income/dividends free of tax the same as an ISA.

Alexland

I echo the suggestion that you consider paying some backdated NI contributions and making a £2880 contribution during each tax year (ending 5th April) into a personal pension until age 75.

For a small fee Cavendish will setup an Aviva stakeholder pension which is reasonably priced, very simple to manage (via the same MyAviva portal as their car and home insurance) and has a good default investment strategy. It is also worth reassessing your options with any other pension schemes you may have contributed into.

https://www.cavendishonline.co.uk/stakeholder-pension

For the S&S ISA if you are looking to make £20k lump sum contributions each tax year you may find the iWeb platform (run by Halifax) suitable as they only charge £25 account setup and £5 per trade which would only happen once per year if you owned an accumulation fund.

Unfortunately given current asset valuations even sensible well diversified investment funds that stand a good probability of keeping up with inflation over the long term will have a heavy 65%+ stock market exposure so are likely to have a volatility profile where in adverse market conditions you may see the account valuation fall by as much as 30%.

Alex

under_the_eaves

Some good suggestions already.

I would emphasise that voluntary NI payments are ideal in your situation, because they will give you a guaranteed, index-linked pension (the only major downside being the risk that UK Governments will increase the State Pension age even further).

Paying 1 year of voluntary NI currently costs c. £780, and will entitle you to 1/35 of the new state pension, which currently comes to c. £250 per year (and that figure is index-linked). So that pays you back after only 3 years or so. (It's not quite that good, because you pay now and only start to receive the pension in 15 years or so; but it's still good.)

If you backdate a few years now, and keep paying going forwards, then you could buy 20 years or so — more than half a full State Pension. 20 years would cost c. £15,600 (at current prices) and give you a pension of c. £5,000 per year (at current prices). A pity you can't do something that good with more of your capital!

Some limitations: once you have enough for a full State Pension, you can't buy any more years (though from what you say, this may not be an issue for you). And you need at least 10 years, or you get nothing (but this is no problem, since you can get to 10+ years by making enough voluntary contributions). But it could be worth checking your current NI record now, to see exactly where you stand. If you currently have a few years contributions, but less than 10, then voluntary contributions are even better value, because they can get you past 10, making your existing contributions count.

A stakeholder pension, and S&S ISA, are also a good idea, but the returns are never known in advance, because they rely on unpredictable investments. They are very likely to beat cash savings in the long term, but you never know what the return will be, which makes them much less satisfactory than entitlement to State Pension.

Annie1612

Thank you for all your contributions - much appreciated and I am looking into all your suggestions. I tried earlier to create an account to at the government gateway thingy but they have no record of me, not sure why, so I will have to contact them and see if I am eligible to make top up contributions to the state pension.

I will then have a read about SIPPS - about which I currently know nothing. These are all great starting points for me. It is a subject I find difficult to get my head around but I am improving. My husband has absolutely no interest in financial matters and won’t engage with any financial planning so I have nobody to use as a sounding board.

Annie1612

Just reading about private pensions - this seems a very good idea as I could contribute £240 per month which is an amount I already put into the Marcus account every month for the future. I would need a financial adviser to help me with that I think.

Spiggle

Hi Annie,

Regarding the State Pension, you could contact the Future Pensions Centre (its a government agency) on 0800 731 0175 to discuss your current position, options for buying years back and making future contributions. You will need your NI number. The Pensions Board on this forum has great knowledgeable people who can help as well.

Its never too late but it is important to heed the advice that if you're going to invest then you need to think long term i.e. 10 years minimum.

As far as I know (AFAIK), if you can lump sum £2880 before 5th April this tax year into a self invested personal pension (SIPP) it will enable you to gain the tax back for this year and then could do it gradually or lump sum again after 6th April.

When it comes to a stocks and shares ISA (S&SISA) I would suggest the first thing for you to do is assess your risk profile and how involved you want to be. If hands off you would probably want to invest in a fund. These will be available from a variety of sources and on various platforms.

I'm a relative newbie to this too but got sick of seeing all my cash savings effectively reducing because of inflation and so went for the relatively easy S&SISA (but capital still at risk in a downturn) Vanguard Life Strategy 60 (VLS) ~ 60% equities/40% bonds and I hold it on the Vanguard platform. I have no intention of touching this investment for at least 10 years.

Similarly, I'm now considering a SIPP and another S&SISA and am currently trying to work out the best place to hold these as I have a very firm idea of what shares I want to place in the SIPP so Vanguard is no help for me in this. For the S&SISA, I will stick with another global fund probably around the same risk profile as the VLS60 or possibly increase the risk (higher balance of equities) slightly to similar to VLS80.

Good luck with your computations and considerations.

All the best,
Spigs