Serious ill health retirement lump sum

Boobyjood

I am about to receive just under £200k lump sum from my Teachers Pension Scheme as I am taking serious ill health retirement. I will not be getting a monthly pension.
I am looking for advice on where to put this, bearing in mind I have stage 4 cancer which is incurable. I do not know my exact prognosis, it could be anything between months and years. 

I will need to pay myself an income of approximately £1500 a month, and I’d like to gift my three children some money and sort out any repairs on the house, and maybe take a holiday.

I understand the lump sum is tax free but presumably I will have to pay tax on any interest earned if I invest part of it? I may invest £50k in Premium Bonds as I think any earnings from winnings would be tax free.
I would need easy access to savings too.
It’s a tricky situation not knowing my exact life expectancy, so I’m torn between spending lots now to maximise enjoyment whilst I can, versus exercising caution in case I defy odds and live longer than a year or two, with no income. I currently receive enhanced PIP and contribution based ESA. 

I will be seeking advice from an IFA, but I’d welcome people’s thoughts and words of wisdom in the interim. Many thanks.

Keep_pedalling

Sorry you find yourself in this position. It is tricky to know what to do but I  would ring-fence the money entirely for yourself and not make any substantial gifts to your children, I am sure that they would agree that your quality of life is the most important thing here.

I don’t think it appropriate to invest the money so you are looking at cash savings not equities. I would split the money across a number of accounts with different terms, some in easy access for the coming year’s spend the rest in fixed interest accounts of between 1 & 2 years.

Unless you have substantial savings elsewhere you are unlikely to have to pay income tax on the interest.

https://www.gov.uk/apply-tax-free-interest-on-savings

gwynlas

Sorry to hear of your diagnosis but as you say it is currently impossible to put  a time frame on the outcome. Do not worry about gifting your children at this time they can wait for their inheritance in the normal way. Never mind maybe takng a holiday it is surely time to take the holiday of a lifetime perhaps crossing sometthing of your bucket list. It would be prudent to carry out any repairs needed to the house to make it comfortable for yourself. You  can enjoy living to a good standard as long as you can without having to be frivolous though you could splash out on champagne if you want to. Not wanting to be flippant but we are all going to die without exception and may you use the time you have left leaving a legacy of good memories for your family.

Albermarle

I understand the lump sum is tax free but presumably I will have to pay interest on any interest earned if I invest part of it? I may invest £50k in Premium Bonds as I think any earnings from winnings would be tax free.

Sorry to hear of your situation, but at least financially you should be OK .

On this forum/in the world of personal finance. Investing refers to investing in risk assets, such as stocks and shares. This is a long term game so unfortunately probably unsuitable for the majority of the £200K . However you may consider a small part being invested.

Savings are defined as money in safe savings accounts ( or Premium bonds) , earning a guaranteed interest rate.

Not trying to be pedantic, but if you use the correct terms you will avoid getting potentially confusing answers.

I will need to pay myself an income of approximately £1500 a month, and I’d like to gift my three children some money and sort out any repairs on the house, and maybe take a holiday.

Normally £200K would not be enough to sustain an income of £18K pa and substantial gifts. However should last OK for a few years, especially if you have regular income from benefits. Have you checked if your benefits would be affected by having a large amount of savings? 

xylophone

With regard to interest and tax 

https://www.gov.uk/apply-tax-free-interest-on-savings

Taxable  state benefits

https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits

PIP is tax free.

ESA (cont) is taxable.

If we supposed that your only taxable income for the year would be ESA (cont) say £4.400 per annum and interest from savings of £200,000 (at a maximum of say 4.5%),  you would not be liable for tax  as the two together would fit comfortably within your personal allowance., without even having to consider the starter rate for savings and the personal savings allowance.

Savings rates here

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

Marcon

Boobyjood said:

I am about to receive just under £200k lump sum from my Teachers Pension Scheme as I am taking serious ill health retirement. I will not be getting a monthly pension.
I am looking for advice on where to put this, bearing in mind I have stage 4 cancer which is incurable. I do not know my exact prognosis, it could be anything between months and years. 

