Help retired couple with savings

jonnypb

Have been asked to help a friend with their money.  They're a retired couple and want a no risk easy access option for their money.

One of them receives approx £3380 a month from different pensions.

They have an ISA each from last year with maximum £20k (£40k total)

They also have 4 other pots of money in different bank accounts, some of which making no interest, hence why they've asked for advice!

Pot 1 £20k - Making next to zero interest
Pot 2 £30K - 5% Interest
Pot 3 £25k - Making next to zero interest
Pot 4 £10k - Making next to zero interest

I have advised them to open another ISA each for this tax year and max that out, so they'd have £40k each in ISAs (£80k total).  Then from the 4 pots of money left it would leave them with around £45k in savings.

I would be tempted to tell them to move the rest of money into the bank paying them 5% interest, but with that amount they'd obviously earn over their PSA and pay tax on that.  So I was just wondering if there was anything else that they could do.  I was thinking about some premium bonds, which isn't guaranteed to make them any interest, but any money made would be tax free.  Then next year they could add more to another ISA, which would then hopefully mean that any interest made on their savings wouldn't go over their PSA.

ColdIron

Better to earn £100 with 20% tax than £0 and no tax

Brie

What does the other earn?  If there's one on a much lower amount then put the savings in their name in higher interest accounts to ensure that when interest is earned it's at a lower tax rate.  Maybe the one in the higher tax rate could have enough in a savings account to stay just below the PSA.  

tacpot12

Premium Bonds are tax free. Apart from Premium Bonds, the best option would be to pay tax on the Interest income, in the expectation that next year £40K can be moved into new ISAs, so they will only be paying tax for one year. The following year they will be under the Personal Savings Allowance.  

Well done for trying to help.Rather than tell them what to do, I'd recommend giving them a list of their options, including doing nothing, but pointing out the risk of doing nothing. 

Have you considered whether they have their ISA and other savings diversified enough to avoid being caught out by the £85,000 limit fo the Financial Services Compensation Scheme? 

xylophone

One of them receives approx £3380 a month from different pensions.

And what about the other?

It  is possible that it would make more sense from the tax point of view for the savings outside the ISA to be held in the other's sole name.

For example, one couple I know  where the husband is a higher rate tax payer but the wife has only a very moderate non savings 

income around £14,000 a year.

This means that she can earn interest of up to  £4750 a year tax free.

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

xylophone

Savings rates

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

BikingBud

jonnypb said:

Have been asked to help a friend with their money.  They're a retired couple and want a no risk easy access option for their money.

One of them receives approx £3380 a month from different pensions.

They have an ISA each from last year with maximum £20k (£40k total)

They also have 4 other pots of money in different bank accounts, some of which making no interest, hence why they've asked for advice!

Pot 1 £20k - Making next to zero interest
Pot 2 £30K - 5% Interest
Pot 3 £25k - Making next to zero interest
Pot 4 £10k - Making next to zero interest

I have advised them to open another ISA each for this tax year and max that out, so they'd have £40k each in ISAs (£80k total).  Then from the 4 pots of money left it would leave them with around £45k in savings.

I would be tempted to tell them to move the rest of money into the bank paying them 5% interest, but with that amount they'd obviously earn over their PSA and pay tax on that.  So I was just wondering if there was anything else that they could do.  I was thinking about some premium bonds, which isn't guaranteed to make them any interest, but any money made would be tax free.  Then next year they could add more to another ISA, which would then hopefully mean that any interest made on their savings wouldn't go over their PSA.

Do they have children and grandchildren?

Might it be better depending upon the size of their estate to distribute some of this surplus income now rather than just accumulating more?

sevenhills

jonnypb said:

They're a retired couple and want a no risk easy access option for their money.
One of them receives approx £3380 a month from different pensions.

They have an ISA each from last year with maximum £20k (£40k total)

They also have 4 other pots of money in different bank accounts, some of which making no interest, hence why they've asked for advice!

Pot 1 £20k - Making next to zero interest, Pot 2 £30K - 5% Interest
Pot 3 £25k - Making next to zero interest, Pot 4 £10k - Making next to zero interest

I have advised them to open another ISA each for this tax year and max that out, so they'd have £40k each in ISAs (£80k total).  Then from the 4 pots of money left it would leave them with around £45k in savings.

I would be tempted to tell them to move the rest of money into the bank paying them 5% interest, but with that amount they'd obviously earn over their PSA and pay tax on that.  So I was just wondering if there was anything else that they could do.  I was thinking about some premium bonds, which isn't guaranteed to make them any interest, but any money made would be tax free.  Then next year they could add more to another ISA, which would then hopefully mean that any interest made on their savings wouldn't go over their PSA.

Can they spend all that money, much more than I will ever have! Is a no-risk option really in their best interests?

friolento

How old are either of them? It is possible to pay into a pension until age 75. Each retired person below this age can contribute £2,880 a year, and then get it topped up with £720 by the HMRC. Ignoring the management fee of the SIPP, that's an instant 25% gain.

Some SIPP providers pay interest on cash deposits, so it is not complusory to invest the contributions. When drawing from the SIPP, 25% will be tax free. The remainder is taxable of the marginal rate of the account holder.

allegro120

jonnypb said:

Have been asked to help a friend with their money.  They're a retired couple and want a no risk easy access option for their money.

One of them receives approx £3380 a month from different pensions.

They have an ISA each from last year with maximum £20k (£40k total)

They also have 4 other pots of money in different bank accounts, some of which making no interest, hence why they've asked for advice!

Pot 1 £20k - Making next to zero interest
Pot 2 £30K - 5% Interest
Pot 3 £25k - Making next to zero interest
Pot 4 £10k - Making next to zero interest

I have advised them to open another ISA each for this tax year and max that out, so they'd have £40k each in ISAs (£80k total).  Then from the 4 pots of money left it would leave them with around £45k in savings.

I would be tempted to tell them to move the rest of money into the bank paying them 5% interest, but with that amount they'd obviously earn over their PSA and pay tax on that.  So I was just wondering if there was anything else that they could do.  I was thinking about some premium bonds, which isn't guaranteed to make them any interest, but any money made would be tax free.  Then next year they could add more to another ISA, which would then hopefully mean that any interest made on their savings wouldn't go over their PSA.

Hard to say without knowing the income of the other one, but as you've said, use ISA allowance first and the rest into best paying EA accounts.  If £40k goes to ISA there will be only £45k left to put into EAs which will generate £2,250 interest @5%.  It is unlikely that 5% will be around in near future so the value of taxable interest will probably be less. I personally wouldn't go for PB lottery because I prefer to know what I'm getting, I'd rather earn interest and pay tax on it. The other way to reduce tax is to open regular savers, this will delay the interest until next year when the new ISA allowance kicks in. 

Bigwheels1111

Chip have a variable rate easy access isa at 5.1%.
Take out cash and put it back if you need.
Next it comes down to how earns what.
If you both get £12,570 or more in pension etc.
Get the best rate and pay 20% tax.