Financial planning for my Mum

n713

Hello, I'm after a lot of advice to help my mum with her finances. 

Today I mentioned the NI top up deadline to my mum which the lead to a long conversation about her finances and retirement plans. My mum will readily admit to not having much financial knowledge and through this conversation it became apparent that she doesn't really have a retirement plan either (she's 59). (No judgement or unkind words please). 

She asked me if I could come over and sit down with her to help her get an understanding of everything financial and to get a retirement plan in place. I'm happy to do so. I'd consider myself fairly financially savvy (avid YNAB user with a niche interest in the psychology of money) however I understand my financial situation and there is a big difference in financial needs between a solo income 2 years into a mortgage and a 59 year old cohabiting with 7 years of her mortgage remaining. 

The main question my mum had was relating to taking her 25% tax free lump sum. She wants to do so to pay off her mortgage. 

I've asked her to start gathering facts to her make some informed choices including - 

- A breakdown of her household outgoings. Currently she pays the bills he pays the mortgage. She thought that was a fair split but once we started ball parking the figures it became apparent how different their outgoings are. I have no intention of telling my mum how to split her bills but I want to make sure she is aware of the exact difference so she can make an informed choice as to what is fair. 

- asked her to check she will be getting a full state pension. 

- asked her to get her NHS pension statement so she knows exactly how much she will be getting when she retires plus her 25% amount. 

- asked her to check how much is left to pay on her mortgage and the costs of paying it off in full. 

- consider what her retirement will look like and how much money she'll need plus at what age does she want to retire/reduce hours. 




Things I'm not so sure on and need some help with are the following - 

- the implications of taking the tax free lump sum. 

- their mortgage is joint but she isn't married. If she pays off the remaining mortgage but something happens to her partner or her relationship what happens to the money she put in? 

- should someone who's working full time start taking their pension? Or delay it for as long as possible? Taking her pension won't affect her tax bracket as she's only a band 3 (low pay) and her pension isn't massive. If she does take it I've suggested she puts it into an ISA and not touch it until she reduces her hours/retires as she doesn't need the additional money right now. But should she take it at all? Or wait? 

Am I missing anything else? 

I want to check she has a will in place too but I'll leave that conversation for another day. 🥴

I'm quiet honoured my mum has asked me for help. I've always known she's not great with finances but it's never been my place to get involved, however being asked to help is different and I'm grateful I get to ensure her finances are in order. She works incredibly hard and deserves a nice relaxed life without money worries! 

crv1963

Some questions - you mention Band 3 NHS. How long has she been in this role? The reason is there are different versions of NHS Pension, 1995, 2008 and 2015 scheme. If your Mum is still in NHS employment she can check on TRS next time she is on shift what she will get as a pension annually.

If she has been in this role for a long time she may have a number of years in the 1995 scheme the retirement age for this scheme is 60 years. It does not pay to not claim at 60 because there are not any back payments to age 60 unless it is deferred as in she has left the pension scheme, also there is an automatic lump sum (tax free).

If she has years in 2008 and moved from 1995 scheme to the 2008 then pension age is 65 years.

If she is still working NHS then she will now be in the 2015 scheme- everyone moved to this scheme in 2022. However there is a thing called the McCloud Judgement which means members of earlier schemes automatically moved to 2015 before 2022 can choose to move membership from 2015-2022 back into their earlier scheme if it benefits them more, at retirement this option should be offered but delays mean that most will get the choice after retirement but not lose any benefits.

House is jointly owned, so it depends if joint tenants them the property would go to the survivor, if tenants in common it goes to whoever they leave it to.

Does your Mum have any other pensions? If so what type and when can she access them? DC pensions are mostly accessible at age 55 years.

Whether your Mum should take her pensions now is a decision based on needs now but definitely at age 60 take the 1995 scheme pension as she will never get missed monthly payments back.

I would suggest your Mum works out how much she needs annually to live on, and work out what she needs to save to meet that need or if NHS Pension plus state pension meets her needs. 

Generally people in a partnership look together at retirement planning so it may be helpful for her to know her partners plans.

