Retirement strategy for parents (57 years old) - not keen on S&S
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Not seen National savings/premium bonds on MSE website - are these guaranteed returns at rates better than 1.5%? also presuming they are taxable?
lesson #1 - never presume, always check, do your own research, even to confirm what 'some bloke on the internet' may say.
Premium Bond prizes are tax-free.
You can look at National Savings products here:
https://www.nsandi.com/The questions that get the best answers are the questions that give most detail....0 -
how would he work out if hes able to contribute more than 40k via the back-dating system - dont want him to get taxed by overcontributing
Unless he earns £40k or more he can't "contribute more than 40k via the back-dating system". You can't backdate contributions. What you can do is carry forward allowances, but that's irrelevant unless he earns more than £40k.
Anyway, the priorities are:
(i) Get that money scattered across different accounts so that no account with one bank/building society holds more than £85k. Or get as much as you like into ns&i - they have a Treasury guarantee.
(As for banks, don't accidentally use two outfits that share a single banking licence.)
(ii) Calculate how much to hold in tax-exposed savings accounts, working backwards from the £1k p.a. savings allowance, and forwards from the interest rates they can get.
(iii) If they need some tax-free interest, approximate that by buying Premium Bonds - up to £50k each. They pay a (roughly!) steady monthly stream of small prizes, worth about 1.25% p.a., plus they get a tiny chance of a big prize. And/or use Cash ISAs.
(iv) Personal pensions of some sort: investigate. These might be an excellent idea for Pa and a pretty good idea for Ma. We use Hargreaves Lansdown SIPPs; their service is excellent and they are very cheap if all you want to do is hold cash for a year or two, as long as you don't trigger their early closure charge.
(v) Once all this has been attended to, you can take a breather and await an almighty stock market crash-and-slide, after which even cautious investors might be prepared to put 10% or 20% of their money into the markets. But not if it frightens them. The point of capital at their age is to give them some security and comfort - it it costs them sleep then that's no good at all.Free the dunston one next time too.0 -
You split the money into chunks and spread it across 1, 2 , 3 and 5 year fixed interest savings bonds. That way you maximize the interest but still have some money coming available in the near term. You can then roll this around if it's not needed, eg when the first chunk comes due, you can put that into a 5 year bond, because the 2 year chunk now only has one year to run. Unless they can tie all the money up for 3 or 5 years.thanks - when you say fixed rate savings ladder - do you mean putting it in the 1 year 1.7% rate i mentioned?
You can see the fixed savings bond rates here: https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fixedsavings, although do check around on the internet.
Currently it looks like 2.7% is the best you will get over 5 years.
Whatever you do, do NOT be hooked in by "bonds" advertising higher rates like 8% or more. You could lose all your money. Make sure ANY savings bond is fully covered by FSCS protection.0 -
(iv) Personal pensions of some sort: investigate. These might be an excellent idea for Pa and a pretty good idea for Ma. We use Hargreaves Lansdown SIPPs; their service is excellent and they are very cheap if all you want to do is hold cash for a year or two, as long as you don't trigger their early closure charge.
I would open pensions for both of them, and invet up to their net earnings for this year (in your others case minus the amount put into her DB pension- there is a formula). Cash initially, but if they arent going to invest for 5-10 years, I would consider putting a fraction of it (10-40%?) into a mixed asset globla fund such as Vanguard. Maybe the 20 or 40% equity one. This means 60-80% of the fund is invested in non equitites like cash, bonds and property etc.
There will be some risk, but the cash is at risk too. But it pretty much wont 'crash' as not all of it is invested in equities.0 -
Unless he earns £40k or more he can't "contribute more than 40k via the back-dating system". You can't backdate contributions. What you can do is carry forward allowances, but that's irrelevant unless he earns more than £40k.
Anyway, the priorities are:
(i) Get that money scattered across different accounts so that no account with one bank/building society holds more than £85k. Or get as much as you like into ns&i - they have a Treasury guarantee.
(As for banks, don't accidentally use two outfits that share a single banking licence.)
(ii) Calculate how much to hold in tax-exposed savings accounts, working backwards from the £1k p.a. savings allowance, and forwards from the interest rates they can get.
(iii) If they need some tax-free interest, approximate that by buying Premium Bonds - up to £50k each. They pay a (roughly!) steady monthly stream of small prizes, worth about 1.25% p.a., plus they get a tiny chance of a big prize. And/or use Cash ISAs.
