Inherited 50k. What would be my most sensible option?

bflare

My Father recently passed away & today his pension company contacted me with various options regarding his pension pot. The options they have given me are 

Lump Sum: 50k
Beneficiary Income Release
Transfer/Open Market Option
Lifetime Annuity

I am a single 42 year old male with a 14 Year old Son who lives with me. I am in full time employment earning just under 40k with zero debt. I have had a company pension for over 20 years which is has been split into two pensions due to my company being taken over at various times. My original pension is now a deferred annuity otherwise known as a section 32 buy out bond. Being completely honest I have no idea what this means. 

My first thought was to use a chunk of the money towards a deposit for a house & furnish it as I am currently renting & would like to get on the property ladder before it is too late. I would then place some in a junior ISA for my Son. The rest would be spent on a Car & saved for an emergency. There are also a few family members I would like to gift a small amount of money to who helped me with my Father through his battle with Cancer. 

Any advice please? 

MX5huggy

You need some numbers on options 2,3 and 4 to be able to make and judgment on which is best. 

But buying a home for you and your son seems a good plan. I would maximise the amount used for this to minimise mortgage payments giving you options to save for the other things you mention.

Thrugelmir

MX5huggy said:

You need some numbers on options 2,3 and 4 to be able to make and judgment on which is best. 

Without this info impossible to comment. The lump sum while extremely appealing may not be the best long term option. 

bflare

MX5huggy said:

You need some numbers on options 2,3 and 4 to be able to make and judgment on which is best. 

But buying a home for you and your son seems a good plan. I would maximise the amount used for this to minimise mortgage payments giving you options to save for the other things you mention.

They have sent me a number of different documents. The main docs are for the Beneficiary Income Release. What numbers / information would give you a better idea? Not sure if these numbers help?

Low Mid High

Investment growth rate -2.3% 0.7% 3.6%

Projected plan value £15,800 £43,800 £114,000

Not sure if this helps 65KF4-beneficiary-income-release-key-features.pdf (royallondon.com)

For options 3 & 4 there is no other info apart from the following statement:

Transfer/Open Market Option

It is possible for the claim value to be transferred, in order for you to take an Income Release or Annuity option with another provider. If this is the chosen option, we will require completion of the attached Options Form. We will also require the relevant documentation to be forwarded to us from the chosen provider. Royal London do not issue Transfer Forms for this option.

Lifetime Annuity

It is also possible for you to take a Lifetime Annuity. If you would like details of how to obtain an annuity quotation, please do not hesitate to contact us.    

mark55man

So I am not an expert, just a hobbyist - there are many experts who no doubt will explain it fully, but the data they need is what amounts are being offered, as what is a good idea and one number is not so good at another.  Your own pension is not particularly relevant here as this would be a separate arrangement (you can have many pensions and you don't have to integrate the two.  this reply is suggestive of that the options your inheritance is providing for you, but you need to talk them through with the provider or an advisor especially the tax implications

Broadly (and this applies to money purchase (or defined contribution DC schemes).  Normally the offers you get (lined up with your option) are
* Take a lump sum - which will be taxable at your marginal rate of tax (if your father was over 75) - 75 is a key age in DC 
* Leave the money invested and take income as needed (taxable as above) the rest can grow based on the investments you choose
* Use the lump sum to buy an annuity from a provider other than RL (open market option)
*  Use the lump sum to buy an annuity from RL

Annuity would seem to be wrong as you are young, If this money is taxable, then even if you want the lump sum it may be better to take it small slices that use up the part of your basic rate band until you have depleted the pot (about £10K a year if you are on £40K), rather than all at once.

I think if you are happy with your own provision I would use this money for the here and now but just just be careful to not incur unnecessary tax, and to continue to research what the options are

jimjames

mark55man said:

Annuity would seem to be wrong as you are young, If this money is taxable, then even if you want the lump sum it may be better to take it small slices that use up the part of your basic rate band until you have depleted the pot (about £10K a year if you are on £40K), rather than all at once.

Without knowing the numbers it's hard to say but you could argue the opposite - an annuity could be great if you are young because it is more likely to be paying out for many years. 

bflare

jimjames said:

mark55man said:

Annuity would seem to be wrong as you are young, If this money is taxable, then even if you want the lump sum it may be better to take it small slices that use up the part of your basic rate band until you have depleted the pot (about £10K a year if you are on £40K), rather than all at once.

