Parents with no pension, I’m a higher earner

Goodproblems

I’m much younger than that and have a way to go before retirement. 

If I paid off a chunk of their house I would look into taking legal ownership of that share. In any case IHT unlikely to be charged on their estate, between the two IHT allowances they get.

Goodproblems

However it’s still a good point for the future, hopefully my parents will still be alive when I reach 55 and I can benefit them from my retirement fund at that point. I hadn’t thought of that.

Sea_Shell

Another thing to bear in mind....what happens if something happens to you before your parents.

Do you have a will, who are your beneficiaries?  Are you married?  Do you have children?   

If you go down the "informal" Equity Release road, or a documented loan, your estate will be owed the money back, and so any will would have to be carefully written to avoid the house having to be sold, and also what becomes of any "share" of the property.

Goodproblems

Yes I’m married with children and I do have a will. That’s a good point, if I put money into the house I would have to have my will amended so my parents could live in the house for as long as they lived or as long as they wish to continue doing so. It does sound very complicated though so I’m back to thinking investing in a pension and/or giving them a monthly amount of cash during their retirement may be better.

Sea_Shell

Goodproblems said:

Yes I’m married with children and I do have a will. That’s a good point, if I put money into the house I would have to have my will amended so my parents could live in the house for as long as they lived or as long as they wish to continue doing so. It does sound very complicated though so I’m back to thinking investing in a pension and/or giving them a monthly amount of cash during their retirement may be better.

That's why forums like this are great, but it does usually raise more questions than answers!!     For those of us that have been around these parts for a while, we've read too many threads where things have gone horribly wrong with family and money, especially when "left field" things happen.    Like your wife being left a share of her in-laws house!!

Yes, you are comfortable financially at the moment, and your parents aren't, so you want to help them.     But no one knows what there own future holds, and you and your family might need ALL your money down the track.

The biggest decision, I think here, is whether you are happy to GIFT money, so it's theirs, it's gone it's not re-payable at any time.   OR you want to be able to "re-claim" it at some point in the future = strings.    But with "strings" come potential problems, as outlined.

I'm assuming also that your Wife is happy with you wanting to help your parents substantially.   How are hers fixed?    Do you consider your excess money to be "household" money or "your" money?

What sort of money are you talking here....monthly or as a lump sum?

Voyager2002

Goodproblems said:

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!

I have read the whole thread: a couple of points arise.

Firstly, the full state pension is enough to cover the basics for anyone who does not need to pay rent. So we need to establish the position with their mortgage: people who make 'bespoke' arrangements are generally people who make good pension arrangements, and it is likely that their mortgage has a date for repayment and was set up with a plan for saving the required capital sum. Perhaps there is an endowment somewhere? And if (as seems likely) the house was bought a long time ago, it could well be that the mortgage amount outstanding is a fairly managable amount: that is something for you to establish.

Secondly, as already mentioned it is important to ensure that your parents do receive the full state pension, if necessary by buying extra years. The rules on whether or not it is worthwhile to buy an extra year are fairly opaque (particularly for those like me who reach retirement age in the next few years and so are subject to transitional arrangements as the state pension age changes), so rather than trying to puzzle it out from a pension forecast and website I suggest speaking to the relevant unit within the DWP. I found them to be helpful and well-informed, and they gave me an answer that I could not have produced by myself..

rickenbacker330

Nick9967 said:

Do what my sister did for my parents, purchase a new house for them, allow them to save/invest/spend the proceeds of their sale , don't take any income from them for rent etc , they have cash to live with and spare, you have a further investment property for your pension in the future, worst case is capital gains and stamp duty, other than that happy , comfortable parents , a good thing to do and everyone's happy 

I did something similar for my parents. I bought a small bungalow by the coast and later they sold their property and moved into the bungalow, staying rent free. This allowed them to use the proceeds from their sale to fund their retirement. The only sting came a few years ago when we all decided (following my Mum having a fall) that my parents should move closer to where we live. I got hit with a CGT charge when I sold the coastal property.

Goodproblems

Just to clarify I am a woman!

Goodproblems

Voyager2002 said:

Secondly, as already mentioned it is important to ensure that your parents do receive the full state pension, if necessary by buying extra years. The rules on whether or not it is worthwhile to buy an extra year are fairly opaque (particularly for those like me who reach retirement age in the next few years and so are subject to transitional arrangements as the state pension age changes), so rather than trying to puzzle it out from a pension forecast and website I suggest speaking to the relevant unit within the DWP. I found them to be helpful and well-informed, and they gave me an answer that I could not have produced by myself.. 

Thanks that’s really helpful, I’ll give them a call.

Sea_Shell

Goodproblems said:

Just to clarify I am a woman!

Sorry.  Not sure why I thought otherwise?!?