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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 2
    • margaretclare
    • By margaretclare 10th Feb 18, 2:26 PM
    • 10,095 Posts
    • 17,090 Thanks
    margaretclare
    Agree don't go for an annuity. Much better options available nowadays.

    Agree don't slag off IFAs. At different times in life, we have had excellent outcomes by consulting an IFA. They have the advantage of being able to survey the whole market-place and they sometimes come up with options you never thought of.

    If there is an occupational pension then the situation is a lot less dire than many other people's.

    Make sure wills etc are in place ASAP.
    Ær ic wisdom funde, ær wearð ic eald.
    Before I found wisdom, I became old.
    • Joey Soap
    • By Joey Soap 10th Feb 18, 11:02 PM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    Thank you very much for the helpful comments. I think it is pretty self evident that there isn't much that I have missed or it would have been pointed out already. The reason for keeping the capital inside a pension wrapper is that it does not affect the benefits whilst it remains in the pension untouched. This couple have negligible savings and live off benefits. In order to preserve the only asset they really have, the pension pot, it seems sensible to maximise to the fullest extent the benefits they are entitled to at this awful time.

    Thank you again for those who have made a positive contribution to this thread. It is appreciated.
    • Joey Soap
    • By Joey Soap 10th Feb 18, 11:19 PM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    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.
    Originally posted by zagfles
    Indeed, even though the pot of money is accessible right now tax free due to terminal illness. Were that to happen the majority of benefit would be withdrawn as a consequence. That is why I said it is important to keep the capital untouched inside a pension wrapper right up the point where there is no option other than start to draw it.

    Of course another option entirely would be for the surviving person to work full-time for the next 11 years. However, given that person's track record of casual work over the last three decades this outcome is unlikely to happen even if it were the best all round option.
    • greatkingrat
    • By greatkingrat 11th Feb 18, 12:06 AM
    • 84 Posts
    • 84 Thanks
    greatkingrat
    If they own their own home then they always have the option of some sort of equity release scheme if they can't make ends meet on their pension.
    • Joey Soap
    • By Joey Soap 11th Feb 18, 12:10 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    Yes, I had considered it. But at a fairly young age and a property with a pretty low value I am not sure it is a really viable option. Something of a back stop for the long term, maybe. Thanks.
    • Keep pedalling
    • By Keep pedalling 11th Feb 18, 12:34 AM
    • 4,843 Posts
    • 5,388 Thanks
    Keep pedalling
    Initial appearances are important. No need to flaunt when conducting business.
    Originally posted by Thrugelmir
    I have no idea what car my IFA uses, he has only visited us at home once and arrived on a bicycle.
    • Joey Soap
    • By Joey Soap 11th Feb 18, 6:47 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    OK, I have taken on board comments about the intended £70k cash at hand balance to provide £500 a month "income" over the next 11 years. My thoughts are, that against a back drop of increasing interest rates, which now seems very likely indeed - I am not keen on tying up the money for more than one year. The difference between a one year lock in and a five year lock in are minimal in terms of interest. Atom Bank offer an account paying 1.95% on a balance up to £100k, and offer monthly withdrawals. This will work quite well. The first month of "income" on the proposed £70k cash pot will actually contain £113.75p of interest out of the £500 drawn. No tax will be paid as it is < than the £2k annual saving interest allowance. So, the rate of capital depletion is less than I had first thought. Obviously, as each month goes by, the interest component will fall as the balance is depleting. But I think it means that the £70k proposed cash income pot probably has a safety net of about £10k built into it. This reassuring. After the one year term is up, you rinse and repeat, hopefully following interest rates upwards as we go.

    That will be a decent, very low risk outcome, I think.

    For the proposed £110k investment pot, my thoughts are to keep all this inside a pension wrapper at as low cost as possible and to remain untouched for the 11 years. I see no advantage to taking the 25% lump sum presently, since the person is unlikely to be a tax payer in the foreseeable future. In a SIPP the pot can be inherited tax free were the worst to happen to the surviving relative.

    Given the imperative for low risk but some growth in this 11 year period, I think a world wide market tracker is likely the best option for the bulk of the money. With perhaps a portion of the pot in a REIT as a diversification into property and accrual of a pretty high income stream to reinvest over the 11 years.

    My thoughts are crystallising now, it isn't quite as bad as I had at first feared. The positive comments here have been very helpful for which I am very grateful indeed.
    • redpete
    • By redpete 11th Feb 18, 9:32 AM
    • 4,229 Posts
    • 3,766 Thanks
    redpete
    You are an adviser, I presume? Kindly refrain from the insults.
    Originally posted by Joey Soap
    You refer to IFAs as leeches and suggest someone else refrains from insults!
    loose does not rhyme with choose but lose does and is the word you meant to write.
    • TARDIS
    • By TARDIS 11th Feb 18, 9:40 AM
    • 109 Posts
    • 79 Thanks
    TARDIS
    A few other things to consider.

