Advice sought on what to do with £1.2m pay out

Albermarle

This may sound harsh, but following your injury is your life expectancy reduced? If so, again, your own pension may not be the best investment to top up.

Although money in a pension is not subject to inheritance tax , so another point to keep in mind.

unkle

Albermarle said:

This may sound harsh, but following your injury is your life expectancy reduced? If so, again, your own pension may not be the best investment to top up.

Although money in a pension is not subject to inheritance tax , so another point to keep in mind.

Currently! A lot can change over time/different governments..........

Birseh_

An IFA is potentially NOT a good idea. They sell products that pay them commission including upfront fees. The long-run performance of stocks (large cap) is around 7% or less (for FTSE). The key for you is to look at the fees as a PERCENTAGE of 7%. In other words, what is the impact of fess, upfront charges, EXIT charges etc taken off your expected return of 7%. Also you need to understand what a good return is. If you are promised anything above the high yield index you need to be wary - very wary. https://fred.stlouisfed.org/series/BAMLH0A0HYM2EY Promises of 10% yield or 20% returns would put you in the 99% percentile of returns and you need to be sure it is not some stupid tip. Preserve your income at 2% above the inflation rate would be a good preservation of value for you. 
What I am trying to say is use your common sense and just don't hand your brain over to an IFA.

colsten

Birseh_ said:

An IFA is potentially NOT a good idea.

Paying for proper advice from  an IFA is a heck of a lot of a better idea than just listening to total strangers on the internet. Not only will an IFA be able to make a comprehensive assessment of a person's circumstances and requirements, they will also carry responsibility for any investment advice they give. A good advisor will do a lot more than just sell you an investment.

Of course there are some people who can do, or at least think they can do, everything themselves. 

I am not an IFA, btw, and have no personal or professional connections to any IFA. 

steampowered

I would look at your situation a bit differently. You are looking at your situation as a "spender" rather than a "saver". This money potentially needs to last for life so you do need to plan ahead.

You are asking the question seems to be "what do I have left after spending?" 

I think you need to ask "what do I have left to spend after budgeting for my needs?"

I would look at the situation as follows:
- What amount of money do you need each year to maintain a decent standard of living? 
- Given your other income, how much needs to come from your compensation payment?
- Therefore, how long might your compensation payment last?

Only then do you know whether you have enough money to fund things like giving money to your parents, or buying a bigger property, or the luxury of keeping £200k in cash.

£200k is spare cash sounds like too much. If inflation is 2%, and interest rates are practically zero, £200k in cash loses £4,000 of value every year, year after year. Imagine writing a cheque to the bank as follows: "Warm and fuzzy feeling from keeping cash. Duration: 1 year. Cost: £4,000. Signed: me107".

me107

unkle said:

An IFA is a good idea, but think you also need to make some decisions yourself as to the likely future need.
1. If you think you may have to retire early (i.e. before you can draw a pension which I assume is 57) then look at alternatives to simply increasing your pension. Topping up your and your wife's ISA's each year to the maximum £20k may be somewhere to start.
2. Start a pension for your wife. You want her to at least have the amount per annum equivalent to the personal allowance. There is no point you paying 20/40% tax of some of yours in future and your wife not being a tax payer. You can pay her fully salary into a SIPP per annum.
3. This may sound harsh, but following your injury is your life expectancy reduced? If so, again, your own pension may not be the best investment to top up.

For now, personally I would be looking at £750k in NS&I, if your mortgage rate is greater than what you can achieve else where pay it off. Top up ISA's, start a pension for your wife, and speak to an IFA.

Yes, life expectancy likely to be reduced. By about 7-8 years in theory. Interestingly, you don’t get compensation for that - although I guess there is no way you can put a price on that! 

Ideally, I plan to work until I am 67 and then live on civil service pension. I enjoy my job and I have an employer who would make adjustments, including much more home working in future.

My (probably naive) idea of the pension was to build up a sizeable pot to leave untouched for my children. I thought if you didn’t start drawdown, the whole lot could be passed on tax free. But I probably have that wrong. I live within my means and pretty frugally, so don’t anticipate living it large with the money, other than a few nice holidays over the years for my family.

