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  • FIRST POST
    • Joey Soap
    • By Joey Soap 10th Feb 18, 8:57 AM
    • 141Posts
    • 47Thanks
    Joey Soap
    What do you do when there is not enough money?
    • #1
    • 10th Feb 18, 8:57 AM
    What do you do when there is not enough money? 10th Feb 18 at 8:57 AM
    Well, as per the heading. A relative has found themselves in a very difficult situation and though I am not an adviser I am the only person they know who can even half sensibly try to plan a way through the mess. They simply cannot afford to pay an adviser.
    This married couple have worked all their lives and raised a family on a very poor income. The home is paid for but not worth a lot of money, maybe 160k perhaps. The adult children have left home. The only debt is a smallish personal loan. I am not sure how much, but it won!!!8217;t be a lot. There are virtually no savings to speak of. There is no life insurance.
    One of the couple has always worked fulltime in a low paid job and has accrued a very modest defined contribution pension pot. The value of the pot is about 180k I understand, but the final figure is not yet certain. The other person has only ever had low paid casual work the last 30 odd years and no pension pot.
    Sadly, one of the couple (the one with the pension pot) is very ill and has been recently diagnosed with a terminal condition. Less than a year to live almost for 100% certain.
    Presently, the couple live on benefits, it is impossible for ether of them to work, one of them is a fulltime carer, obviously.
    At the present, the DC pension is not yet in payment. The default annuity is pitiful. Even more pitiful is when the person passes, likely in less than a year, the joint annuity pays only 50% to the survivor.
    This would be the only source of income for that person, the benefits would cease.
    Clearly, this person has no option but to seek work in the future. With 11 years to state retirement the person will have to in fact contribute NICs for all those years too to qualify for the full state pension.
    It seems to me that a transfer of the DC pot to a SIPP is essential, urgently in fact, to protect the capital. The capital will not be drawn down on as they are managing (just) on benefits.
    I think at the present, the couple manage on an income of about 1000 per month and this is the target income once the very ill person passes.
    The way I see this happening is to set aside say 70000 as a pot to live off at a rate of 6000 per year for the next 11 years until state pension age. This would therefore be 500 a month, half what is required. The other 500 a month will have to come from employment. At minimum wage (that is very likely the best that can be hoped for) that is going to require approximately 67 hours a month of paid work. With a total earned income of just 6000 clearly there will be no tax to pay. I do not know about NICs on such a low salary.
    The remaining 110,000 pension pot I think, needs to be invested into a steady and relatively secure investment within the SIPP. It will remain invested without drawdown for hopefully the next 11 years. At a return of say 5% the pot should grow to about 190,000 in the 11 years, as long as it remains untouched. If 4% is then drawn down from the pension pot that will provide 7600 a year income plus around the same again from the state pension. Total income at retirement therefore, about 15,000 in 11 year!!!8217;s time in today!!!8217;s !!!8217;s.
    Obviously, the numbers can be tweaked round the edges but I!!!8217;m completely flummoxed what else to do with such dire circumstances.
    What do the forum contributors make of it please? Thank you for your input and sorry for the long post.

    This Forum tip was included in MoneySavingExpert.com's weekly email!
    Last edited by MSE Andrea; 14-02-2018 at 11:49 AM.
Page 1
    • ProDave
    • By ProDave 10th Feb 18, 9:52 AM
    • 779 Posts
    • 849 Thanks
    ProDave
    • #2
    • 10th Feb 18, 9:52 AM
    • #2
    • 10th Feb 18, 9:52 AM
    How old are they? I am assuming over 55?

    The 180K pension pot. Put that into a drawdown SIPP. Take the 25% tax free straight away, that's 45K tax free available now (assuming they are over 55)

    The rest can remain in drawdown to be withdrawn as needed.

    Make sure wills are in place so th estate of the one with the illness passes to the other. Someone else will have to advise of the exact tax position of the remainder in the drawdown SIPP

    Do NOT buy an annuity with that pension pot,. all or most of it will be lot on death.