Without knowing the numbers it's hard to say but you could argue the opposite - an annuity could be great if you are young because it is more likely to be paying out for many years. 

What are the numbers that you guys are referring to? My Dad passed away at 63 therefore I believe the sum will be tax free?

I'm sorry pensions are not my strong point to be honest. 

bflare

mark55man said:

So I am not an expert, just a hobbyist - there are many experts who no doubt will explain it fully, but the data they need is what amounts are being offered, as what is a good idea and one number is not so good at another.  Your own pension is not particularly relevant here as this would be a separate arrangement (you can have many pensions and you don't have to integrate the two.  this reply is suggestive of that the options your inheritance is providing for you, but you need to talk them through with the provider or an advisor especially the tax implications

Broadly (and this applies to money purchase (or defined contribution DC schemes).  Normally the offers you get (lined up with your option) are
* Take a lump sum - which will be taxable at your marginal rate of tax (if your father was over 75) - 75 is a key age in DC 
* Leave the money invested and take income as needed (taxable as above) the rest can grow based on the investments you choose
* Use the lump sum to buy an annuity from a provider other than RL (open market option)
*  Use the lump sum to buy an annuity from RL

Annuity would seem to be wrong as you are young, If this money is taxable, then even if you want the lump sum it may be better to take it small slices that use up the part of your basic rate band until you have depleted the pot (about £10K a year if you are on £40K), rather than all at once.

I think if you are happy with your own provision I would use this money for the here and now but just just be careful to not incur unnecessary tax, and to continue to research what the options are

My Dad passed away at 63 therefore I believe the money is not taxable? 

My own personal feelings at the moment is to use the money to get on the property ladder rather than some kind of income. I have to travel to work quite a distance each day so i need a reliable car. I was considering a loan prior to this inheritance. As I say I have no debts & I am able to save money each month as I have minimal outgoings. I had managed to save 4k prior to this which was going to go towards a mortgage deposit. 

mark55man

OK sorry to hear about your dad that's very young.

I would be tempted to raise specific questions about the pension mechanisms of your dad's pension  on the pensions board, some of the real knowledge experts tend to contribute there and not here. 

My opinion, if the money is tax free, and your own pension plans are adequate then a significant improvement in your current financial position and lifestyle - ie house and car would be a good start and one which would be what I imagine he would want for you, not getting an extra £100-£200 a month through an annuity or locking it away for another 20 years (however good those potential returns may be)

Obviously you still have a balance - do you put it all into the house deposit (apart from the car) or do you put some in the deposit, then some in an ISA, or some in your own (or a new) pension scheme.  You seem to have your head switched on though so I'm sure you will reach a balanced decision

 

bflare

mark55man said:

OK sorry to hear about your dad that's very young.

I would be tempted to raise specific questions about the pension mechanisms of your dad's pension  on the pensions board, some of the real knowledge experts tend to contribute there and not here. 

My opinion, if the money is tax free, and your own pension plans are adequate then a significant improvement in your current financial position and lifestyle - ie house and car would be a good start and one which would be what I imagine he would want for you, not getting an extra £100-£200 a month through an annuity or locking it away for another 20 years (however good those potential returns may be)

Obviously you still have a balance - do you put it all into the house deposit (apart from the car) or do you put some in the deposit, then some in an ISA, or some in your own (or a new) pension scheme.  You seem to have your head switched on though so I'm sure you will reach a balanced decision

 

Thank you for your kind words. 

I'm currently renting a furnished house & do not own any furniture & therefore limited to fully furnished properties. The property is a bungalow owned fully & mortgage free by a lady in her late 60's. I have spoken with her & she intimated that at some point she may decide to move into the property if her mobility diminishes. This inheritance could help me be a little more secure just as I believe my Dad would want rather than it used as a bit of extra income. As I say I am currently in a good financial position with no debts. I do not smoke, drink & live above my means.

Albermarle

It is not nice to be at the mercy of landlords , especially when you are older , so it sounds like a property purchase would be the best bet for most of it .
Normally on this forum we often recommend investments , pensions etc but that is mainly from a perspective of already having your own home.