Lamborghini, world cruise, annuity ... or something else?

br1anst0rm

We are just about to receive the payout from a life-policy related investment plan we have had for some 30 years which pays out a tax free lump sum on maturity. Probably upwards of £200k. We're wondering what to do with it: hence the title of this thread!

The plan was designed as a way of saving to provide money at a stage in life when it might be needed - house purchase, school fees, whatever. In fact we haven't needed to cash it in for any such purpose, so we left it to run. Perhaps the only possible future need now might be for care home fees in old age…

The essential facts: we're a retired pensioner couple (76 and 74). No children, no direct dependents (parents dead, we have siblings and some nieces and nephews).

In terms of income, I have a final-salary pension from the civil service. My wife - who worked at various times - has no career-related pension and an incomplete NI record. I qualify for a state pension, and she gets a reduced pension based on my NI record.

We own our home - no mortgage. We live a modest lifestyle - some would say frugal. We drive a 20 year old car and take occasional holidays but have no expensive hobbies (like golf or sailing!). In retirement we do a lot of voluntary work in the local community. We have always looked to save and invest. We don't have a financial adviser (past experience with them has not been good - so we use an execution-only platform). We have a sizeable amount in ISAs, a few stocks and shares, and my wife is still paying into a "stakeholder pension" (due to mature next year).

With no immediate need or plan to spend a large lump sum, we are now wondering what to do with the investment-plan payout. Questions about IHT liability loom. We are wondering whether and how best to pass on some money to nieces and nephews and maybe to charity. We haven't really looked at things like an annuity.

I suspect we may have to look to a professional financial adviser to spell out all the options. But ahead of that, I thought I would canvass forum-members, just out of interest, to see what suggestions came forward. So any comments/advice/warnings would be welcome.

itsthelittlethings

I'd have a lovely holiday, to start with.

Emmia

Have a lovely holiday, replace the car...

Is there anything super frivolous that you or your wife have always wanted? One of my colleagues recently came into some money, he has long wanted a particular electric guitar, and he used some of it to buy it for himself… he is quite sensible financially, but I think the person who left him the money would have been delighted he'd spent it on something like the guitar he'd wanted for a long time.

I'd consider (depending on the ages of the nieces and nephews) perhaps making a gift to each of them (to go towards a house deposit) or paying a bit into a Junior ISA if they have them.

Will your retirement incomes leave you with regular amounts of money you won't spend? I'd look at gifts out of excess income if that's the case - but I would also ensure you have enough to pay for care or services (cleaner, gardener etc.) if you want/need them.

This is in many ways a great "problem" to have.

gwynlas

Given your ages I would assume that your nieces and nephews are all independent adults probably with adult children of their own,

I would endorse a good holiday, perhaps somewhere you have dreamed about but not visited a newer car and any future proofing your house might benefit from.

luci

https://forums.moneysavingexpert.com/discussion/6672478/lamborghini-world-cruise-annuity-or-something-else

We are a bit younger than you, but in a similar position. No children, no-one to leave it to, apart from Goddaughters. We don’t have as much money as you, but enough to be comfortable with no money worries. I can’t visualise what to spend what we do have.

We started using a highly recommended local IFA for about 13 years. I think I am very astute financially, but struggled to understand pensions. That’s why we went to an IFA. He was really good with arranging drawing down our pensions before we reached state pension age and taking out just under the £12570 tax allowance so we paid no income tax. He also sorted out S&S ISAs.

Last year, he said it was about time we started spending our money. Coming from nothing, I have been very frugal my whole life. When he said that, I suddenly realised that I had been so invested in saving, that I hadn’t thought was we were actually saving for. Within days, we had bought a new car. Since then, we have carried out home improvement. We got a new kitchen and bathroom, patio door and window, bed, etc. We have always liked our holidays, but that became super charged. I booked 4 cruises within 13 days last year, within days of returning from Lake Garda. I have just booked another 2 in the past couple of weeks.

I have run out of ideas what to spend the rest on, apart from holidays. The OH wants to change our 2 year old car next year, but I’m not 100% sold on that yet.

I don’t really have any advice or suggestions. Maybe you need to take a step back, pretend that you’re speaking to a friend in the same position, and think what you would say to them if they had unlimited funds.

As we have no kids, we will probably be liable for IHT, not that we’ll be here to worry about it. The rest will probably go on care home fees.

I hope you get some good advice here to help you move forward.

friolento

The first thing that springs to mind is whether your wife would have enough to live on in should she become widowed.

The second most important matter to me would be potential care costs, and / or to make sure your property is age-appropriate.

I would probably keep most, if not all of the money in cash, or cash-like investments. Exhaust your ISA allowances this and the next few years, and put the remainder into savings accounts, . From what you say, it is likely that your wife is a non-tax payer, so could earn up to £18,570 (minus her small state pension income) tax free.

