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    • redlfc
    • By redlfc 11th Jan 19, 1:51 PM
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    redlfc
    Retirement strategy for parents (57 years old) - not keen on S&S
    • #1
    • 11th Jan 19, 1:51 PM
    Retirement strategy for parents (57 years old) - not keen on S&S 11th Jan 19 at 1:51 PM
    Hi All - just wanted some advice as Ive had great help on here since joining

    My parents are 57 - one of them has around 130k and the other has around 90k in their current accounts. They have literally just kept this money in the bank all these years - never put anything into ISA or even a savings account to earn interest! Having read up a lot on this forum/Monevator I know what a big mistake this has been and will not be doing the same.

    My dad is self employed sole trader for last 3 years and mum is civil servant for local council who pays into pension (she knows she pays 167 pounds a month of her 30k annual salary into it but knows nothing about employer contribution/ whether DC/DB etc)

    They have said they are happy to put a significant proportion of this money in their accounts into methods to increase it - their current salary is enough for all their expenses such as bills/mortgage. The only thing theyd need is money for deposit for my sisters house which she is hoping to buy in London in next couple years

    As they are 57 - I would not be happy putting their money into S&S - I just cant fathom the possibility of losing some of that money and whilst I know cash returns are poor - I would be devastated if they gave me the money and I lost it. Even with very low risk bonds there is still a theoretical risk

    Trying to decide what their best options going forward to maximise this money. Currently Ive told them both to put 20k each into best paying Cash ISA (1.7% interest for 1 year fixed no access) - otherwise best rate is 1.38% any time easy access ISA. Ive also told them to put the rest of their money into Marcus earning 1.5% . Issue with cash ISA is poor rate is losing to inflation and with Marcus the same plus will be taxable as the amount earned will go over 1k PSA limit - but both are better than the money just sitting in their bank accounts doing nothing.

    So I thought about SIPP but again if its going to be cash only rather than funds is that a non starter? Also with SIPP - I know you can contribute a maximum of the lower figure between salary/40k gross annual allowance this tax year in order to get max tax relief. Ive read you can also claim allowances for 3 years prior to this aswell - is this only applicable if youve exceeded the 40k allowance i.e earn more than 40k per annum or for everyone? I also realise shed have to minus any workbased pension contributions from the 30/40k.

    Would be very helpful if someone could let me know how much maximum she could contribute this tax year based on her 30.5k salary for this and previous 3 tax years - her tax contribution is listed earlier in the post. If she isnt able to contribute more than 30.5k gross this year (i,e 24,400 of her own money and 6,100 tax relief) then obviously I already know the answer - im asking specifically in relation to the 3 year backlog. I understand if you exceed this limit you pay tax on the excess at your marginal rate which basically youll get tax twice - i.e from net pay and from pension + also potentially when withdrawn. - hence want to make sure she doesnt pay too much if she goes down this route.

    Also am I right in thinking if you plan on just investing in low cost index tracker such as VLS/ FTSE Global All Cap - SIPP is an expensive way of doing this and a personal pension would be better?


    Anyone in a similar position in terms of age and risk profile? They do not have a clear retirement age but they have both worked very hard all their life and I would love any suggestions for best potential retirement strategy in the next 3-5 years using their available money
    Last edited by redlfc; 11-01-2019 at 1:53 PM.
Page 1
    • dunstonh
    • By dunstonh 11th Jan 19, 2:05 PM
    • 96,425 Posts
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    dunstonh
    • #2
    • 11th Jan 19, 2:05 PM
    • #2
    • 11th Jan 19, 2:05 PM
    I just cant fathom the possibility of losing some of that money and whilst I know cash returns are poor - I would be devastated if they gave me the money and I lost it. Even with very low risk bonds there is still a theoretical risk
    They are losing money though. They are suffering shortfall risk and inflation risk.

    Ive read you can also claim allowances for 3 years prior to this aswell - is this only applicable if youve exceeded the 40k allowance
    She doesnt have the earnings use C/F

    Also am I right in thinking if you plan on just investing in low cost index tracker such as VLS/ FTSE Global All Cap - SIPP is an expensive way of doing this and a personal pension would be better?
    Clearly, they wouldn't invest in such a fund given their investment experience and risk profile. However, the wrong SIPP would be an expensive way of doing it. The right SIPP would be ok. A personal pension could be very cheap but you would need an IFA to put that in place.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • crv1963
    • By crv1963 11th Jan 19, 2:08 PM
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    crv1963
    • #3
    • 11th Jan 19, 2:08 PM
    • #3
    • 11th Jan 19, 2:08 PM
    What are their retirement income needs? When do they want to retire?