    No mention of state pension. That will be a big chunk of the required income

    In ultra simple terms, 180K in the pot and 1000 per month income needed = 15 years income before you allow for growth of the invested sum and the state pension reducing the actual income needed from the pot.
    Last edited by ProDave; 10-02-2018 at 9:54 AM.
    • Malthusian
    • By Malthusian 10th Feb 18, 10:24 AM
    • 3,904 Posts
    • 6,097 Thanks
    Malthusian
    • #3
    • 10th Feb 18, 10:24 AM
    • #3
    • 10th Feb 18, 10:24 AM
    Obviously one of them being terminally ill is a dire circumstance in itself, but other than that I don't agree their position is dire. The healthy partner is probably not in a position to retire now (though without their age and full SP position it's not clear) but do they even want to?

    Doing nothing for the rest of their life may be a poor choice psychologically as much as financially.

    Without going into numerical detail, if they work until State Pension Age they should be able to comfortably live on 1000 a month. The main question is whether that's realistic.

    They can afford financial advice. IFAs will quite happily provide full advice in exchange for a reasonable initial and ongoing percentage of an 180k pension pot. Obviously if they are confident enough to DIY with or without your assistance that cost may not be necessary. However the consequences of a bad decision potentially outweigh the cost of an IFA by an order of magnitude.

    As Dave said, for the ill partner to buy an annuity is not on the table. The partner can inherit the fund either as a pension or as a tax free lump sum (assuming death before 75). Make sure the expression of wish is up to date.
    • Joey Soap
    • By Joey Soap 10th Feb 18, 10:31 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    • #4
    • 10th Feb 18, 10:31 AM
    • #4
    • 10th Feb 18, 10:31 AM
    Thanks, just to be clear, it is currently 11 years to state pension age for the survivor who will have to contribute for the full 11 years in order to get a full state pension. I have no intention of having an IFA leach off this person if I can possibly avoid it. If this person takes a 4% draw down in 11 years time there is no way on this earth I want an IFA getting perhaps 25% of that as an ongoing "service" either now or in 11 years time when the draw down starts. Thanks very much for the input, it is helpful.
    • happyandcontented
    • By happyandcontented 10th Feb 18, 10:33 AM
    • 1,050 Posts
    • 2,049 Thanks
    happyandcontented
    • #5
    • 10th Feb 18, 10:33 AM
    • #5
    • 10th Feb 18, 10:33 AM
    I think this information may be useful.

    https://www.pensionsandannuities.co.uk/Terminal_Illness_and_Pensions.htm
    • Linton
    • By Linton 10th Feb 18, 11:31 AM
    • 9,329 Posts
    • 9,452 Thanks
    Linton
    • #6
    • 10th Feb 18, 11:31 AM
    • #6
    • 10th Feb 18, 11:31 AM
    I think your general srategy is correct, but your relatives could make some useful returns from the initial 70K....

    Two methods which could perhaps be combined in some way....

    1) Since half the 70K wont be used for over 5 years they could consider some cautious investments rather than cash for that money.
    2) It could be worthwhile to establish a ladder of fixed rate deposit accounts even at current interest rates. To do this they would put 6K aside for immediate use and then 12K in each of a 1 year, 2 year, 3 year, 4 year and 5 year fixed rate deposit account. As each matures they use 6K+interest for use that year and reinvest the other 6K+interest into a further 5 year account. In this way they will get maximum advantage of the highest interest rates avalable from fixed term deposits. And each year they will get the opportunity to put money away at the then available interest rates.
    • atush
    • By atush 10th Feb 18, 12:08 PM
    • 16,635 Posts
    • 10,336 Thanks
    atush
    • #7
    • 10th Feb 18, 12:08 PM
    • #7
    • 10th Feb 18, 12:08 PM
    I have no intention of having an IFA leach off this person if I can possibly avoid it.
    IFAs are NOT leaching off their clients. They assist clients. I think you are being completely unfair and dont understand the work.

    They could apply to take the entire 180K now, as the person is termianlly ill. Or they could leave it where it is for the dsurvivor to inherit 100% tax free.

    If going into DD I would use an IFA as it doesnt sound if either of this couple know anything bout finances and investing. And you dont sound as if you know much more.

    If buying an annuity, they should buy one AFTER the death of the terminally ill spouse as then it would be a single life annuity.