Unless you have special reasons for supporting your siblings / their kids, I wouldn't worry about any inheritance. Live your lives first, treat yourselves. Go travelling, for instance. But if you haven't already, make a will as there is likely to be something left, e.g. your house, when you are both gone, as it helps the executor to deal with your estate.

thunderroad88

Not sure about a world cruise, but we’ve just been on our first ever cruise to the Norwegian fjords. If you’ve never been, I’d heartily recommend it. Stunning scenery. I was a bit of a cruise skeptic but have to say our time on Cunard’s Queen Anne was really enjoyable.

poseidon1

Firstly congratulations on the favourable tax free outcome from the ReAssure MIP you had invested in.

In terms of spending some of your largesse, would certainly suggest consider updating your car for something more modern with additional creature comforts.

Beyond that, having lived a frugal life up to this point it may now be quite difficult for you to change your mindset from that of savers to become spenders. For my own part art and antiques has been an abiding interest, so growing my retirement income to indulge that interest has been an ongoing 'job'. I will let others identify areas of spending you could perhaps explore although @luci's post maybe inspiring in that respect..

One observation I would make is that your joint sources of guranteed retirement income seems largely vested with you. If you were to predecease your spouse, how much of your pension would she inherit, and would this suffice to maintain her ( frugal) lifestyle without immediate recourse to your joint accumulated capital? If her income situation might experience a significant shortfall, you could consider devoting a portion of your new funds in purchasing a single life annuity on her behalf.

Turning to inheritance tax, with this additional £200k are your assets now significantly in excess of £650k which appears to be the limit of your joint nil rate bands? If so, are you especially concerned to mitigate the tax exposure for the benefit of nieces and nephews?

Of course you do have the option to divert ( under your wills ) sufficient of your assets to charity to avoid IHT entirely. However, if you would like to make greater exclusive provision for the 'niblings' during your lifetime there is always the option of lifetime giving to them and/or creating a trust vesting in their favour on your eventual deaths. Of course these lifetime giving arrangements require you to survive 7 years to be fully effective, so if worthy of consideration the clock is ticking.

As far as trusts are concerned there are a range of life company investment bond based packaged arrangements which permit you to access a personal income stream therefrom, whilst any growth on the underlying bond accrues outside your estate for the eventual benefit of niblings ( gift and loan schemes, loan trusts, discounted gift schemes etc). You could put this on the agenda as one of the matters to explore with an IFA.

Albermarle

my wife is still paying into a "stakeholder pension" (due to mature next year).

Normally a DC pension does not mature, and you can take it when you want, or not at all. Reaching age 75 only means that you can not get tax relief on any contributions anymore. The provider may contact you to advise you of options, but unless the pension has special conditions, you do not normally have to do anything if you do not want to.

We haven't really looked at things like an annuity.

Normally annuities are bought from DC pension pots. You can buy them with non pension money, but it is a much more niche market. To be honest if you are struggling to spend your current income, not sure that more income is really a solution.

We live a modest lifestyle - some would say frugal. We drive a 20 year old car and take occasional holidays but have no expensive hobbies (like golf or sailing!). In retirement we do a lot of voluntary work in the local community. We have always looked to save and invest.

The poster @luci has already given you a good answer as to what an IFA might say.

We started using a highly recommended local IFA for about 13 years. I think I am very astute financially, but struggled to understand pensions. That’s why we went to an IFA.

Last year, he said it was about time we started spending our money. Coming from nothing, I have been very frugal my whole life. When he said that, I suddenly realised that I had been so invested in saving, that I hadn’t thought was we were actually saving for. Within days, we had bought a new car. Since then, we have carried out home improvement. We got a new kitchen and bathroom, patio door and window, bed, etc. We have always liked our holidays, but that became super charged. I booked 4 cruises within 13 days last year, within days of returning from Lake Garda. I have just booked another 2 in the past couple of weeks.

LHW99

With regard to IHT (if it does end up a problem in the end) - passing to a spouse doesn't involve paying IHT, and leaving money to a charity in your will can reduce the amount of IHT payable:

https://www.thp.co.uk/inheritance-tax-and-charities/

Cairnpapple

As someone 25 years younger than you but disabled, I'm going to weigh in with my usual comment about preparing for disability/more disability before it happens. Is your house the one you intend to age in? Do you already have a nice big shower that you can sit in, or perhaps wheel into? Good functional flooring with no trip hazards? Washer and dryer and oven all raised a bit so that you don't have to bend down too far (I haven't done that one yet but it's definitely on my hit list).

We also now have a principle of putting in place services now that will make things easier if/when life gets worse. Obvious stuff here would be cleaner and gardener. But also small stuff like paying for private glass recycling because our council doesn't collect it and if my spouse was in hospital or away looking after his parents I wouldn't be able to get to a recycling bank. Milk delivery, supermarket delivery, window cleaning.

We're having some initial meetings with IFAs so that, if nothing else, we won't be staying from scratch if we really need one. We've found the couple of initial meetings we've had so far very useful in themselves.

Do get the cruise though! And remember never to go in standard class on a long train journey again, first class is very worth the difference!