    Is the healthy spouse entitled to NI credits as a carer? https://www.gov.uk/carers-credit

    If your ill relative has cancer, Macmillan and probably other charities provide financial and benefits guidance which may be helpful: https://www.macmillan.org.uk/information-and-support/organising/benefits-and-financial-support

    Have they looked into if they are eligible for fast track PIP? https://www.citizensadvice.org.uk/benefits/sick-or-disabled-people-and-carers/pip/help-with-your-claim/how-to-claim-if-terminally-ill/

    I appreciate these things are all about the short term, rather than the long term plans, but may help take some pressure off them at this difficult time.
    • Joey Soap
    • By Joey Soap 11th Feb 18, 9:42 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    @TARDIS, thank you for good advice, yes we are moving ahead on all those fronts as well. As you say it is important to cover all bases and this is helpful.
    • LHW99
    • By LHW99 11th Feb 18, 10:38 AM
    • 1,246 Posts
    • 1,139 Thanks
    LHW99
    Also have you considered attendance allowance? There are two levels which are based on medical need not income, and even if assessed initially for the lower level, a new assessment can be made if things deteriorate. However there is no payment for the first 6 weeks (I think) after the claim is accepted, so best to apply as early as possible.
    • Joey Soap
    • By Joey Soap 11th Feb 18, 10:47 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    @LHW99, thank you. Good point, yes this is also being attended to and hopefully will be fast tracked. We have also found out that at the present time they are entitled to relief from council tax. I'm not sure what benefit that is actually related to but the council have agreed it. Thanks again, this is all useful stuff. So far, I think we have everything covered but it's useful to have other opinions and ideas.
    • Apodemus
    • By Apodemus 11th Feb 18, 10:50 AM
    • 972 Posts
    • 795 Thanks
    Apodemus
    All the above is too heavily focused on the survivor for my liking. While the benefits situation does need to be taken into account, I wonder if it would not be worth investigating some means of added income for the terminally ill relative’s final months? It seems to have been their prudence that built up the sum and all we are talking about is how to let the survivor continue to live as well as possible with minimal need to work?

    Terminal illness is expensive and I wouldn’t want my relatives to have to skimp on a few luxuries over the last few months. I’d look at drawing down (or equity release) just enough to come up to the means-tested capital limit to provide a pot of cash to make life as near to bearable as possible. In due course, the survivor can then go out to work to rebuild the pot for their own on-going living costs and retirement.
    • Joey Soap
    • By Joey Soap 11th Feb 18, 10:54 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    @Apodemus, point well made. This thread is about the situation of the surviving person. That is what I have been asked to help with. I imagine that the sick person's needs and wants are being attended to, though as you can imagine, that is a closed door issue from the outside of the immediate family. Thanks again for your concern and input.
    • michaels
    • By michaels 11th Feb 18, 11:21 AM
    • 20,623 Posts
    • 95,342 Thanks
    michaels
    I am not sure if anyone has mentioned the 2880 grossed up to 3600 pension allowance for non-earners or if working and started drawing down the 4k annual allowance? Not huge sums but an extra 720pa until spa is not nothing either.
    Cool heads and compromise
    • Joey Soap
    • By Joey Soap 11th Feb 18, 11:23 AM
    • 141 Posts
    • 47 Thanks
    Joey Soap
    @michaels, there is no money for stuff like that, I'm afraid. Thanks anyway.
    • atush
    • By atush 11th Feb 18, 11:47 AM
    • 16,637 Posts
    • 10,338 Thanks
    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.
    Originally posted by Joey Soap
    I am Not adviser nor am I related to one. I do however know what they do. And if its no business of mine pulling you up on innaccuracies, dont post in an anonymous forum for advice?

    And you c an find avisers who charge only .5% . Look for one, or be prepareed to be sued by all who you advise if things go wrong.

    Advice is a regualted activity. And you are not regulated.
    • dunstonh
    • By dunstonh 11th Feb 18, 12:12 PM
    • 92,172 Posts
    • 59,338 Thanks
    dunstonh
    Spotted several inconsistencies in what has been written so far.
    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.
    • Thrugelmir
    • By Thrugelmir 11th Feb 18, 12:18 PM
    • 58,196 Posts
    • 51,567 Thanks
    Thrugelmir
    I have no idea what car my IFA uses, he has only visited us at home once and arrived on a bicycle.
    Originally posted by Keep pedalling
    I wasn't referring particularly to IFA's. Business in general. Expensive cars tend to be leased and paid for by the business (i.e. the customer). Different circumstances to owning a Ferrai F40 as a hobby car.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • zagfles
    • By zagfles 11th Feb 18, 12:23 PM
    • 12,910 Posts
    • 10,973 Thanks
    zagfles
    @michaels, there is no money for stuff like that, I'm afraid. Thanks anyway.
    Originally posted by Joey Soap
    They could use part of the £70k cash you were talking about earlier. See this (long) thread: http://forums.moneysavingexpert.com/showthread.php?t=5580163
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