pension advice needed

inneed

I am 54, and my husband is 67. I earn around £5000 pa, with a pension forecast of around £35 per week. My husband works one day a week to supplement his state pension and his £20 per week private pension. We own our house outright. We have inherited £200,000, and, obviously need to put this to work. Should I take out a private pension, or would we be better off investing in land,or a buy to let property? We have always had a very low income, but I would dearly love to be able to give up work and dedicate more time to my elderly parents and baby grandson.

meester

The problem with putting the money in a pension is the capital is gone, it can only provide income. If you have goals, such as buying a home overseas, etc., they would not be achievable after giving up the money.

You should think extremely carefully before giving up access to your capital forever.

The problem with pension investment is that it is most worthwhile when y ou have a high income and can feed in some amount less than your income, and get tax relief (effective 40% uplift) on the payment.

It sounds like neither of you have much income to speak of, so at most you could pay in £4,000 a year, getting £1,000 added by the government (to sum to your salary), plus either £2,880 with £720 added by the government (£3,600 total), or 100% of his salary if he earns more than £3,600.

This will have little impact on the £200k.

It sounds to me that your current priorties are generating income from your capital. You will want to do this in a tax-efficient manner. As neither of you look likely to ever be higher rate tax payers, a high yield share or equity income fund-based portfolio (appropriately diversified to protect against major damge to your capital) is attractive, since shares will generate income for you that is already income tax paid, and will grow with inflation. You can expect on about 3% income (£6,000), with capital maintaining its value.

Obviously there is risk to capital, which is why you will need investment advice/research to properly diversify your risk.

The other thing to consider is the option of an investment bond, because this money would not affect your entitlement to pension credit.

At the moment, the government guarantees you £181.70/week (http://www.thepensionservice.gov.uk/pensioncredit/) (i.e. whether or not either of you work). However the £200k, unless in the bond, would totally extinguish that. This £181.70 is irrespective of whether either of you work, or what your pensions are. If your husband's pension income is much below this, it might well be worth both of you giving up work and getting the money from the government instead, it depends on compairng your current weekly income against the amount of work you are both doing to earn it, against the state guarantee. You won't be entitled to a state pension for 9 more years, so there's potentially quite a few years of getting a nice pension credit top-up

You can take 5% as capital out, so £10k/year.

The only catch with this approach is I'm not sure the legality of depriving yourself of capital in this way, given that your husband is already in receipt of the state pension and the obvious intent to claim extra benefits as a result. Perhaps someone else can comment?

If this is not possible, then you should look to invest your money for income, with the help of an adviser. I really would not look to tie up your money in a pension though.

For investments that attract basic rate tax, such as bonds, you can utilise your £7,200/year (each) annual ISA allowances.

EdInvestor

inneed wrote: »

Should I take out a private pension, or would we be better off investing in land,or a buy to let property? .

None of these IMHO.

You should split the money in half, 100k each and then invest it as follows IMHO;

You
30k Natonal Savings and investments index linked certificates (tax free)
50k equity income funds/high yield blue chip shares paying dividends with no tax payable
7.2k ISA - bond/gilt funds paying tax free income
13k High interest cash account

Your husband

30k NSI index linked certs
50k cash (his tax free allowance is 9k a year, so he should be able to avoid paying tax on the interest)
7.2k ISA - hald and half property funds, commodities funds for long term growth
13k equity income funds paying tax free divis , as above

Top up your ISAs every year so that eventually all your income is tax protected.If you move really fast right now, you can get 14.2k each into ISAs in the next couple of weeks, a very good move.

This is a good place to open an ISA:

https://www.h-l.co.uk

dunstonh

You have to look at the pros and cons of each and decide what you want with your money.

If you are after guaranteed income for life then nothing beats a pension. Not ISAs, buy to let or whatever.

If you are after a build up of capital, a pension is no good as it is designed for income provision. ISAs are typically better for this.

Buy to let yields are generally too low and your capital is not liquid and at risk of going down. Plus, it isnt very tax efficient and you could find yourself making very little out of it.

You havent given enough info for anyone to suggest one option or another as being best.

meester

dunstonh wrote: »

You have to look at the pros and cons of each and decide what you want with your money.

If you are after guaranteed income for life then nothing beats a pension. Not ISAs, buy to let or whatever.

The income is not guaranteed It is dependent on your investment return, the same as anything else.

In very simple terms, if the OP bought £200k of high-yield shares, there would be no income tax payable on the dividends (the income). There wouldn't be any inside the pension either. But she has encumbered her capital permanently.

It realy doesn't make sense to pay £200k into a pension in one go, unless perhaps you have £200k of annual income and an underfunded pension.

dunstonh

The income is not guaranteed It is dependent on your investment return, the same as anything else.

The income is guaranteed as it uses an annuity. The growth getting you there is the bit that can fluctuate. However, that is going to fluctuate with most options and there if you use the same funds in the different tax wrappers then you will get the same performance.

In very simple terms, if the OP bought £200k of high-yield shares, there would be no income tax payable on the dividends (the income).

A medium/high risk strategy that involves 100% stockmarket. We dont know the risk profile of the OP but the typical UK consumer is cautious not medium/high risk. Although if they were considering a buy to let then it does suggest a higher risk attitude to their investing.

In reality, no one option is the best option. A combination of options is usually the best outcome.