Starting out in Investments. Paying an Independent Financial Advisor?

Albermarle

grumble_100 said:

Maybe it was what to do with the £200K lump sum  ?

Yes, mainly that. And also I am in a position at the moment where I do have a few hundred pounds spare each month. My wife has very little pension provision and just wondering what to do with this spare and then the lumper when it comes in 18 months time. Just didnt like teh look of some of the IFA fees and cut of any growth on investments

Can you just confirm that the pension is a defined benefits/final salary one . It sounds like it is but not 100% clearly stated .
If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension.
I suspect that you have not taken into account the pension will probably automatically increase with inflation each year ( many people in a similar situation do the same ) This is an important benefit and effectively means the break even age is a few years earlier.
. With some good investment it could then grow further. 
It is most likely that it will grow further in the long term, but that is not guaranteed , unlike the pension you will be giving up .
I am not saying it is a bad idea but just worthwhile restating the possible downside.

grumble_100

dunstonh said:

grumble_100 said:

Xbigman said:

An obvious question to ask. Why are you taking a lump sum? No lump sum and a bigger pension might suit you better if you plan to invest the 200k lump sum because you don't need it. Given your lack of investing experience you'd probably sleep better at night.

Darren

The advice we have generally had is that it is nearly always better to take the lump sum, mainly because it is tax free. With some good investment it could then grow further. If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension. Of the £200k I would probably be left with 120k after a new car, pay off mortgage etc. I would be looking for advice as to where best to put that.

No.  Its not nearly always better to take the lump sum.        If you don't need it you shouldn't take it unless there is justification as you can use it for income payments instead and still have access to the lump sum later on should you later need it.  Phasing it can result in a greater amount of tax free cash over the long term than up front.

I dont think the Police pension allows phasing of the lump sum. The intention to take the lump sum must be given prior to the date of retirement. Below is from the scheme guide.

"7.1Commutation InPPS you can exchange(‘commute’)part of your pension permanently, in exchange for a lump sum.The lump sum is tax-free and is calculated using the table setout atthe end ofthis Section.If you wish to commute,you must give notice to your force’s pensions administrator before your date of retirement or if your pension does not come into payment on retirement, before the pension comes into payment."

grumble_100

Albermarle said:

grumble_100 said:

Maybe it was what to do with the £200K lump sum  ?

Yes, mainly that. And also I am in a position at the moment where I do have a few hundred pounds spare each month. My wife has very little pension provision and just wondering what to do with this spare and then the lumper when it comes in 18 months time. Just didnt like teh look of some of the IFA fees and cut of any growth on investments

Can you just confirm that the pension is a defined benefits/final salary one . It sounds like it is but not 100% clearly stated .
If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension.
I suspect that you have not taken into account the pension will probably automatically increase with inflation each year ( many people in a similar situation do the same ) This is an important benefit and effectively means the break even age is a few years earlier.
. With some good investment it could then grow further. 
It is most likely that it will grow further in the long term, but that is not guaranteed , unlike the pension you will be giving up .
I am not saying it is a bad idea but just worthwhile restating the possible downside.

Yes , it is a final salary Police scheme. I see what you say about inflationary increases but I still think I would have to live for a long time to match the lump sum. Currentley my forcast is £36,487 per annum without commutation or 27,365 with £205.513 commutation. However, that lump sum breaks some authorised figure so the maximum lump sum I can take without incurring a 55% tax charge is £187,705 which would leave an annual pension of £28,155. I have been thinking of it as £8k less a year so would have to live well over another 25 years to beat that tax free lump sum. I appreciate I will need to look into that closer to the time and consider inflationary rises. Its a gamble re life expectancy too. There is a temptation to get it whilst you can!

dunstonh

I dont think the Police pension allows phasing of the lump sum. The intention to take the lump sum must be given prior to the date of retirement. Below is from the scheme guide.

It was unclear at the time as the OP made reference to the 25% lump sum but there is no such thing on the Police pension scheme.     However, with DB schemes the PCLS can still be not worth taking up front (or taking less) depending on tax position and objectives, health and scheme specific terms.   Its not an automatic case of best to take it.

Dazed_and_C0nfused

grumble_100 said:

Albermarle said:

grumble_100 said:

Maybe it was what to do with the £200K lump sum  ?

Yes, mainly that. And also I am in a position at the moment where I do have a few hundred pounds spare each month. My wife has very little pension provision and just wondering what to do with this spare and then the lumper when it comes in 18 months time. Just didnt like teh look of some of the IFA fees and cut of any growth on investments

Can you just confirm that the pension is a defined benefits/final salary one . It sounds like it is but not 100% clearly stated .
If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension.
I suspect that you have not taken into account the pension will probably automatically increase with inflation each year ( many people in a similar situation do the same ) This is an important benefit and effectively means the break even age is a few years earlier.
. With some good investment it could then grow further. 
It is most likely that it will grow further in the long term, but that is not guaranteed , unlike the pension you will be giving up .
I am not saying it is a bad idea but just worthwhile restating the possible downside.

