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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 2
    • kidmugsy
    • By kidmugsy 11th Jan 19, 10:39 PM
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    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?
    Originally posted by redlfc
    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-forward
    Free the dunston one next time too.
    • kidmugsy
    • By kidmugsy 11th Jan 19, 10:43 PM
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    kidmugsy
    I should add; if he wanted to keep his pension money in cash for more than a couple of years then HL is probably not the firm for him. There are non-mass market providers who offer access to decent interest rates (by current standards) and to ns&i accounts. He'd have to take their fees on the chin.

    You'd have to calculate which deal is the best for him.
    Free the dunston one next time too.
    • atush
    • By atush 11th Jan 19, 10:46 PM
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    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
    Originally posted by redlfc
    Think she has to ask HR, but some here who work in PS jobs might know. there is a formaul and have seen it here, but until recently no one one our family had a DB pension so havent saved the details.
    • atush
    • By atush 11th Jan 19, 10:55 PM
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    atush
    Some consider the BRT uplift to be their 'interest' devided over the years you hold it. So for holding for just a few years, the uplift and TFLS will provide a tasty 'interest' above what you could get in the savings market.
    • redlfc
    • By redlfc 12th Jan 19, 4:28 AM
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    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?
    Originally posted by AlanP
    thanks - very helpful! Surely by using AVC scheme and using 25% TFLS is the eaxctly the same as funding a SIPP and taking 25% tax free lump sum - youd still have to pay tax on whats left after TFLS in both schemes (depending how you drawdown)

    Just had a thought - as the 40k limit is gross - thats essentially a 32k deposit of her own money with the rest topped up by tax. So would it be the same if her salary is the lower figure? i.e instead of being able to put in the entirety of her 30.5k salary it would be 80% of this and rest would be tax relief - and even less when taking away pension contributions?

    what im trying to gage is how useful the SIPP method is for a basic rate taxpayer as although you get the 20% tax relief- you then get taxed on 20% after the TFLS
    • redlfc
    • By redlfc 12th Jan 19, 4:32 AM
    • 101 Posts
    • 30 Thanks
    redlfc
    Some consider the BRT uplift to be their 'interest' devided over the years you hold it. So for holding for just a few years, the uplift and TFLS will provide a tasty 'interest' above what you could get in the savings market.
    Originally posted by atush
    thats very true - thank you - as they have passed the age they can access pension - could they essentially deposit max contribtuions and they access they money soon after receiving the tax relief or is there something that requires you to contribute for a few years before accessing?
    • redlfc
    • By redlfc 12th Jan 19, 4:38 AM
    • 101 Posts
    • 30 Thanks
    redlfc
    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-forward
    Originally posted by kidmugsy
    This is exactly what I was hoping for when making the post -thank you!!

    i) why does he need to have had a pension open elsewhere to bring forward allowances? SO in his case his pension is 12k - so hed have an extra 28k gross to bring forward ech year thus 84k gross over the last 3 years?Then 84k-12k for this years pension comes to 72k. Therefore hed be able to contribute 72k + his salary this year or would it be plus 40k limit as thats the lower figure?

    Is there anyone in the SIPP provider/HMRC that could tell him if his figures are correct by going through his previous returns prior to him depositing this amount?

    Also as he has passed the pension age - is there anything to stop him receiving the tax relief and then accessing the pension fairly soon after?
    • Linton
    • By Linton 12th Jan 19, 9:32 AM
    • 10,171 Posts
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    Linton
    .......
    i) why does he need to have had a pension open elsewhere to bring forward allowances?
    Originally posted by redlfc
    Because thats what the rules say.

    SO in his case his pension is 12k - so hed have an extra 28k gross to bring forward ech year thus 84k gross over the last 3 years?Then 84k-12k for this years pension comes to 72k. Therefore hed be able to contribute 72k + his salary this year or would it be plus 40k limit as thats the lower figure?
    The limit is the lower of his gross earnings in the current tax year and the 40K for this year plus the unused allowance from the 3 previous complete tax years. This gives 112K + his normal 12K assuming this years earnings is sufficient to cover this. However you say he has earnings of 60K so that the limit for his extra payment is 48k.


