Parents with no pension, I’m a higher earner

Anonymous101

Marcon said:

Anonymous101 said:

Have you looked at equity release schemes?
Like many people my initial reaction to these is to be hesitant however I know that the Meaningful Money podcast covered them recently and said they were vastly improved over recent years. Perhaps its worth a sceptical look into especially as you're not relying on any inheritance by the sounds of it.

As I mentioned earlier, if OP has the cash, they could effectively do their own version of 'equity release' by lending cash on a formal basis to their parents (not necessarily with a charge over the property though, and of course without any of the commercial mark up associated with equity release).

Absolutely agree the informal route is the preferred route however it does come with certain risks as SS pointed out.

Nick9967

Sea_Shell said:

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 

Does she have the full responsibility and obligations of being a landlord, even if no rent is changing hands?

No not in reality , my sister is building  a second pension pot with that house, parents are happy , parents use their own money to improve and update house,  i certainly think close family members this is ok, it takes a lot of trust to accept this situation will ALWAYS  be ok and without issues.

Goodproblems

Thrugelmir said:

You may do if you bank with Coutts. Mainstream banking somewhat unlikely that there's anything bespoke. A £100k of debt is a lot to be heading into retirement with. Possibly a question of sticking ones head in the sand. Time eventually catches up. 

Right you were! Mortgage will be called in in a few years and then it’s equity release or similar on the cards. They do have some plans on how they will manage/other sources of income/cash etc but it all sounds very unreliable to me. Well this is certainly focussing my thoughts given there is a hard deadline involved!

xylophone

They do have some plans on how they will manage/other sources of income/cash etc but it all sounds very unreliable to me.

Have your parents specifically asked you for help? 

Goodproblems

No but it’s an unspoken thing that if they need help their children will step in, and I’d rather get ahead of that if there’s a benefit to doing so (eg pension tax relief, compounding effect of saving over a few years etc).

Sea_Shell

Goodproblems said:

No but it’s an unspoken thing that if they need help their children will step in, and I’d rather get ahead of that if there’s a benefit to doing so (eg pension tax relief, compounding effect of saving over a few years etc).

You say it's "unspoken".   But I think you do need a conversation to discuss all the finances openly, so you can agree between all of you (including your spouse) as to the best course of action and how much they need to make a difference.

Are you otherwise just guessing their level of need?

Are your siblings also "stepping in"?

Goodproblems

Yes I’m speaking to all these people. Parents may not ask but they are grateful that I am thinking about and planning for their future and have said so. Siblings are not stepping in now but would do so in future if required e.g. monthly amount of money, which to my mind is more of a sticking plaster to help them manage monthly expenses. I find myself in the fortunate circumstances that I can do more while maintaining my current lifestyle and so I would like to take a longer term approach, especially if it will be more cost effective.

xylophone

Parents may not ask but they are grateful that I am thinking about and planning for their future and have said so. Siblings are not stepping in now but would do so in future if required e.g. monthly amount of money, which to my mind is more of a sticking plaster to help them manage monthly expenses. 

You seem to be indicating that there is a basic problem with money management? 

With regard to your parents' property, is the mortgage interest only?

What is the value of the property?

You indicate that they do not wish to move but is this despite the fact that the house is (for example) too big for their needs and that (without assistance) they could not finance the mortgage in retirement?

When do they reach SPA?

Have you now suggested to them that it would help their retirement planning to obtain state pension forecasts?

Goodproblems

Thanks @xylophone. I prefer not to discuss past money management especially on a public forum that could be discovered, I hope you understand.

Yes the mortgage is interest only currently until the term ends in a few years. The value of the property is quite high, probably not far off half a million.

Correct re not wanting to move despite house being too big for their needs. From their perspective they are comfortable there and can finance staying through an equity release type scheme, while continuing to pay off any on-going interest rather than letting it roll up and compound (which means they can preserve their existing amount of equity).

Dad has reached SPA but plans to carry on working as long as possible. He has no health problems currently so if this happy situation continues he could carry on working for 7 or so years I think. Mum has longer to go to reach SPA.
Dad has checked and has the full entitlement to state pension. They are checking for my mum but as I said it should be just shy of 30 years and she is working now so hopefully will manage to get the full 35 years before retirement or we can buy a few extra years to get her to 35 years.

The other factor I’ve just realised is that I’m gradually losing my pension tax relief due to tapering and I will only have the basic 10k from the next tax year (only a few months to go!). Therefore it makes sense for me to maximise my own pension at this time and then reduce my pension contributions further down the line (once I can no longer look back to years when I did not use my full tax free allowance). This impacts the amount of spare cash I have over the next few years to plan for their future but on the other hand means I’ll be locking away much less of my disposable income in a pension in a few years time. If I want to maximise my personal pension pot then I likely wouldn’t be able to buy their outstanding mortgage (120k) in full in a few years when the term ends.

However my siblings are supportive and we have talked about one of us talking over the mortgage at that point (two of us would have the means to do so).

Why does it have to be so complicated 😅

xylophone

I hope you understand.

Of course!

They are checking for my mum but as I said it should be just shy of 30 years and she is working now so hopefully will manage to get the full 35 years before retirement or we can buy a few extra years to get her to 35 years.

The number of years may not be relevant to whether or not she has already reached maximum state pension.

At 6/4/16 two calculations were done for her

NI years /30 x £119.30 + (Additional State Pension - deduction for contracting out)

(NI years/35 x £155.65) - Contracted Out Pension Equivalent.

The "starting amount" for new state pension was the higher of the two. 

Imagine somebody who had never contracted out but had been in a relatively well paid job and had accrued a reasonable amount of Additional State Pension - if (as was quite possible) the starting amount was already  equal to (or even more) than full NSP, then even if  he were under state pension age and still contributing,  he could not improve  his state pension any more.

https://www.dpf.org.uk/explorer/files/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf was produced to coincide with the introduction of NSP.

https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/topping-up-your-state-pension-guide.pdf  A later edition.