    If this person takes a 4% draw down in 11 years time there is no way on this earth I want an IFA getting perhaps 25% of that as an ongoing "service" either now or in 11 years time when the draw down starts.
    Ongoing advice for DD can cost as llittle as o.5% up to around 1%, not anything like 25%. Where did you get that ridiculous assumption from?
    Last edited by atush; 10-02-2018 at 12:11 PM.
    • Joey Soap
    • By Joey Soap 10th Feb 18, 12:16 PM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    • #8
    • 10th Feb 18, 12:16 PM
    • #8
    • 10th Feb 18, 12:16 PM
    IFAs are NOT leaching off their clients. They assist clients. I think you are being completely unfair and dont understand the work.

    They could apply to take the entire 180K now, as the person is termianlly ill. Or they could leave it where it is for the dsurvivor to inherit 100% tax free.

    If going into DD I would use an IFA as it doesnt sound if either of this couple know anything bout finances and investing. And you dont sound as if you know much more.

    If buying an annuity, they should buy one AFTER the death of the terminally ill spouse as then it would be a single life annuity.



    Ongoing advice for DD can cost as llittle as o.5% up to around 1%, not anything like 25%. Where did you get that ridiculous assumption from?
    Originally posted by atush
    You are an adviser, I presume? Kindly refrain from the insults.

    It's no business of yours, but I do very successfully run several SIPP portfolios for my immediate family.

    I repeat - I will not allow an IFA to leech money away from a relative who cannot afford to keep the typical adviser running his Mercedes E Class as they all seem to do.

    Please do your maths - 25% of 4% is 1%. Leaving my relative with 3%. The other 1% goes towards the Mercedes.
    Last edited by Joey Soap; 10-02-2018 at 12:18 PM.
    • Joey Soap
    • By Joey Soap 10th Feb 18, 12:18 PM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    • #9
    • 10th Feb 18, 12:18 PM
    • #9
    • 10th Feb 18, 12:18 PM
    Thank you very much to the contributors who have something positive to say, it is very helpful and I appreciate the input.
    • LHW99
    • By LHW99 10th Feb 18, 12:39 PM
    • 1,244 Posts
    • 1,138 Thanks
    LHW99
    there is no way on this earth I want an IFA getting perhaps 25% of that as an ongoing "service"
    They do not have to sign up for ongoing service
    • Thrugelmir
    • By Thrugelmir 10th Feb 18, 12:49 PM
    • 58,173 Posts
    • 51,532 Thanks
    Thrugelmir

    1. With 11 years to state retirement the person will have to in fact contribute NICs for all those years too to qualify for the full state pension.

    2. It seems to me that a transfer of the DC pot to a SIPP is essential, urgently in fact, to protect the capital.

    3. The other 500 a month will have to come from employment. At minimum wage (that is very likely the best that can be hoped for) that is going to require approximately 67 hours a month of paid work.

    4. At a return of say 5% the pot should grow to about 190,000 in the 11 years, as long as it remains untouched.

    5. If 4% is then drawn down from the pension pot that will provide 7600 a year income plus around the same again from the state pension.
    Originally posted by Joey Soap
    1. Seems perfectly reasonable to do so. Despite what this board may suggest many people in fact do this.

    2. For the size of pension pot. Not neccessarily.

    3. Why only 67 hours? That's less that 16 hours a week. Also you overlooking auto enrollment and the ability to accrue further pension through working.

    4. That's subjective. The 5% figure is based on the average since records began. Over 100 years in fact. Assuming the next 11 years are going to is unquantifiable.

    5. I'd wait until the time arrives and see what the pot is worth. What the investments held are. Much discussion on safe withdrawl limits. The only certainty is that there's no precise science. To achieve the desired return. You may well need bonds (Gilts) to offer a much higher income stream.

    but I do very successfully run several SIPP portfolios for my immediate family.
    Over confidence in one's own abilities is the downfall of many an investor. Particularly on the back of 30 year bull market in bonds and a decade in equities. A chimp throwing darts into a newspaper listing funds could well have produced a high return on a portfolio. Corrections shake the tree so to speak. Interesting times lie ahead.
    Last edited by Thrugelmir; 10-02-2018 at 12:54 PM.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Linton
    • By Linton 10th Feb 18, 12:49 PM
    • 9,329 Posts
    • 9,452 Thanks
    Linton
    You are an adviser, I presume? Kindly refrain from the insults.

    It's no business of yours, but I do very successfully run several SIPP portfolios for my immediate family.

    I repeat - I will not allow an IFA to leech money away from a relative who cannot afford to keep the typical adviser running his Mercedes E Class as they all seem to do.