Yes , it is a final salary Police scheme. I see what you say about inflationary increases but I still think I would have to live for a long time to match the lump sum. Currentley my forcast is £36,487 per annum without commutation or 27,365 with £205.513 commutation. However, that lump sum breaks some authorised figure so the maximum lump sum I can take without incurring a 55% tax charge is £187,705 which would leave an annual pension of £28,155. I have been thinking of it as £8k less a year so would have to live well over another 25 years to beat that tax free lump sum. I appreciate I will need to look into that closer to the time and consider inflationary rises. Its a gamble re life expectancy too. There is a temptation to get it whilst you can!

At first glance it is reduction of £8,332.

But you would clearly be paying 20% tax (at least) on that so the real amount you are giving up is only £6,665

bostonerimus

grumble_100 said:

Xbigman said:

An obvious question to ask. Why are you taking a lump sum? No lump sum and a bigger pension might suit you better if you plan to invest the 200k lump sum because you don't need it. Given your lack of investing experience you'd probably sleep better at night.

Darren

The advice we have generally had is that it is nearly always better to take the lump sum, mainly because it is tax free. With some good investment it could then grow further. If I didnt take the full lump sum I would need to live well past 90 to get the same value from an annual pension. Of the £200k I would probably be left with 120k after a new car, pay off mortgage etc. I would be looking for advice as to where best to put that.

If you are married and approaching retirement age, then the likelihood is that either you or your spouse will survive well into your 90s, so don’t dismiss the extra pension on longevity grounds. However, the lump sum will give you flexibility. I would do a budget so you can plan your spending and also find areas to save. I like the idea of taking care of big spend items before retirement like paying off the mortgage, fixing the roof or buying a new car as going in debt free and without large outgoings in the first few years lets you get comfortable with your new income streams.
If you can live well on the pension that would allow you to invest the lump sum for growth and not worry too much about income or volatility. I would listen to your son and look into investing in inexpensive multi-asset funds with a high percentage of equities like the VLS series. You should use tax advantaged tax wrappers like ISA and SIPP. The benefits of the SIPP and amount you can contribute will depend on your tax bracket and whether you still have income from work, but with two ISA allowances you could get 120k into the warm tax free embrace of the ISA in just 3 years. While waiting to go into a tax wrapper I’d keep  money in a regular investment account again simply invested in a multi-asset fund. Also keep some money in the bank for emergencies and cash flow purposes

kidmugsy

grumble_100 said:

 And also I am in a position at the moment where I do have a few hundred pounds spare each month. My wife has very little pension provision.

There's one thing to do with the money then, probably to the maximum extent possible: gift money to your wife so that she can contribute to a pension.  As for what either of you might invest in - active investing is probably a bad idea; it tends to be costly and, averaged over the population of active investors, it will return less than passive investing.

TV plays tell me that policemen often retire younger than the rest of us.  If that's true for you then you might like to spread the capital across premium bonds, S&S ISAs, and (honestly!) gold sovereigns.  That way you would face no income tax nor capital gains tax on your savings/investments and you will have diversified your risks.  One other idea that I think I will pursue for us within our SIPPs - an ETF that contains Treasury Inflation-Protected Securities (TIPS).  In other words, US government bonds designed to protect the investor from inflation.  They tend to be better value than the UK equivalent though of course they are linked to US's inflation rate not the UK's.

grumble_100

kidmugsy said:

- active investing is probably a bad idea; it tends to be costly and, averaged over the population of active investors, it will return less than passive investing.

This is the thing that surprises me the most in all that I have read. I have read it in a few places. I had thought that paying the costs/fees of all the relevant parties, including the IFA, would get you better returns?

[Deleted User]

grumble_100 said:

kidmugsy said:

- active investing is probably a bad idea; it tends to be costly and, averaged over the population of active investors, it will return less than passive investing.

This is the thing that surprises me the most in all that I have read. I have read it in a few places. I had thought that paying the costs/fees of all the relevant parties, including the IFA, would get you better returns?

grumble_100 said:

kidmugsy said:

- active investing is probably a bad idea; it tends to be costly and, averaged over the population of active investors, it will return less than passive investing.

This is the thing that surprises me the most in all that I have read. I have read it in a few places. I had thought that paying the costs/fees of all the relevant parties, including the IFA, would get you better returns?

No. The IFA should go out of their way to say you shouldn't expect their advice to generate returns above average. If that doesn't give you confidence, the bright side is it takes all the pressure off the IFA.

barnstar2077

Does some of your pension transfer to your wife should you die first? If so, and as you say your wifes provisions are not as robust as your own, could it would be worth looking at how much she would still recieve if you didn't take such a large lump sum?