Is this possible (ISA content)

[okgo]

A relative of mine has around 65k in cash savings currently. They’re still working but in their early sixties, the rate on the fixed rate cash product (ISA) is horrible at 0.35% and this expires next week. They have 45k in there and 20k in premium bonds.

My advice was initially to transfer that 45k into Vanguard LS 20 (low risk but probably average over a few years better than a cash rate?) and then either leave the other 20 in bonds (hopefully they up the rate) or perhaps even a Marcus just for easy access and zero risk. I welcome any critique on that plan? They’ll work for a few more years, have full state pension starting in 1 year and have another pension of around 120k - so thinking that probably long term enough to maybe make the cash work a bit in the life strategy product. State pension probably is about 65% of current earnings so perhaps worth them sacrificing almost all of their salary into pension and living off state? Obviously minimal tax gain on such a low salary but has to make some sense? Or anything I’ve not thought of?

My main question is whether they cab just transfer the lot in one go from this cash product into LS20 without any issue?

Cheers

[chip*]

Yes, just a simple ISA transfer request form is required, and since in cash the transfer time should be pretty quick. They will be simply switching their £45k investment from cash to a fund which is already held in an ISA tax wrapper.

(just to add, its doable in terms of process, but I can't comment on your advice of fund selection)

[xeny]

If they are coming up on retirement age but still working, are they paying enough income tax it is worth shuffling at least some into a SIPP?

[bitchstewie]

There seem to be a lot of question marks over the risk of bonds right now.

It's an area that I leave to the experts but definitely something to look into if you or your relative are equating bonds with risk free return.

Only mention it in case your relative is likely to point the finger at you if their investment drops.

[nickfrog]

I agree with xeni I would max out the pension wrapper route at that age up to their max earning or £40k gross whichever is higher. I would even consider going back up to 3 years if need be.

This will trigger a 20% or 40% uplift and will remain available because they are over 55.

Free money that's not a available through ISA.

[okgo]

They earn nothing so it makes little odds. Full time at min wage (think vocation vs labour) so I think they probably pay a few hundred quid tax per year.

But are you saying they could get the last few years tax advantages if they did it as a lump as additional?

Interesting re bonds.

Edited by okgo on Sunday 10th April 10:00

[xeny]

Even if you pay no tax you can generally get £2880 made up to £3600.

[chip*]

To state the obvious, per your original plan, the £65k holding = LS14 (86% in bond). Does this tally with your relative's financial risk appetite? What's their plan on the £65k e.g. emergency / rainy day fund or do they have plans to use it soon?

What are their plans with the £120k pension? Will they drawing on it to supplement their (assume joint) State pensions next year or can they live comfortably without touching the £120k? Depending on their financial demands, they could dial up their risk (slightly) on the £65k if there are no requirement to access this fund for say 10 years (with the added benefit of the pension tax relief if they decide via the SIPP route).

[okgo]

chip* said:

To state the obvious, per your original plan, the £65k holding = LS14 (86% in bond). Does this tally with your relative's financial risk appetite? What's their plan on the £65k e.g. emergency / rainy day fund or do they have plans to use it soon?

What are their plans with the £120k pension? Will they drawing on it to supplement their (assume joint) State pensions next year or can they live comfortably without touching the £120k? Depending on their financial demands, they could dial up their risk (slightly) on the £65k if there are no requirement to access this fund for say 10 years (with the added benefit of the pension tax relief if they decide via the SIPP route).

My proposal was that the current 20k in NS&I remained the rainy day element, yes they're pretty risk averse what with being 65 almost, but they are going to carry on working so essentially the state pension will be a 66% payrise give or take so I guess investments can continue to be made for the time being. So they won't need to touch the larger pension for the time being (not joint, single). I tend to agree but I think given they have come from having locked the cash away at .35% for the last two years, and seeing the pension seesaw a it this year (tiny percentages really so its obviously not that geared towards the markets) I think risk would be seen as bad.

[nickfrog]

okgo said:

But are you saying they could get the last few years tax advantages if they did it as a lump as additional?

They can only go back 3 years and only claim within the limit of income of the particular year they claim. Still worth it, it is often free money. Focus on the best wrapper separately from the nature of the investment as investments can be selected from either wrappers anyway.

[chip*]

okgo said:

chip* said:

To state the obvious, per your original plan, the £65k holding = LS14 (86% in bond). Does this tally with your relative's financial risk appetite? What's their plan on the £65k e.g. emergency / rainy day fund or do they have plans to use it soon?

What are their plans with the £120k pension? Will they drawing on it to supplement their (assume joint) State pensions next year or can they live comfortably without touching the £120k? Depending on their financial demands, they could dial up their risk (slightly) on the £65k if there are no requirement to access this fund for say 10 years (with the added benefit of the pension tax relief if they decide via the SIPP route).

My proposal was that the current 20k in NS&I remained the rainy day element, yes they're pretty risk averse what with being 65 almost, but they are going to carry on working so essentially the state pension will be a 66% payrise give or take so I guess investments can continue to be made for the time being. So they won't need to touch the larger pension for the time being (not joint, single). I tend to agree but I think given they have come from having locked the cash away at .35% for the last two years, and seeing the pension seesaw a it this year (tiny percentages really so its obviously not that geared towards the markets) I think risk would be seen as bad.

NS&I is a also a bond too (you are effectively lending to HMG/Rishi with a pretty solid credit rating )

It's fine to be risk adverse, but they run a risk of running out of money if they play it too safe. Right now, it's all hunky dory with a salary + 2 State pensions + £185K pension/savings, but if one was to suddenly pass away, the sole survivor's (with just 1 State pension) financial demands will eat up the £185k pension pot pretty quickly (even more so if they live into their 80's/90/s). I am not advocating investing in High Yield or CFD products, but to at least consider this inevitable scenario into their investment plan.

[okgo]

chip* said:

NS&I is a also a bond too (you are effectively lending to HMG/Rishi with a pretty solid credit rating )

It's fine to be risk adverse, but they run a risk of running out of money if they play it too safe. Right now, it's all hunky dory with a salary + 2 State pensions + £185K pension/savings, but if one was to suddenly pass away, the sole survivor's (with just 1 State pension) financial demands will eat up the £185k pension pot pretty quickly (even more so if they live into their 80's/90/s). I am not advocating investing in High Yield or CFD products, but to at least consider this inevitable scenario into their investment plan.

There is only one person which I think maybe I mentioned above.

They've been surviving on the salary from the job alone for the last 14 years, given its so lowly paid I think they'd need to find about another 5k p/a to live the same life as now when state pension starts coming. But I do take your point, even drawing 5k p/a out of the 120k pot (which should I suppose grow a bit before they need to touch it/can keep paying into it and topping up with earnings it would likely run out at some point.

[Jon39]

bhstewie said:

There seem to be a lot of question marks over the risk of bonds right now.

It's an area that I leave to the experts but definitely something to look into if you or your relative are equating bonds with risk free return.

Only mention it in case your relative is likely to point the finger at you, if their investment drops.

Need to remember the inverse aspect.
With fixed rate bonds and gilts, when general interest rates rise, bond capital values fall and vice versa.

Awkward doing money matters for other people, especially if they have always held cash, or cash equivalents.
Cash performance will of course be better than others, during market decline periods.