Dazed_and_C0nfused

n713 said:

Hello, I'm after a lot of advice to help my mum with her finances. 

Today I mentioned the NI top up deadline to my mum which the lead to a long conversation about her finances and retirement plans. My mum will readily admit to not having much financial knowledge and through this conversation it became apparent that she doesn't really have a retirement plan either (she's 59). (No judgement or unkind words please). 

She asked me if I could come over and sit down with her to help her get an understanding of everything financial and to get a retirement plan in place. I'm happy to do so. I'd consider myself fairly financially savvy (avid YNAB user with a niche interest in the psychology of money) however I understand my financial situation and there is a big difference in financial needs between a solo income 2 years into a mortgage and a 59 year old cohabiting with 7 years of her mortgage remaining. 

The main question my mum had was relating to taking her 25% tax free lump sum. She wants to do so to pay off her mortgage. 

I've asked her to start gathering facts to her make some informed choices including - 

- A breakdown of her household outgoings. Currently she pays the bills he pays the mortgage. She thought that was a fair split but once we started ball parking the figures it became apparent how different their outgoings are. I have no intention of telling my mum how to split her bills but I want to make sure she is aware of the exact difference so she can make an informed choice as to what is fair. 

- asked her to check she will be getting a full state pension. 

- asked her to get her NHS pension statement so she knows exactly how much she will be getting when she retires plus her 25% amount. 

- asked her to check how much is left to pay on her mortgage and the costs of paying it off in full. 

- consider what her retirement will look like and how much money she'll need plus at what age does she want to retire/reduce hours. 

Things I'm not so sure on and need some help with are the following - 

- the implications of taking the tax free lump sum. 

- their mortgage is joint but she isn't married. If she pays off the remaining mortgage but something happens to her partner or her relationship what happens to the money she put in? 

- should someone who's working full time start taking their pension? Or delay it for as long as possible? Taking her pension won't affect her tax bracket as she's only a band 3 (low pay) and her pension isn't massive. If she does take it I've suggested she puts it into an ISA and not touch it until she reduces her hours/retires as she doesn't need the additional money right now. But should she take it at all? Or wait? 

Am I missing anything else? 

I want to check she has a will in place too but I'll leave that conversation for another day. 🥴

I'm quiet honoured my mum has asked me for help. I've always known she's not great with finances but it's never been my place to get involved, however being asked to help is different and I'm grateful I get to ensure her finances are in order. She works incredibly hard and deserves a nice relaxed life without money worries! 

One thing you are missing is that there is no 25% TFLS with any of the 3 NHS pension schemes she may have been a member of.

The 1995 scheme has an automatic (tax free) pension commencement lump sum of 3x the annual pension.

Neither the 2008 or 2015 schemes have automatic PCLS's.

There will be an option to give away some of her inflation protected pension in return for additional tax free cash however its almost certainly going to cost her £1 of her inflation protected pension for every £12 she takes.  So the longer she lives the worse a deal this as she could be getting the pension for 30-40 years.

I think you need to get a better understanding of the NHS schemes, and more importantly find out which she has been a member.  This is a decent place to start for how they work.

https://www.nhsemployers.org/articles/comparing-different-sections-nhs-pension-scheme

Marcon

n713 said:

 a 59 year old cohabiting with 7 years of her mortgage remaining. 

The main question my mum had was relating to taking her 25% tax free lump sum. She wants to do so to pay off her mortgage. 

- their mortgage is joint but she isn't married. 

I want to check she has a will in place too but I'll leave that conversation for another day. 🥴

Please don't! The absence of a will when a couple are cohabiting without being married or in a civil partnership can and often does lead to needless strife, misery and conflict. Ensuring both she and her partner have up to date wills would be the best first step available...or possibly tying the knot, which would make life much simpler and could save paying IHT, if she and her partner have assets which would push either of their estates into IHT territory.

Dazed_and_C0nfused said:

One thing you are missing is that there is no 25% TFLS with any of the 3 NHS pension schemes she may have been a member of.

