Thoughts on platform and low-risk investments for £2880 pa pension contribution

FIREmenow

Hi All, I hope you are having an excellent weekend.

Thanks for the help I've received so far in getting to grips to my parents's financial situation and how each will fare depending who lives the longest.

To improve their situation, my dad is going to open a personal pension and contribute the non-earners £2880 for up to 8 years until 75 (including this year if we can get it set up quickly enough).  With a view to getting the 6.25% free money and the remainder passing to my mum tax-free if he doesn't need it and predeceases her.  They are both basic rate tax payers.

He is happy to invest in something low risk to try to preserve the value.  Platforms with the lowest fees with drawdown options seem to be Vanguard, AJ Bell, Fidelity.  I'm familliar with these platforms (for ISAs, not SIPPS), but would appreciate any thoughts on these platforms or alternatives given this scenario, in case I have missed something.

The second question feeds into the first with Vanguard's limited range and meeting fee caps for AJ Bell and Fidelity after several years. I'd appreciate any thoughts on the choice of investments given the risk and purpose, he could take out the tax-free amount if needed, and the rest would probably be a pot of last resort after their savings if more was needed, so could remain invested for more than 8 years, by that point my dad would be 75 and my mum 83. 

They might be happy to put ~£10k into a S&S ISA now, and move that money into the pension over time so that it is invested for longer and keeping them away from the savings allowance limits - is it possible to transfer in-specie from ISA to pension in the bed-and-ISA way?  I guess if not then the alternative would be to buy in the pension with new money from savings on the same day as selling from the ISA, then taking out that cash to replace their savings cushion if needed.

I'm not sure at what point a 40/60 or 20/80 portfolio might be best replaced with a money market fund, which I don't know much about.  Or perhaps a bond ladder? I don't know much about money markets or bond ladders, it's the other end of the scale to my own portfolio, which is a long way from retirement!  They might be interested in putting the 6.25% in a global equities tracker as it's the 'free' money, giving a 6.25/93.75 portfolio!  If anyone has thoughts, tips, links to helpful reading on these, and in particular what is possible on the Vanguard platform so that we can rule it in or out as the cheapest but most restricted, that would be much appreciated.

Another thought overarching all of this is at what point are the time and fees on investing in to something with very little growth eclipsed by the simplicity of leaving it in cash in HL, for (currently) 3.45% interest and no fees, but with the gov top-up and tax-free heritability of the pension wrapper?

Thanks in advance

Dazed_and_C0nfused

To improve their situation, my dad is going to open a personal pension and contribute the non-earners £2880 for up to 8 years until 75 (including this year if we can get it set up quickly enough). With a view to getting the 6.25% free money and the remainder passing to my mum tax-free if he doesn't need it and predeceases her. They are both basic rate tax payers.

Do you mean he is going to take it all back out again fairly quickly?

If so in all honesty he's not leaving much for any investment to impact or leave as an inheritance.

FIREmenow

Thanks Dazed

No, the main reason is to have it to pass on tax-free to my mum.  Taking any out would be in an emergency and starting with only the tax-free portion.  Should be unlikely they will need it for a good while as their savings are in a good position.

Dazed_and_C0nfused

FIREmenow said:

Thanks Dazed

No, the main reason is to have it to pass on tax-free to my mum.  Taking any out would be in an emergency and starting with only the tax-free portion.  Should be unlikely they will need it for a good while as their savings are in a good position.

So it's not really 6.25% that is likely to be the key amount.

He's turning £2,880 into £3,600 so a one off 25% return.

squirrelpie

Is your father expecting to die before he is 75? An average male of his age probably has a life expectancy in the mid 80s, in which case the SIPP inheritance would be subject to your mother's income tax rate.

FIREmenow

Dazed_and_C0nfused said:

FIREmenow said:

Thanks Dazed

No, the main reason is to have it to pass on tax-free to my mum.  Taking any out would be in an emergency and starting with only the tax-free portion.  Should be unlikely they will need it for a good while as their savings are in a good position.

So it's not really 6.25% that is likely to be the key amount.

He's turning £2,880 into £3,600 so a one off 25% return.

Hi, I wasn't suggesting that was a key amount, I'm not sure what you're getting at sorry.