    Is there anyone in the SIPP provider/HMRC that could tell him if his figures are correct by going through his previous returns prior to him depositing this amount?
    His SIPP provider cannot give personal financial advice. I doubt HMRC will either though he could try. Does he have an accountant?


    Also as he has passed the pension age - is there anything to stop him receiving the tax relief and then accessing the pension fairly soon after?
    No
    Last edited by Linton; 12-01-2019 at 9:41 AM.
    • kidmugsy
    • By kidmugsy 12th Jan 19, 2:57 PM
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    kidmugsy
    This is exactly what I was hoping for when making the post -thank you!!

    i) why does he need to have had a pension open elsewhere to bring forward allowances?
    Originally posted by redlfc
    It's the law of the land - God knows why, but there you are.

    Is there anyone in the SIPP provider/HMRC that could tell him if his figures are correct by going through his previous returns prior to him depositing this amount?
    Originally posted by redlfc
    Not that I've heard of - he may want to pay an accountant to do the sums for him, at least for his first time of doing this.

    Also as he has passed the pension age - is there anything to stop him receiving the tax relief and then accessing the pension fairly soon after?
    Originally posted by redlfc
    Nope; as long as he's 55 or older he can help himself. He'd probably keep things simpler if he waited until the money from HMRC has reached the pension provider. He'll probably be able to check that online.

    But one word of warning - if all he withdraws is his 25% tax-free lump sum, there need be no complications. However if he takes a penny more then his gross contributions in future are limited to 4k per tax year.

    Second word of warning: if he takes a large lump sum and then makes a big pension contribution in the next tax year he could conceivably run into restrictions imposed by the rules against recycling lump sums back into pensions. You should google for more info. (I must say, however, I have never read about any case of anyone actually getting into trouble from those rules.)
    Free the dunston one next time too.
    • redlfc
    • By redlfc 12th Jan 19, 5:41 PM
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    redlfc
    It's the law of the land - God knows why, but there you are.



    Not that I've heard of - he may want to pay an accountant to do the sums for him, at least for his first time of doing this.



    Nope; as long as he's 55 or older he can help himself. He'd probably keep things simpler if he waited until the money from HMRC has reached the pension provider. He'll probably be able to check that online.

    But one word of warning - if all he withdraws is his 25% tax-free lump sum, there need be no complications. However if he takes a penny more then his gross contributions in future are limited to 4k per tax year.

    Second word of warning: if he takes a large lump sum and then makes a big pension contribution in the next tax year he could conceivably run into restrictions imposed by the rules against recycling lump sums back into pensions. You should google for more info. (I must say, however, I have never read about any case of anyone actually getting into trouble from those rules.)
    Originally posted by kidmugsy
    thanks - so if he only takes 25% TFLS he can continue depositing normal amount? And the 25%TFLS is a one off right?
    • AnotherJoe
    • By AnotherJoe 12th Jan 19, 9:57 PM
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    AnotherJoe
    what im trying to gage is how useful the SIPP method is for a basic rate taxpayer as although you get the 20% tax relief- you then get taxed on 20% after the TFLS
    Originally posted by redlfc

    You havent accounted for the 25% tax free lump sum out first.

    And depending when you take it out, you may not pay any tax.

    Eg maybe you can take it all out between retiring and getting a state pension, and thus pay no tax on it. Or maybe you'll pay 20% on only some of the 75%.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Bravepants
    • By Bravepants 13th Jan 19, 12:08 AM
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    Bravepants
    InvestAcc allow access to cash deposit accounts in their Minerva Sipp and Sipp Lite. I'm about to dump my SIPP cash into an Investec 2 year fixed at 1.95%, via InvestAcc. You can get higher rates for longer fixes.

    Also find out if your mother's Local Authority DB pension allows her to buy more years, or Added Pension.
    • kidmugsy
    • By kidmugsy 13th Jan 19, 1:10 AM
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    kidmugsy
    thanks - so if he only takes 25% TFLS he can continue depositing normal amount?
    Originally posted by redlfc
    Subject to the rules against recycling: yes.
    Free the dunston one next time too.
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