I will need to pay myself an income of approximately £1500 a month, and I’d like to gift my three children some money and sort out any repairs on the house, and maybe take a holiday.

I understand the lump sum is tax free but presumably I will have to pay interest on any interest earned if I invest part of it? I may invest £50k in Premium Bonds as I think any earnings from winnings would be tax free.
I would need easy access to savings too.
It’s a tricky situation not knowing my exact life expectancy, so I’m torn between spending lots now to maximise enjoyment whilst I can, versus exercising caution in case I defy odds and live longer than a year or two, with no income. I currently receive enhanced PIP and contribution based ESA. 

I will be seeking advice from an IFA, but I’d welcome people’s thoughts and words of wisdom in the interim. Many thanks.

I am so sorry to read this. What I am about to say next feels cold-hearted in the extreme, for which I apologise. Serious ill health retirement is only allowed by HMRC where someone has medical evidence to confirm that life expectancy is no more than one year - so it isn't unreasonable to plan your spending on that basis. As others have already said, the time to do things you want to do is now; you may not feel well enough to do them in another six months, so have that holiday, make your home as comfortable as possible and gain as much pleasure as you can from living for today. 

If you defy the odds, wonderful; you'll have a fully repaired house in which to enjoy happy holiday memories. Gifting money to your children can wait, to ensure you also have the cash to go on living comfortably.

difficult_times123

Hi, I was diagnosed with Stage 4 in December, completely out of the bllue, and am currently receiving palliative chemotherapy.

If you haven't already you should apply for Personal Independence Payment from the DWP. Phone asap to say you want to apply under "special rules" as they will backdate your claim to this date. You will need a medical professional to submit a DS1500 form to verify your situation. My Macmillan nurse aranged this and I get £172.75 per week = £8,983 tax free per year. 

Importantly to qualify for special rules the DS1500 has to say you "might have less than 6 months to live". I took my successful PIP claim to assume this was my prognosis and therefore, like you, could get the full value of to a DB pension tax free.

This assumption was completely incorrect as my Oncologist told the pension my prognosis was typically 18-24 month. Which was obviously a pleasant surprise. 5 year survival rates for my cancer ar 15% and I fullly intend be in this group.

So I've taken the 25% tax free lump sum and get a 25% reduced pension but this was not reduced for taking early. Worth noting spouse benefit wasn't reduced by 25% and has a the 5 year guarantee, which if applies is tax free. Guessing all this is similar for other DB schemes and in my mind better overall than having the full value in cash.

My lump sum has gone into max premium bonds for myself and partner, easy access savings account (shawbrook) and a new car! I'm not interested in bucket lists but giving yourself and family small treats is rewaeding.

No idea if any of this helps you but if not maybe someone else.

Good luck.

Kim1965

I am sorry that you are in this postion. I am the surving spouse, my wife went through this.

Esa and pip came to about £1150 pm, so providing your monthly out goings are not too high the 200 k will last a good many years whatever you do with it.

I cannot really offer any financial advice, I fully understand how crap this is. Make the most of the days you feel well and best wishes.

Boobyjood

https://forums.moneysavingexpert.com/discussion/comment/80024382#Comment_80024382

Thank you for replying and for your advice on savings accounts. I'm just going to gift a couple of thousand each to my boys for now, so nothing too substantial.

Boobyjood

https://forums.moneysavingexpert.com/discussion/comment/80025048#Comment_80025048

Thanks Marcon, useful advice and no offence taken!

Boobyjood

https://forums.moneysavingexpert.com/discussion/comment/80026792#Comment_80026792

I'm sorry to hear you're going through this too. I prefer to think I'm living with cancer rather than dying of it, and I'm a firm believer in the power of positivity.

My lovely nurse completed the DS1500 for me at my first appointment. It was a lot to take in at first, but she did explain that no one would hold me to that 6 month life expectancy! I see it as a challenge, and like yourself I intend to defy the odds.