Parents with no pension, I’m a higher earner

Goodproblems

Hi,
My parents are going into their retirement years soon with a large mortgage (over 100k) and a very small private pension (about a third of their mortgage amount). They will both receive a state pension. 

I’m a high earner (additional rate taxpayer) and expecting to pay off my mortgage in a couple of years (through significant overpayments) after which I’ll have a large disposable income. I have a solid pension building up for myself and have taken care of my own future and I’m not looking for advice for myself. Any thoughts on how I can best help my parents during their retirement years? Thanks in advance!

Dazed_and_C0nfused

Are either going to be taxpayers either now or once State Pension kicks in?

Alter_ego

Help them to apply for pension credit when they get State pension.

Goodproblems

They’re basic rate taxpayers now. Unlikely to be taxpayers once receiving pension.

Dazed_and_C0nfused

You could read the thread about paying £2,880 into a pension, getting £720 tax relief and then, ideally, taking it in tax years where there are unused Personal Allowances.

Each person can do this as a non earner and could pay in more if they have pensionsable earnings greater than £3,600.

Silvertabby

Their biggest problem will be the mortgage repayments.

Is down-sizing on the cards - or are you thinking of helping them with their mortgage?

DT2001

https://www.gov.uk/pension-credit
They may not qualify for Pensions Credit depends on joint income.

You could pay £2,880 into a SIPP for each of them and they’d get tax relief to take up to £3,600. They should then be able to use the full personal allowance when withdrawing that.

Depends on how much your parents want/need to enjoy retirement? Do you help with mortgage repayments?

Sea_Shell

You can gift them what you like.  (Usual caveats surrounding your estates potential IHT).

Are you looking to gain some "interest" in the property, so you eventually get your money back?

Marcon

Sea_Shell said:

You can gift them what you like.  (Usual caveats surrounding your estates potential IHT).

Are you looking to gain some "interest" in the property, so you eventually get your money back?

If regular gifts are made 'out of income' then any potential issues with IHT are avoided, although one can only hope that OP is going to outlive their parents by at least 7 years.

One possibility is to consider is a formal loan to your parents, properly documented and carrying a market rate of interest, with both the loan and the interest repayable on (say) the earlier of the death of the second parent or the sale of their current property.  Done correctly, this could achieve a certain amount of dignity for your parents and also ensures that any such inter-generational loan doesn't count towards IHT. It would also limit the possibility of the local authority taking it into account if one parent dies and the second subsequently needs to go into care - although from the wording of the post, that sounds as if it may not be an issue either financially or in terms of what OP is prepared to see happen to their parents. You could take a charge over their property, but that might add a needless level of complexity.

Goodproblems

Thanks, lots of really useful tips I need to think over. They are quite set against downsizing 🤷🏽‍♀️ One option could be to take a share in the property and clear or part clear the outstanding debt. Not sure I want to do this as it feels like it could introduce a lot of complexity and unpredictability if down the years rules change about owning more than one property. 

I think paying into a pension sounds like a good initial option although it’s annoying they can only get the 20% tax relief and not benefit from the full 45% I would get if investing in my own pension - both serve the same purpose really!

xylophone

Have both parents obtained State Pension Forecasts?
https://www.gov.uk/check-state-pension