Retirement advice re My Wealth Investment Plan

squashabe

Hello my wife and I are looking for advice please.  My employer has agreed to flexible working and I’m due to drop down to a three day week working for local government. A couple of options for my pension are to take a tax free lump sum of £72,000 and an annual pension of around £11,000, or take a £19,000 lump sum and an annual pension of around £15,400. 

 We have a small terraced house that we own and this brings in £200/month from our son who may move out soon and we possibly can rent this out for around £400/450 pcm.  We re-mortgaged our house to buy this property and the final mortgage payment will be in March next year.  Our car loan and the mortgage add up to around £11,000 so we were going to pay this off, without penalty.

We have around £30,000 savings.

 My wife will continue to work for another year and she brings in around £39000.  My new salary will be 3/5 of £35,000 and this will be supplemented by my pension.  I’m 64 in November and will get a full state pension when I’m 66.  When my wife retires she will have a pension of around £10,000 a year and a lump sum of about £30,000.

 Through my employer I attended a pension seminar with My Wealth (Wealth at Work) and they have prepared an investment report.  My wife and I don’t gamble and don’t dabble in stocks and shares, so we would be classed as very cautious.   The recommended portfolio is £20,000 each in a cautious ISA and £18,500 in a Cautious portfolio.  They charge 2.0 % for the first £100,000 invested and a further 1.5 % per annum for the investment services   There are other fees such as stamp duty £2.90/ £10,000 invested and £39.60 per £10,000 for purchase units  VAT is chargeable and the annual management fee equates to £180 per £10,000 invested.  So we will be starting with a reduction in our investment and a hope that after their fees we will eventually get a return, but how much and how long this takes is unknown.

 We are thinking that it will be better to take the bigger take free lump sum and a smaller pension. We don’t think that we want to invest with My Wealth due to the uncertainty.  We may take out our own ISA’s as we don’t have any and perhaps buy some premium bonds and put the rest in a fixed savings account.

 Any advice would be much appreciated

Thanks

Adrian

Silvertabby

The LGPS commutation rate is a not very generous 1:12 (you give up £1 of annual index linked pension for the rest of your life for £12 tax free today) so brace yourself for people telling you it's not a good deal, especially if you only want the extra cash to invest.

Rule of thumb re commutation is that the break even point is 14 years.  ie, if you were to die within 14 years of starting to draw your pension, then you would have been better off with the bigger lump sum/smaller pension.  The longer you live beyond 14 years, however, the better off you may have been with the bigger pension. 

You will re-join the LGPS when you start your new flexi contract, won't you? 

squashabe

Hello and thanks for your reply.  Yes I will be taking out a new pension when I start my new contract.

NedS

For me this would boil down to the answers to the following 2 questions:

(1) Do you have a use for the extra lump sum?

If the answer is no and you simply plan to invest it then I'd lean towards taking the extra pension. Being cautious investors, you will struggle to achieve any return without taking risk. Interest rates on savings do not even match inflation so without taking risk you are already accepting a loss due to inflation. Another consideration that may sway your decision is whether the ability to leave any remaining lump sum to your spouse/children when you die is important to you.

(2) Do you need the extra income?

If you need the extra income then I'd always take the extra pension income over the tax free lump sum, especially in the current low rates climate. If you don't need the extra income, and have always fancied that round the world cruise that you've never been able to take whilst working, then go for it.

squashabe

Thank you for your advice. We are planning on giving money to our children to help with house purchases, so this may help us  with our decision  

Albermarle

 We are thinking that it will be better to take the bigger take free lump sum and a smaller pension. We don’t think that we want to invest with My Wealth due to the uncertainty.  We may take out our own ISA’s as we don’t have any and perhaps buy some premium bonds and put the rest in a fixed savings account.

If you are looking for a place for lump sums , or ongoing excess income then you have two choices 

Saving in a savings account /Premium Bonds etc - 100% safe but low returns below inflation, so slowly each year your savings lose a bit of value

Investing in mainstream risk based investments - history shows returns significantly above inflation ( but not guaranteed). Some volatility in the short to medium term but risk is minimal ( but not zero) in the long term . You can not call it gambling as the odds are stacked too much in your favour long term. 

Despite your reservations best not to dismiss this idea , although no need to pay for somebody like My Wealth for these relatively modest sums .

Have a look at this https://monevator.com/investing-for-beginners-why-do-we-invest/

LHW99

If I am reading their information correctly, My Wealth (Wealth at Work) is a wealth management firm that undertakes discretionary management. You may find a standard IFA would provide a similar service at a lower cost. 2% and 1.5% ongoing seems a bit higher than is often quoted on other threads.

https://www.wealthatwork.co.uk/mywealth/ourcompany/faqs/

squashabe

Thanks very much to you all for your comments.  We were  thinking of buying some Premium Bonds until they announced the changes for November.  We've decided not to use My Wealth and we will contact a standard IFA for advice before we decide anything.
Thanks again

Albermarle

squashabe said:

Thanks very much to you all for your comments.  We were  thinking of buying some Premium Bonds until they announced the changes for November.  We've decided not to use My Wealth and we will contact a standard IFA for advice before we decide anything.
Thanks again

An IFA would make an initial charge and an ongoing charges as well, but normally lower than you said for Mywealth.
However many would not be interested in clients with less than £50K to invest , not including cash savings ;PB's etc 
Some may offer the option of a one off consultation with recommendations for a fixed /hourly fee. Then you would have to set up the ISA; investments etc yourself and monitor them . This is easy nowadays on line though and costs are pretty low. 

squashabe

Thanks for your message.  We need to read up more on investing money rather than making rash decisions that we may later regret.
Thanks again

Albermarle

https://www.moneyadviceservice.org.uk/en/categories/saving-and-investing