High earner, parents not well off

[Parents101]

Hi,

I’ll start this by saying I’m trying to get myself set up with a financial advisor ASAP but seeking thoughts in the meantime (and to better educate myself).

I’m a high earner (think high 100s). My parents have a low-moderate income but they are reaching their retirement years soon and still have a considerable mortgage. One of DP has a very small private pension but they will get a state pension although potentially not the full whack for DM. I’m worried that they will struggle in retirement with their basic pensions and to be honest I’ve always expected to contribute along with my siblings. However I’m trying to work out the best way to do this especially given the very high tax rate I pay (45%).

I’m wondering if there’s a way to use the pension tax rebate in their benefit, by starting a private pension for them which I pay in until they reach retirement. I’m happy with how my pension is building up and have no real interest in putting lots more cash in my own pension to benefit from the 45% rebate.

From what I can see online, they would only benefit from the basic rate top up of the pension (20%)? Still better than giving them cash but it feels like a shame to lose the benefit of that additional 25% given it serves the same purpose whether it’s put in my pension or theirs!

Also, can you continue to invest in a pension even once someone commences retirement? Eg if they each retired age 67 but didn’t touch this fund initially, could I carry on putting money in so it would have a slightly longer period to build up?

Any tips much appreciated!

We effectively ‘bought’ part of our inlaws house, so they didn’t have a mortgage. We receive back the percentage of the house price when it was sold in due course. It gave them additional spending money and locked our capital safely away for our own retirement. We boosted that a bit when they wanted more than existence money - we bought a bigger chunk instead of them using equity release.

We’re not financial experts but it was having a mortgage still that caused them the most stress. Our financial advisor said it wasn’t going to see the highest return on our money but wasn’t a bad investment as property where they live is only ever going up. Like you ours was less about making money and more about supporting a comfortable retirement for them.

I’m not sure about this in my circumstances as it’s quite a large amount of money. Paying off part feels a bit neither here nor there although I guess it still reduces the financial burden from month to month. Also they don’t seem too bothered about having a mortgage, it’s not a cause of stress for them

It’s probably best to get decent advice as there will be lots of workaround like ours and they may not be wisest investment v assistance. Our in-laws only had about 65k to pay off initially, but they felt that they had to keep working to allow a reasonable standard of living with this amount still outstanding.
Mother in law is now 86, she remarried; her husband is 88. Both are well and enjoying life, but we know that we’ve over £100k that will come back to us around our retirement time. It felt like lending money rather than giving money and that made it easier for them to accept; they didn’t want to be beholden or feel it wasn’t really their money to spend.
For us £100k is a good few years of decent holidays and a comfortable safety net for major unexpected costs. They’ve effectively saved it for us.

Thanks, I think I have finally found an IFA for some advice, fingers crossed.

Question: how did you go about finding an IFA? It feels so awkward to ask family/friends because it almost feels like an announcement of great wealth!

@Parents101 ask colleagues at your level.

Google Chartered IFA

Thanks@Weirdlynormal, I work for a global company and I’m the only one in my role in this country. But I could ask a colleague in a different team if it doesn’t work out with the IFA I’m speaking to.

I don’t feel I can trust Google with something like this! Maybe I’m wrong but a personal recommendation seems like the best option.

What about a local Facebookgroup? I get lots of local recommendations this way.

Don’t forget it’s a regulated industry. Frankly I see lots of recommendations for companies like SJP and people have no idea they are not even Independent (please avoid them). People don’t actually understand what they are recommending IYSWIM.

Suggest you get advice from a number of sources rather than just an IFA. For example solicitors specialising in tax planning come across this kind of scenario and ought to be able to help as well.

Personally I would top up their income and ask them to put it towards their pension. They will then get tax relief on those contributions.

Can't DM not pay extra into her state pension to get the full amount. You can pay back for missed years, though I think it's not too far into the past.
If you were married and paid into their mortgage and then you divorced you might need to get a part of that lent money back.

Personally I would top up their income and ask them to put it towards their pension. They will then get tax relief on those contributions the OP can do that too, quite legally, and get them the tax uplift.

You can pay back for missed years, though I think it's not too far into the past. 6 years

OP @sunseed is an IFA on here, always seems sensible. You could reach out to her(?)

OP, my first thought is what your parents' point of view is. Have they expressed any concerns about their income in later life? I understand where you are coming from but in order to identify the most suitable solutions you need first to be very clear about the actual problem. There may not, in fact, be a problem as far as they are concerned.

Thanks, I wanted to look into the state pension top up but DM is not interested enough to check the number of years she has accumulated... I know she has almost 30 years, in part due to a long period of receiving child benefit. Therefore she may be able to receive the full amount through working the remaining years before she reaches retirement age (she’s currently working). I don’t want to top up and then later realise there was no need. I will keep this in review as the years go on.

Re contributing to a private pension for them, I know I can do this and they will get the basic rate top up but as an additional rate taxpayer I’m wondering if there is a way to benefit from the full 45% tax rebate. I’ll ask the IFA about this but it’s quite a niche question

@Sunseed they don’t think there is a problem but they have form for overspending and not planning for the future!

I have a IFA found him through word of mouth, I'd ask around if yours doesn't work out, I was surprised how many people use an IFA.

@Parents101 I get it!

You can't really make a pension contribution that's in their name but benefits from your tax status, and you also need to be mindful of inadvertently creating potential problems further down the line by putting assets in their name.

You may want to think a bit more creatively about how you can help, and using a tax wrapper like a VCT or EIS could be appropriate here to hold an investment that you can earmark for spending on your parents in future but benefit from the tax relief now.

Have you been able to have any conversations about Wills or Lasting Powers of Attorney? This could be a way to open up a wider discussion about how they see their retirement years.

We’ve spoken about wills but not lasting powers of attorney. That’s a good one to bring up and hopefully will provoke the wider discussion, as you say.

Good idea also about the other investment schemes, I’ll look into that. Thank you!