(iv) Personal pensions of some sort: investigate. These might be an excellent idea for Pa and a pretty good idea for Ma. We use Hargreaves Lansdown SIPPs; their service is excellent and they are very cheap if all you want to do is hold cash for a year or two, as long as you don't trigger their early closure charge.
(v) Once all this has been attended to, you can take a breather and await an almighty stock market crash-and-slide, after which even cautious investors might be prepared to put 10% or 20% of their money into the markets. But not if it frightens them. The point of capital at their age is to give them some security and comfort - it it costs them sleep then that's no good at all.
thanks! In terms of SIPP - how can I calculate how much dad can put in if he earns more than 40k via bringing the allowance forward - also in his case as postmaster operating as sole trader - he has no fixed salary as such so how does it work in that case?0 -
I would open pensions for both of them, and invet up to their net earnings for this year (in your others case minus the amount put into her DB pension- there is a formula). Cash initially, but if they arent going to invest for 5-10 years, I would consider putting a fraction of it (10-40%?) into a mixed asset globla fund such as Vanguard. Maybe the 20 or 40% equity one. This means 60-80% of the fund is invested in non equitites like cash, bonds and property etc.
There will be some risk, but the cash is at risk too. But it pretty much wont 'crash' as not all of it is invested in equities.
thnks any idea where i can find this calculator similarly any idea how to calculate dads allowance given hes postmaster operating as soletrader with no fixed salary as such0 -
I have an HL SIPP too and agree their service is excellent, but any cash I hold gets no interest so I think that is quite expensive. Or am I missing something?We use Hargreaves Lansdown SIPPs; their service is excellent and they are very cheap if all you want to do is hold cash for a year or two0 -
thnks any idea where i can find this calculator similarly any idea how to calculate dads allowance given hes postmaster operating as soletrader with no fixed salary as such
Your mother can contribute gross salary less her lgps contribution which will be shown on her payslip.
She might consider the Lgps AVC scheme either as an alternative or alongside a SIPP. The advantage is that the pot can be used to fund the 25% tax free lump sum when she takes her main pension. So, save 20% tax on way in and pay no tax on way out.
Her scheme administrators or employer intranet should have more infirmation about their specific AVC scheme but main lgps website explains the options.
Your mother's annual benefits statement will show what pension she has accrued to date and an estimate for normal retirement date.
Your dad's contribution will be up to what he has earned, so as self employed what has he made as a profit and reported to HMRC?0 -
squirrelpie wrote: »I have an HL SIPP too and agree their service is excellent, but any cash I hold gets no interest so I think that is quite expensive. Or am I missing something?
No, that's right. If you are keeping the cash for just year or two you just have to shrug off the nil interest. It would be pretty daft to leave it like that for a decade though.Free the dunston one next time too.0 -
thanks! In terms of SIPP - how can I calculate how much dad can put in if he earns more than 40k via bringing the allowance forward - also in his case as postmaster operating as sole trader - he has no fixed salary as such so how does it work in that case?
As a sole trader he presumably works out his income each year so that he can do a tax return. That income determines how much he can contribute to a pension.
Suppose for the sake of argument he earns £60k in 18/19. (He'll have to estimate this before the tax year ends.) Then if he wants to contribute a gross £60k to a pension, two things have to happen.
(i) He needs to know whether he can carry forward £20k from the previous three years. For this he needs (a) to already have had a pension open somewhere, and (b) to have a total of at least £20k of unused annual allowances from 15/16, 16/17, and 17/18.
(ii) Then if (i) is OK he has to pay a net contribution to a pension provider = 0.8 x £60k = £48k in this tax year, 18/19. What happens then is (a) the provider claims £12k from HMRC - tax relief - and adds it to his pension pot. This might take about eight weeks to happen. And (b) he has to claim back for himself from HMRC any tax relief corresponding to the higher rate income tax he's paid in 18/19.
Note that one of the wonders of the system is that he's even credited with 20% relief on the part of his income that paid no income tax by virtue of his personal allowance.
You want to google to find an account of this that you find clear. One place that might help is
https://www.hl.co.uk/pensions/contributions/carry-forward-rule
I also find that the pension/insurance firms often have helpful stuff on their websites e.g. Legal and General, Royal London, Standard Life, and so on. It might also be worth looking at the website of the Pensions Advisory Service.
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forwardFree the dunston one next time too.0
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