There will be 3600 gross being added this year and for up to 8 future years. Apologies if the reference to 6.25% has confused things, it was a passing comment on the £180 tax free return if money drawn is subject to 20% tax, which is my dad's situation.

FIREmenow

squirrelpie said:

Is your father expecting to die before he is 75? An average male of his age probably has a life expectancy in the mid 80s, in which case the SIPP inheritance would be subject to your mother's income tax rate.

Hi squirrelpie, he has some health conditions.
My mum will be in a worse financial situation if he predeceases her as she gets less state pension and has small DB pensions with spousal benefits, but he doesn't. So this is a small act of financial planning in case he were to die before 75. We'll be very glad if he doesn't and the inheritance is taxed at 20% and it will give them a bit of peace of mind to know they are trying to improve things for her. I don't think they will be worse off overall if the pot is taxed at 20%, but I'm keen to sense check this in case there are other factors we haven't considered.

Although there's no certainty to it, my mum is from a line of nonagenarians, and my dad's parents died in their early 70s.

xylophone

Do your parents both use their full ISA allowance each year?

A good idea for married couples who are both standard rate tax payers on account of the  benefit in widow(er)hood. (Additional Permitted Subscription)

https://www.gov.uk/individual-savings-accounts/inheriting-an-isa-from-your-spouse-civil-partner#:~:text=If your spouse or civil,their ISA when it's closed

Hargreaves Lansdown is often chosen for  the non earner SIPP because of the moderate fee for an invested small pension/ the moderate interest on uninvested cash/the no fee to hold uninvested cash/the relative ease of taking benefits from the SIPP.

 If your parents are uneasy about investing their money, the £720 tax refund could be regarded in the light of generous interest on their funds....

FIREmenow

Thanks xylophone,

They are not currently using ISAs, but we have also been looking at that for the inherited ISA allowance as a separate change to their cash savings, as their combined unwrapped savings would exceed a single person's savings allowances.

Perhaps we are loooking at it the wrong way - as the £720 tax rebate only stays that high if it is inherited and can be drawn tax-free, which is far from certain, we are considering it to be £180, and that it should cover the fees for us to invest the pot and try to retain its value.  Using HL would be the fallback option with their current 3.45% interest and no fees on cash holdings, accepting that it is being eroded more by inflation than in a savings account.

I have been looking at Vanguard's options, and they have a new money market fund: Sterling Short-Term Money Market Fund (VASTMGA), OCF 0.12%, does anyone have experience or thoughts on using this or similar? https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-a-gbp-accumulation/overview

It is actively managed, so doesn't track the SONIA, but does use it as a benchmark.

0.27% fees for a potential yield of 5.23% seems a better deal than 3.45% interest and no fees from HL, and if they are willing to put a small percentage in equitites, then the Vanguard has options at a similar cost. Are there any issues with this plan that we haven't considered? Many thanks in advance.

Dazed_and_C0nfused

FIREmenow said:

Dazed_and_C0nfused said:

FIREmenow said:

Thanks Dazed

No, the main reason is to have it to pass on tax-free to my mum.  Taking any out would be in an emergency and starting with only the tax-free portion.  Should be unlikely they will need it for a good while as their savings are in a good position.

So it's not really 6.25% that is likely to be the key amount.

He's turning £2,880 into £3,600 so a one off 25% return.

Hi, I wasn't suggesting that was a key amount, I'm not sure what you're getting at sorry.

There will be 3600 gross being added this year and for up to 8 future years. Apologies if the reference to 6.25% has confused things, it was a passing comment on the £180 tax free return if money drawn is subject to 20% tax, which is my dad's situation.

But if he's taking it out of the pension and paying the 20% tax (on the 75% that is taxable) there won't be anything in the pension for your mum to inherit (within the pension wrapper).

It may just be me not I don't really understand what the plan is here, is it to get the £180 benefit and leave the money somewhere else outside of the pension wrapper.

Or is to keep the full £3,600, including the basic rate tax relief, within the pension wrapper?

FIREmenow

Thanks Dazed,
It is all to be left in the pension for inheritance tax planning, so that if my dad dies before 75 my mum will inherit it tax-free.

As it needs to be in a pension wrapper for this and they are somewhat risk averse, I am looking to invest it to hopefully do better than the 3.45% interest with HL's SIPP for leaving it in cash.

One option is the Vanguard pension, with the money market fund I mentioned above.