    ......
    Originally posted by Joey Soap
    You are unlikely to get the suggestions you seek from the people with most experience to help you if you insist on insulting them.
    • Stubod
    • By Stubod 10th Feb 18, 1:07 PM
    • 464 Posts
    • 323 Thanks
    Stubod
    ..our IFA drives a 6 yr old "average" car, is very supportive and knowledgeable and has made us more money than I could have made for myself, so I don't think you should rule this out as an option unless you are extremely knowledgeable about investments yourself...
    • redux
    • By redux 10th Feb 18, 1:09 PM
    • 17,987 Posts
    • 23,583 Thanks
    redux
    I don't see why this thread should become a war against or for IFAs.

    I am not one, but I can see some potentially useful advice could come from some of them, especially considering that you discuss annuity as a possibility, so a comment not to buy one until it is only for the survivor is pertinent, even if it risks you considering it patronising as you'd already entirely discounted this.

    I don't see why you suggest setting initially aside 70,000 to be taken as 6000 a year for 11 years. Is this as cash? It looks like it might be as there is no gain.

    If the 180,000 is left well invested, it seems a reasonable prospect to draw 5500 to 7000 income a year from it without depleting the capital.

    So having that running from soon, augmented with say 7000 of part time work now and 8000 a year of pension after retirement, looks slightly better to me than the 70/110 split, unless I misunderstood this. If the 70 is also invested so part remains at 11 years I don't see a reason for any distinction.

    It could be a problem if there is not enough work to start with, but it should be possible to claim some state benefit to help tide things over.
    • dunstonh
    • By dunstonh 10th Feb 18, 1:15 PM
    • 92,131 Posts
    • 59,286 Thanks
    dunstonh
    The car one drives is no indication of anything. A person may enjoy having nice cars. They may spend less on them than a smoker or drinker or a hobby. They may put the car through their business for tax purposes making a decent car more affordable. They may run a successful business that they earn more from that side than they do their own clients. They may live a more frugal lifestyle in other areas. They may be upto their neck in debt in an attempt to keep up with the Jones'. They may have saved for years and struggled to build the lump to treat themselves. They my have had an inheritance or other wealth. The spouse may be the main earner. And plenty of other scenarios.

    it is a very shallow mentality when you start measuring the quality of an individual by the quality of their car.
    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.
    • zagfles
    • By zagfles 10th Feb 18, 1:23 PM
    • 12,890 Posts
    • 10,961 Thanks
    zagfles
    Well, as per the heading. A relative has found themselves in a very difficult situation and though I am not an adviser I am the only person they know who can even half sensibly try to plan a way through the mess. They simply cannot afford to pay an adviser.
    This married couple have worked all their lives and raised a family on a very poor income. The home is paid for but not worth a lot of money, maybe 160k perhaps. The adult children have left home. The only debt is a smallish personal loan. I am not sure how much, but it won!!!8217;t be a lot. There are virtually no savings to speak of. There is no life insurance.
    One of the couple has always worked fulltime in a low paid job and has accrued a very modest defined contribution pension pot. The value of the pot is about 180k I understand, but the final figure is not yet certain. The other person has only ever had low paid casual work the last 30 odd years and no pension pot.
    Sadly, one of the couple (the one with the pension pot) is very ill and has been recently diagnosed with a terminal condition. Less than a year to live almost for 100% certain.
    Presently, the couple live on benefits, it is impossible for ether of them to work, one of them is a fulltime carer, obviously.
    At the present, the DC pension is not yet in payment. The default annuity is pitiful. Even more pitiful is when the person passes, likely in less than a year, the joint annuity pays only 50% to the survivor.
    Originally posted by Joey Soap
    What kind of DC pension is it?
    This would be the only source of income for that person, the benefits would cease.
    I presume you've investigated that - I don't know what the position is with inherited pension funds, whether they'd count as capital for the purposes of benefits or not. Capital in a pension before pension age is not counted normally, but not sure about inherited pensions. This is something you want to be certain of before making any plans.