...but your mum is likely to be confused by the opening paragraphs on this page (this is the wonderful world of pensions, after all):

https://www.nhsbsa.nhs.uk/employee-section/understanding-your-statement/maximum-lump-sum

elsien

I was also flagging up the house thing. If they are tenants in common and the cohabitee leaves their half elsewhere if they die first, if she can’t afford to buy that share of the house house then she would have to sell up and move. Ditto, if she passes first. 

LHW99

May also be an idea to consider PoA. It doesn't mean she loses control, but will have the ability to ask the attorney (you? / her partner?) to step in if she is hospitalised or otherwise incapacitated for a time.

With regard to the NHS tax-free money, unless she needs it (towards the mortgage, new car etc) another option could be to convert lump sum to additional income. Hence worth understanding the scheme(s)

n713

crv1963 said:

Some questions - you mention Band 3 NHS. How long has she been in this role? The reason is there are different versions of NHS Pension, 1995, 2008 and 2015 scheme. If your Mum is still in NHS employment she can check on TRS next time she is on shift what she will get as a pension annually.

If she has been in this role for a long time she may have a number of years in the 1995 scheme the retirement age for this scheme is 60 years. It does not pay to not claim at 60 because there are not any back payments to age 60 unless it is deferred as in she has left the pension scheme, also there is an automatic lump sum (tax free).

If she has years in 2008 and moved from 1995 scheme to the 2008 then pension age is 65 years.

If she is still working NHS then she will now be in the 2015 scheme- everyone moved to this scheme in 2022. However there is a thing called the McCloud Judgement which means members of earlier schemes automatically moved to 2015 before 2022 can choose to move membership from 2015-2022 back into their earlier scheme if it benefits them more, at retirement this option should be offered but delays mean that most will get the choice after retirement but not lose any benefits.

House is jointly owned, so it depends if joint tenants them the property would go to the survivor, if tenants in common it goes to whoever they leave it to.

Does your Mum have any other pensions? If so what type and when can she access them? DC pensions are mostly accessible at age 55 years.

Whether your Mum should take her pensions now is a decision based on needs now but definitely at age 60 take the 1995 scheme pension as she will never get missed monthly payments back.

I would suggest your Mum works out how much she needs annually to live on, and work out what she needs to save to meet that need or if NHS Pension plus state pension meets her needs. 

Generally people in a partnership look together at retirement planning so it may be helpful for her to know her partners plans.

Thank you for all that, lots of think about! She's worked in the NHS for 28 years so has all three pensions I presume? 

I'll definitely get her to talk to her partner about their retirement but he is also a bit clueless with finances so I just want to make sure my mum is fully aware of her own situation before she makes plans with him. 

n713

Marcon said:


- their mortgage is joint but she isn't married. 

I want to check she has a will in place too but I'll leave that conversation for another day. 🥴

Please don't! The absence of a will when a couple are cohabiting without being married or in a civil partnership can and often does lead to needless strife, misery and conflict. Ensuring both she and her partner have up to date wills would be the best first step available...or possibly tying the knot, which would make life much simpler and could save paying IHT, if she and her partner have assets which would push either of their estates into IHT territory.

As in I think this conversation is going to be happening over multiple days!! So much to discuss and think about and it's quite overwhelming, for both of us! 

Marcon

n713 said:

Marcon said:


- their mortgage is joint but she isn't married. 

I want to check she has a will in place too but I'll leave that conversation for another day. 🥴

Please don't! The absence of a will when a couple are cohabiting without being married or in a civil partnership can and often does lead to needless strife, misery and conflict. Ensuring both she and her partner have up to date wills would be the best first step available...or possibly tying the knot, which would make life much simpler and could save paying IHT, if she and her partner have assets which would push either of their estates into IHT territory.

As in I think this conversation is going to be happening over multiple days!! So much to discuss and think about and it's quite overwhelming, for both of us! 

Completely understand that - and good for you both for facing up to the need to get grappling with the facts. Why not start with wills, which would in fact be a pretty simple starting point - and in truth is the more pressing issue, given the  unpredictability of death.

sheramber

Is it a joint mortgage or only on your mother’s name?