    Have those figures and work backwards.

    Your Mum can find out from the local authority when she is entitled to retire and how much she will get. I would have thought she will be in a DB scheme and the employer will be putting in a significant amount to her pension- nominally only as she will not have a personal pot but a promise to pay if it is an unfunded scheme.

    Your Dad- does he pay into a pension? Or has he previously? If so he needs to track these down finding how much he has saved.

    Moving forward they can open a cash SIPP pitiful interest but, with it being topped up by the HMRC it may be worth doing given the short timescale.

    They could put the money into National Savings or Premium Bonds?
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • redlfc
    • By redlfc 11th Jan 19, 2:13 PM
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    redlfc
    • #4
    • 11th Jan 19, 2:13 PM
    • #4
    • 11th Jan 19, 2:13 PM
    They are losing money though. They are suffering shortfall risk and inflation risk.



    She doesnt have the earnings use C/F


    Clearly, they wouldn't invest in such a fund given their investment experience and risk profile. However, the wrong SIPP would be an expensive way of doing it. The right SIPP would be ok. A personal pension could be very cheap but you would need an IFA to put that in place.
    Originally posted by dunstonh
    Thanks! any recommendations for best way they could invest this money then? They are fairly clueless with these thing but trust me - so if i went and invested all the money and made a loss id be devastated

    Would Vanguard Retirement strategy be a safer idea?

    Also what did you mean by use c/f?
    Last edited by redlfc; 11-01-2019 at 2:21 PM.
    • redlfc
    • By redlfc 11th Jan 19, 2:16 PM
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    redlfc
    • #5
    • 11th Jan 19, 2:16 PM
    • #5
    • 11th Jan 19, 2:16 PM
    What are their retirement income needs? When do they want to retire?

    Have those figures and work backwards.

    Your Mum can find out from the local authority when she is entitled to retire and how much she will get. I would have thought she will be in a DB scheme and the employer will be putting in a significant amount to her pension- nominally only as she will not have a personal pot but a promise to pay if it is an unfunded scheme.

    Your Dad- does he pay into a pension? Or has he previously? If so he needs to track these down finding how much he has saved.

    Moving forward they can open a cash SIPP pitiful interest but, with it being topped up by the HMRC it may be worth doing given the short timescale.

    They could put the money into National Savings or Premium Bonds?
    Originally posted by crv1963
    they have no specified retirement age - mum was trying to get early retirement from work but they rejected it
    tbh i feel the amount they have currently probably isnt enough to retire on - i really doubt theyd want to work another 10 years though

    thanks for the reply! Would a SIPP be a good idea given shes basic rate taxpayer and would only get 20% tax relief?

    Not seen National savings/premium bonds on MSE website - are these guaranteed returns at rates better than 1.5%? also presuming they are taxable?
    • OldMusicGuy
    • By OldMusicGuy 11th Jan 19, 2:21 PM
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    OldMusicGuy
    • #6
    • 11th Jan 19, 2:21 PM
    • #6
    • 11th Jan 19, 2:21 PM
    They are fairly clueless with these thing but trust me - so if i went and invested all the money and made a loss id be devastated
    Originally posted by redlfc
    Considering all investments can go down as well as up and we appear to be at the end of a very positive market, then if what you say is true, you should not be investing. Just set up a fixed rate savings ladder. That is better than having the money sat in a current account.
    • redlfc
    • By redlfc 11th Jan 19, 2:41 PM
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    redlfc
    • #7
    • 11th Jan 19, 2:41 PM
    • #7
    • 11th Jan 19, 2:41 PM
    Considering all investments can go down as well as up and we appear to be at the end of a very positive market, then if what you say is true, you should not be investing. Just set up a fixed rate savings ladder. That is better than having the money sat in a current account.
    Originally posted by OldMusicGuy
    thanks - when you say fixed rate savings ladder - do you mean putting it in the 1 year 1.7% rate i mentioned?
    • crv1963
    • By crv1963 11th Jan 19, 2:55 PM
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    crv1963
    • #8
    • 11th Jan 19, 2:55 PM
    • #8
    • 11th Jan 19, 2:55 PM
    Putting funds into a cash SIPP will get the uplift so yes 20% which is considerably more than the 1.5% you are aiming for, the National Savings and Premium Bonds can easily be turned back to cash in the bank- in full if needed. As they are Govt. backed.

