investment of lump sum

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thaylock44
thaylock44 Posts: 1 Newbie
in Savings & investments
I have recently been given the choice on my pension scheme of either taking a full pension or taking a lump sum of £10K and dropping my pension by £60 per month.

Are there any accounts or saving schemes that would get me more than £60 per month for my £10K?

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  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    taking the lump sum is virtually always best advice (at least at this moment in time). You can invest the money again into pensions over the coming years (you and/partner) and gain tax relief again and get a better return (aged 65 can get just over 10%p.a. gross equivalant).

    You can also utilise ISAs (again, may take a few years) which can be used to give a tax free income (7k into gilt/corp bond/fixed interest isas for example).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • carnet
    carnet Posts: 501 Forumite
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    Have always had great difficulty in understanding the basic logic of "buying" a pension with a lump sum - even with the tax breaks.

    What you are actually doing is giving up the lump sum of money for all time in exchange for a regular income. Maybe fine if you think you're going to live another 20-30 years. But who knows ?

    I would think it is almost always better investing the money in ISAs and the like. The rate of return may not be as high initially - but if you invest it in "safe" investments such as bond/gilts funds etc. most of the capital (and, hopefully even a bit more than initially invested) is still there to draw on, if and when required.

    With a pension your capital is no more.

    Or am I missing something ?
  • grumbler
    grumbler Posts: 58,629 Forumite
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    carnet wrote:
    Have always had great difficulty in understanding the basic logic of "buying" a pension with a lump sum - even with the tax breaks.
    Pension is a kind of insurance. Why do we buy insurance instead of saving or investing? Only because we cannot predict the future!
  • grumbler
    grumbler Posts: 58,629 Forumite
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    thaylock44 wrote:
    Are there any accounts or saving schemes that would get me more than £60 per month for my £10K?
    As far as I know pension is taxable. Even A&L 5.35% easy-access saving account will give you more than £60 p.m. before tax. A lot of cash ISAs will give you at least the same income tax-free, but you cannot invest more than £3000 p.a. Read SAVINGS section.
    And interest rates are likely to rise while your pension is fixed.

    EDIT: my calculations are wrong (see comments below)! :mad: :o
  • Speculator
    Speculator Posts: 2,225 Forumite
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    thaylock44 wrote:
    Are there any accounts or saving schemes that would get me more than £60 per month for my £10K?

    Assuming you are a basic rate taxpayer, you will need an account paying 7.2% net/9.00% gross to get £60.00 per month.
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    and you can get over 10% gross equivalent re-investing into a pension....

    You cant get that with investments guaranteed. Commercial property funds have trended to around that over the long term (with only one negative period in 25 years and that was only 5%). However, nothing guaranteed.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • grumbler
    grumbler Posts: 58,629 Forumite
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    Paul_Varjak wrote:
    How does an A&L savings account @5.35% pay more than £60/month on a £10k deposit?
    You are right. My mistake :o
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    Paul_Varjak wrote:
    Money Management magazine for April, 2005 shows an average growth rate on insurance property funds of 7.3% pa over last ten years (not clear if this is net of charges or not).

    7.76% sector average on life funds from Lipper (10 years)

    10.32% with Unit trusts. However, only NU could be used as a fund that has been round 10 years and met the low risk property fund criteria. New Star's fund hasnt been running that long and Aberdeen property share, although this years top fund, its higher risk and involves a different investment style which wouldnt be suitable for the goals of the investment needed in this case.

    Life fund taxation is higher and charges usually more. I say usually as i have done a few life funds this year which had lower charges over 10 years than a UT due to rather large initial allocations. However, that is not the norm. i.e. that same NU fund in the life fund returned 9.67% compared with the UT 10.32
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Speculator
    Speculator Posts: 2,225 Forumite
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    thaylock44 wrote:
    I have recently been given the choice on my pension scheme of either taking a full pension or taking a lump sum of £10K and dropping my pension by £60 per month.

    Are there any accounts or saving schemes that would get me more than £60 per month for my £10K?

    How many years worth of £60 per month can you get out of £10,000??

    Calculations.

    £10000/£60 = 166.66 months worth or 13.89years worth of £60per month payments.

    If the money was invested in an instant access savings account paying say 4% net per year, I reckon you can get at least 17years worth of £60 per month out of £10,000.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
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    Hi Paul
    Paul_Varjak wrote:
    Had been thinking of 'dabbling' 2K in this but much for volatile than insurance funds. Pity there are not more unit trusts that invest in property. There are a few more Investment Trusts investing in property but would never invest in those again!

    You might like to take a look at the offshore trusts being set up by the big lifecos. F&C (owned by Friends Prov) launched a new one the other day which got some publicity. You buy and sell them like shares. I like the Scottish Widows one (EPIC: UBR) and the Standard Life one (SLI).

    Yields are around 6-7%, overall return double digit.

    You are getting the same experience and management with these as you do with the life and pension funds, and it is one area where the life cos do seem to know what they're doing. Assets are usual mix of shopping centres, office blocks and industrial parks on long term leases, so the returns should be pretty stable :)
    Trying to keep it simple...;)
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