    Try the benefits board if you're not sure and can't find the answer. Or perhaps pensionwise or the TPAS

    https://www.pensionwise.gov.uk/en

    https://www.pensionsadvisoryservice.org.uk
    Clearly, this person has no option but to seek work in the future. With 11 years to state retirement the person will have to in fact contribute NICs for all those years too to qualify for the full state pension.
    Pension credit would top up pension to the full state pension if no other income/capital. https://www.gov.uk/pension-credit

    Of course that's current rules which could change, but personally I can't see it changing much for the worse for political reasons.
    It seems to me that a transfer of the DC pot to a SIPP is essential, urgently in fact, to protect the capital.
    Why would that change the ability to protect the capital?
    The capital will not be drawn down on as they are managing (just) on benefits.
    I think at the present, the couple manage on an income of about 1000 per month and this is the target income once the very ill person passes.
    The way I see this happening is to set aside say 70000 as a pot to live off at a rate of 6000 per year for the next 11 years until state pension age. This would therefore be 500 a month, half what is required. The other 500 a month will have to come from employment. At minimum wage (that is very likely the best that can be hoped for) that is going to require approximately 67 hours a month of paid work. With a total earned income of just 6000 clearly there will be no tax to pay. I do not know about NICs on such a low salary.
    That is only just above the NI LEL, which you need earn for it to be a qualifying year for the state pension. No NI would be payable, if the income was evenly spread.It would be important to earn above the LEL every pay period with such a small margin over the LEL, a week/month earning below would mean that entire week/month would not count.

    Has this person had a state pension statement?
    Last edited by zagfles; 10-02-2018 at 1:37 PM.
    • kangoora
    • By kangoora 10th Feb 18, 1:30 PM
    • 547 Posts
    • 378 Thanks
    kangoora
    It's good that you are starting immediately as I've got a cautionary tale from my own experience.

    My sister was given a year to live a few years ago but didn't immediately start arranging her affairs, including a will. I can understand why in a way but only 3 months after the prognosis she was rushed into a hospice and then spent the next month on morphine (palliative care) until she passed away. It was a nightmare trying to get everything done before she passed away and whilst she was still aware enough to complete transfer forms etc.

    As an aside, the IFA we engaged to help us out transferring her DB pension(s) was wonderful and went above and beyond what we expected in terms of responsiveness and engagement - even though he knew it was only going to be a one-off fee with no ongoing management as her husband needed the cash to cover debts and pay off their mortgage as he could never have kept the house on his minimum wage job (she was the main earner by a long way).

    I view an IFA as no different to getting my car serviced every year and any repairs done - i have zero interest in cars apart from getting me from A to B and pay for the expertise required because I can't be bothered to learn it. My neighbour, conversely, regularly has his car in bits and almost never pays for anything from a garage apart from the MOT certificate because he enjoys it.

    I struggle to understand the extreme vitriolic responses to IFA's on this forum from some people, calling them leeches etc. There are tens (100's?) of thousands of people who have no idea about finance and who do not wish to learn. For the vast majority of these an IFA plays a valuable service for which they get paid.

    and I am not an IFA
    • xylophone
    • By xylophone 10th Feb 18, 1:51 PM
    • 25,118 Posts
    • 14,800 Thanks
    xylophone
    Both the relatives are well under state pension age?

    Help each of them to obtain a state pension statement.

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

    See also https://www.gov.uk/bereavement-payment

    Your relative has a DC pension - there should be no compulsion for an annuity of any description to be purchased.

    Have you read the policy/consulted the provider to check on the position if the policy holder dies before drawing the pension?

    The relatives are on means tested benefits?

    It would be advisable to read this

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

    before any decision is taken concerning bringing the pension into payment.
    • Thrugelmir
    • By Thrugelmir 10th Feb 18, 2:01 PM
    • 58,173 Posts
    • 51,532 Thanks
    Thrugelmir
    it is a very shallow mentality when you start measuring the quality of an individual by the quality of their car.
    Originally posted by dunstonh
    Initial appearances are important. No need to flaunt when conducting business.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • zagfles
    • By zagfles 10th Feb 18, 2:10 PM
    • 12,890 Posts
    • 10,961 Thanks
    zagfles
    It would be advisable to read this

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

    before any decision is taken concerning bringing the pension into payment.
    Originally posted by xylophone
    Useful but doesn't totally clear up the question as to whether an "inherited" pension would count as capital (while under SPA).

    I suspect not, the legislation (for UC) does state rights in any pension scheme are disregarded as capital. https://www.legislation.gov.uk/ukdsi/2013/9780111531938/schedule/10

    Actually taking income would almost certainly count as income for the purposes of benefits though, even if not taxable.
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