What to do?

micmac75

My dad is due to retire in October and will be receiving 30,000 in a lump some. He owes 52,000 off of his house. Would it be best for him to pay it off his mortgage or stick it somewhere to earn interest on it. His mortgage is linked to the base rate and is at about 6.5% at the minute.

thanks:money:

EdInvestor

Will he have enough income in retirement to keep paying his mortgage comfortably?

There would be no advantage in putting it on deposit if the mortgage rate is 6.5%, though there could be an advantage to investing the money.

Is he due to receive any other lump sums (eg from his pensions?)

micmac75

yes his monthly pension will cover the mortgage payments. His lump some is from his pension, yes. He is not due any more lump sums but he has been offered a job post retirement.

EdInvestor

Does he have other savings? You really need some savings in retirement, not just income - to cover things like new cars, home repairs etc.

If he doesn't have any he might be best to use part of the money to reduce the mortgage, putting the rest in the emergency savings fund, and then take the post retirement job, using that money to overpay the mortgage so as to get it finally finished with.

micmac75

Only thing he has the the equity in his house. He is being "forced" to retire. He works for the NHS is a home which looks after disabled children. These homes are being put out to tender. Once they are taken over his pension would be frozen until he is 65 (currently 56) so he has to retire really. He will still work elsewhere until he is 65.

EdInvestor

micmac75 wrote: »

Only thing he has the the equity in his house. He is being "forced" to retire. He works for the NHS is a home which looks after disabled children. These homes are being put out to tender. Once they are taken over his pension would be frozen until he is 65 (currently 56) so he has to retire really. He will still work elsewhere until he is 65.

It sounds as though he is being made redundant rather than retiring, is that right? .

micmac75

No he didn't want to have his pension frozen. the job is continuing but with a private company rather than the NHS. Their contracts are being honoured but pensions frozen

Debt_Free_Chick

micmac75 wrote: »

No he didn't want to have his pension frozen. the job is continuing but with a private company rather than the NHS.

His contract continues under employment called TUPE

Their contracts are being honoured but pensions frozen

Pensions are not covered under TUPE, so he will cease to be a member of the current NHS scheme. His pension will not be "frozen" completely - it will increase in line with RPI (roughly).

Interesting that they've offered him his pension if he is still doing the same job, albeit for a different company. New tax rules now allow this, but I would have guessed that the NHS would not allow it! (or that the rules of the scheme would not allow it). Anyway - if he is continuing to work, does he need to take his pension? It will be reduced for early payment, unless the NHS have offered him better terms.

micmac75

He is allowed to do the same job as before but must have a 2 week break in employment so it does not affect his pension. He does not want the pension "frozen" as he did want to take it when he was 60. This has just brought the issue forward a few years.

micmac75

anyone willing to add to this?

EdInvestor

I would suggest he keeps the lump sum and invests it, using tax free investments ( ISA and N&SI index linked certs for cash) . He should use the pension money to overpay his mortgage while still working. If he still owes any when he finally retires he can use the lump sum plus interest to pay it off then.