Why do you advise against the pension top up idea?

me107

Really appreciate all the comments and suggestions.
Can I ask about investment ideas. I have an account with Vanguard at present but only have about 8k in it, so the fees work in my favour. If I top this up to 20k I think vanguard then becomes more expensive as a provider. Is that right? Any suggestions on who to transfer too. Interactive investor seemed reasonable with a flat rate.

Also, any thoughts on funds themselves. In both Isa and SIPP I would be looking for long-term capital protection and growth (like everyone I guess) but wouldn’t want to take a tremendous risk, even though I am youngish. I think a 60/40 or 70/30 split is probably my risk appetite. Obviously I can do the research myself but any suggestions as starting points would be appreciated 

unkle

me107 said:

unkle said:

An IFA is a good idea, but think you also need to make some decisions yourself as to the likely future need.
1. If you think you may have to retire early (i.e. before you can draw a pension which I assume is 57) then look at alternatives to simply increasing your pension. Topping up your and your wife's ISA's each year to the maximum £20k may be somewhere to start.
2. Start a pension for your wife. You want her to at least have the amount per annum equivalent to the personal allowance. There is no point you paying 20/40% tax of some of yours in future and your wife not being a tax payer. You can pay her fully salary into a SIPP per annum.
3. This may sound harsh, but following your injury is your life expectancy reduced? If so, again, your own pension may not be the best investment to top up.

For now, personally I would be looking at £750k in NS&I, if your mortgage rate is greater than what you can achieve else where pay it off. Top up ISA's, start a pension for your wife, and speak to an IFA.

Yes, life expectancy likely to be reduced. By about 7-8 years in theory. Interestingly, you don’t get compensation for that - although I guess there is no way you can put a price on that! 

Ideally, I plan to work until I am 67 and then live on civil service pension. I enjoy my job and I have an employer who would make adjustments, including much more home working in future.

My (probably naive) idea of the pension was to build up a sizeable pot to leave untouched for my children. I thought if you didn’t start drawdown, the whole lot could be passed on tax free. But I probably have that wrong. I live within my means and pretty frugally, so don’t anticipate living it large with the money, other than a few nice holidays over the years for my family.

Why do you advise against the pension top up idea?

On pension, for me it's just having too many eggs in one basket potentially, what if you need the/some money at 50 as you can't or aren't working? Also in relation to life expectancy what is the widows element? 50%? 

Albermarle

An IFA is potentially NOT a good idea. They sell products that pay them commission including upfront fees.

This comment is inaccurate , IFA's  have not been paid commission for recommending products for some years now . They charge for their time instead.

My (probably naive) idea of the pension was to build up a sizeable pot to leave untouched for my children. I thought if you didn’t start drawdown, the whole lot could be passed on tax free. But I probably have that wrong

You are party correct in what you say. If you die before 75 then your beneficiaries will pay no tax . After that your beneficiaries of the pension pot will pay normal taxes when they withdraw money . Also pensions are currently not included in inheritance tax calculations . Finally it does not matter whether you have started drawdown or not , it is what is left in the pot that is passed on regardless. 

Aminatidi

I'm slightly older than yourself and of course an entirely different set of circumstances.

If someone gave me £1.2M presumably tax free (?) I'm reasonably sure I would never need to work another day in my life and that I'd be able to do so without taking any unnecessary risks.

I would try and be clear on a separation of planning from advice on investments.

So tax, ISAs, mortgages, SIPPs, pensions, all that stuff for me falls into planning.

In simple terms I'm not sure you need to pay an advisor to help you understand whether your appetite for volatility leans towards LifeStrategy 40 or LifeStrategy 80 (to use a common series of funds as an example).

I hope this doesn't sound out of turn given the situation you find yourself in to receive the money but I think there's a strong argument that you've already won so why take heady risks that you simply may not need to.

More so if your intention is to carry on working so this is a safety net rather than immediately required.