    Use all the 5% savers you can, read a bit on threads on other boards to learn a bit more?
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • xylophone
    • By xylophone 11th Jan 19, 3:07 PM
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    xylophone
    • #9
    • 11th Jan 19, 3:07 PM
    • #9
    • 11th Jan 19, 3:07 PM
    Has your father no pension provision at all outside the state pension?

    Have both your parents obtained new state pension forecasts?

    https://www.gov.uk/check-state-pension

    Even if he chooses not to invest, your father could pay up to his net relevant earnings (within annual allowance) into a SIPP and benefit from tax relief - he could simply regard the TR as "interest".

    HL do not charge for holding cash.

    https://www.hl.co.uk/pensions/tax-relief/calculator
    Last edited by xylophone; 11-01-2019 at 3:25 PM. Reason: punctuation
    • Linton
    • By Linton 11th Jan 19, 3:20 PM
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    Linton
    thanks - when you say fixed rate savings ladder - do you mean putting it in the 1 year 1.7% rate i mentioned?
    Originally posted by redlfc

    No - some in a 1 year account, some in a 2 year acount .... up to the maximum which is generally 5 years.
    Then when after 1 year you can set up another 5 year account etc etc. The effect being that eventually all your money comes to you as annual payments after 5 years at the highest interest rates available at the time (ignoring special loss-leader offers).
    • redlfc
    • By redlfc 11th Jan 19, 3:22 PM
    • 101 Posts
    • 30 Thanks
    redlfc
    Has your father no pension provision at all outside the state pension?

    Have both your parents obtained new state pension forecasts?

    https://www.gov.uk/check-state-pension

    Even if he chooses not to invest, your father could pay up to his net relevant earnings (within annual allowance into a SIPP and benefit from tax relief) - he could simply regard the TR as "interest".

    HL do not charge for holding cash.

    https://www.hl.co.uk/pensions/tax-relief/calculator
    Originally posted by xylophone
    thanks ill ask them to check that out!
    i believe he has a small 8k per annum pension from a previous job

    as a sole trader - is there any other rules to be aware of regarding SIPP? i.e hes a post master so doesnt get a salary per se - 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
    • mgdavid
    • By mgdavid 11th Jan 19, 3:39 PM
    • 5,898 Posts
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    mgdavid
    ........

    Not seen National savings/premium bonds on MSE website - are these guaranteed returns at rates better than 1.5%? also presuming they are taxable?
    Originally posted by redlfc

    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....
    • kidmugsy
    • By kidmugsy 11th Jan 19, 3:54 PM
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    kidmugsy
    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
    Originally posted by redlfc
    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.
    • OldMusicGuy
    • By OldMusicGuy 11th Jan 19, 4:43 PM
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    OldMusicGuy
    thanks - when you say fixed rate savings ladder - do you mean putting it in the 1 year 1.7% rate i mentioned?
    Originally posted by redlfc
    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.

    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.
    • atush
    • By atush 11th Jan 19, 5:25 PM
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    atush
    (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.
    • redlfc
    • By redlfc 11th Jan 19, 5:58 PM
    • 101 Posts
    • 30 Thanks
    redlfc
    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.
    Originally posted by kidmugsy
    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?
    • redlfc
    • By redlfc 11th Jan 19, 6:00 PM
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    • 30 Thanks
    redlfc
    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.
    Originally posted by atush
    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
    • squirrelpie
    • By squirrelpie 11th Jan 19, 6:32 PM
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    squirrelpie
    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
    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?
    • AlanP
    • By AlanP 11th Jan 19, 7:39 PM
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    AlanP
    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
    Originally posted by redlfc
    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?
    • kidmugsy
    • By kidmugsy 11th Jan 19, 10:19 PM
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    kidmugsy
    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?
    Originally posted by squirrelpie
    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.
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