Pension Newbie

Pensionhope66

Hello, looking for some sage advise from people here. I am 60 and still working part time and I am also a full time carer

I will shortly have a significant lump sum to invest, bit of a surprise, and I have no idea really what to do with it. I was thinking of something that gives me an income potentially at age 67 and preserves the capital. I like the idea of clever investing, of Gilts etc and bonds but I don't know where to start and I am concerned about charges from IFA. I have assumed that SIPPs would be a waste of time as my income is so low. So advice for a low income person. Thanks in advance…

Brie

7 years is not a huge amount of time for growth - but I'm sure that others coming along here will have some good ideas for you.

In order to get good value from any advice it might help to give a ballpark figure for your "significant" lump sum. Also have you checked your state pension forecast (link below) and is there any other pension money that will be available at some point.

It's possible that a SIPP or whatever isn't the right thing for you if you won't have a lot and can't afford to lose your lump sum. Maybe an annuity would be better in which case you might park your lump in a share ISA for the next few years with the money in a couple of funds that include a variety from the FTSE 100 to provide growth and diversity.

Pensionhope66

Hello Brie,

It's 400k ish. I have will have full state pension and I have a very small LA pension - £80 a month.

Brie

And you're in your current employer's scheme?? Even if it's a low end plan 7 years in a part time job can add up to a nice little extra. I was working 10-14 hours a week and just in a NEST scheme but after 3 years I had nearly £2k which was nice.

Linton

For £400K to invest I would strongly suggest you get advice from an Independent Financial Advisor. You could lose or fail to make far more than the cost of his fees if you attempt "clever investing" with minimal knowledge. You should be able to arrange a preliminary free chat with one for you to explain what you want and for him to explain what he can do for you and the cost.

How much income are you wanting from your £400K? People here could give you some idea of whether that is realistic.

The best option for you may well be an annuity whereby you pay in a lump sum and you get a fixed or inflation linked income for the rest of your life paid out automatically monthly into your bank account Of course that would take up part of your £400K but why do you want to preserve your capital? Living poor and dying rich does not seem to me to be a very attractive ambition.

DRS1

Don't write off pension contributions.

People who have come into a lump sum will often use the lump sum to live on instead of their earnings and will contribute 100% of their earnings to a pension.

Sometimes they need to use their own personal pension to do that. For example if contributions to your employer's pension are by salary sacrifice then the salary sacrifice cannot get you below the national minimum wage. Sometimes the contribution is made by net pay - and that isn't much good from a tax point of view if you don't pay income tax on your earnings.

For a basic rate taxpayer the pension is said to beat an ISA by 6.25%.

I am not saying ignore ISAs. Use them - but obviously with a £20k limit on ISAs it will take you a long time to get £400k into them.

Even using a pension and an ISA you are going to need a home for quite a lot of money. Some people on here are big fans of premium bonds. You can put £50k in there (if you haven't already got any). The prizes are tax free which is attractive especially as the tax rate on savings interest is set to increase by 4%.

You should probably start reading up on things like the starter rate for savings and the personal savings allowance as well to see just how much of the interest on your money will have no tax on it. If you are looking to keep that tax bill down then there are things called low coupon gilts which can be useful. There are threads on here about gilts and this note.

How gilts can help you pay less tax on savings interest

Marcon

Sometimes the contribution is made by net pay - and that isn't much good from a tax point of view if you don't pay income tax on your earnings.

That used to be the case but contributions from the tax year 24/25 on will (ultimately!) benefit from tax relief:

https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions/pension-tax-relief-problems-low-earners

I was thinking of something that gives me an income potentially at age 67 and preserves the capital.

You are very limited in terms of how much you could put into a pension - the maximum gross contribution ('gross' means including basic rate tax relief) for someone who describes themself as 'on a low income' will be the higher of:

• 100% of your earned income during the tax year in which the contribution is made
• £3,600.

If you contribute to a 'relief at source' scheme (which is more likely than a 'net pay' arrangement) you'd pay in 80% of whichever figure applies, and the provider would add basic rate relief to your pension 'pot'.

If you receive Carer's Allowance, note:

Source: https://www.carersuk.org/help-and-advice/financial-support/carers-allowance/carer-s-allowance-and-the-earnings-limit/

But not being able to put loads into a pension isn't necessarily a bad thing for you. Using the money you inherit counts as 'own cash' (as opposed to cash taken directly from your pension scheme), enabling you to buy a 'purchased life annuity', which has a major advantage over a 'pension annuity' in terms of the tax treatment. Part of each regular payment is treated as a return of capital, so isn't taxed.

The best option for you may well be an annuity whereby you pay in a lump sum and you get a fixed or inflation linked income for the rest of your life paid out automatically monthly into your bank account

Doesn't need to be a lifetime annuity. Given what OP has said about their objectives, a fixed term annuity with a maturity lump sum might be worth considering, which would give flexibility to increase their income now and then revisit at a later date when the fixed term annuity matures - see https://www.canadalife.co.uk/news/fixed-term-annuities-the-unsung-hero-of-retirement-income/ for more information.

With well over a quarter of a million pounds to invest, and no experience of investing, it would be unwise in the extreme not to take proper, regulated advice from an IFA with 'all the facts'.

kempiejon

Income bent, protect capital, 7 years until draw, currently low earnings.

So many options, For tax efficiencies, SIPPs and ISAs, premium bonds, starting rates for saving, low coupon gilts. Then what to buy in ISA/SIPP more of the same or 10 year gilts yield around 5%. FTSE100 a few percent below but chance of growth. There are investment trusts with an icnome pedigree of >20 years uninterupted pay out, capital appreciation and 3-7% yields.

At 60 working part time if more income would be useful an annuity for a portion might be worth £5k pa on £100k. Those earning under £12k might be missing a tax allowance