Inheritance, pensions and investments

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I've posted on this before, and received some helpful replies, but would appreciate picking your brains again. I will shortly be coming into an inheritance of around £180k. For all sorts of reasons I have found it very difficult to think about it, but I need to make some decisions now.

The take away message when I posted before was to get some proper advice, and I have done this but with mixed results. Some of the IFAs I have spoken to have said they aren't interested as the "pot" isn't enough. Others were happy to talk but their fees seemed very high (one was with SJP which I then read about on here). Another seemed to basically to want me to buy a private pension, but I have a really good pension already (USS) which they didn't really want to discuss. A useful thread I read on here seemed to suggest that for someone who is fairly risk averse, and with this kind of amount, it would hardly be worth while getting someone else to manage (as the returns would probably not outweigh the costs) and it would be better to do it yourself.

So - in brief this is my financial situation up until this point: mortgage free with a BTL on interest-only mortgage of £140k. I'm 53 and a member of USS, and have been paying into the Investment Builder through salary sacrifice for about 5 yrs. My OH also in USS, has been doing the same thing with the Inv Builder and in addition we each have about £20k in savings (cash ISAs).

From what I have gathered our best options are:

• 1 - Put as much as we can through salary sacrifice into my USS pension (up to £40k pa). So far we have used about half of our Annual Allowance, so could increase this. BUT my understanding is that this "pot" will be less good if I want to retire early? Is this correct, and is this a reason to set up a SIPP? Is the USS with salary sacrifice always going to be better than any other pension / SIPP?
• 2 - I have ruled out another BTL because of uncertainty with interest rates (but our current mortgage on our BTL is low and fixed for about 3 years, so will leave as is).
• 3 - Put max I can into S&S ISA. I can move the existing £20k that is in the cash ISA into a S&S ISA, and add £20k for this year too, then another £20k after April. And my OH can do the same. Is this correct, and the best thing to do?
• 4 - I will "park" £50k into Premium Bonds until the next tax year, and then move it over to S&S ISAs
• 5 - What is the next best thing to do after pensions and S&S ISAs?

So - any experts willing to comment on whether what I've outlined above sounds sensible. And then - assuming I am going to go for S&S ISAs and do that myself, rather than getting someone else to do it for me - I will then start reading up on S&S ISAs and working out what to go for.

Thanks all - your thoughts and wisdom is much appreciated!

all the things above are sensible and you should do them.

put a chunk of money in a general ETF tracker fund with low fees and then gradually move it into your S&S ISA. the ETF is essentially the same as your S&S ISA but without the tax breaks. There are lots of low cost providers (e.g. Nutmeg) that will do that. Look out for the fees - a fee of 1-2% might sound small but if you hope for an annual gain of 3-5%, then it is a big chunk of your annual gain. So go for a low fee option.

Keep at least 3 months salary in a cash account in case of emergencies.

You say your BTL is an interest only mortgage. Do you have the capital to pay it off? If not, how long have you got to get the money together and how much will it be?

1. Be really clued up about how much you can pay in to pension without exceeding Pension Annual Allowance. Be aware of Carry Forward which may be useful to you for using up some past years of Pension Annual Allowance. Be very aware of the max you could do, as that is based on your gross salary this tax year. All pension wrappers have rules around age of access. A SIPP may be accessible a bit earlier than USS pension but the USS pension may have provision for earlier access in some circumstances with a reduction in the benefit. Also look at if you can buy additional years in the scheme, as that might be something useful. Talk to your USS pension administrators about what options there are.
2. Would you not consider paying off some of the mortgage on the BTL given that interest rates are rising?
3. Having money available is useful, especially if you decide to retire early and thus need income prior to your pension paying out. S&S ISA for long term investing is great and there are some low cost S&S ISA providers now who provide access to good global funds at reasonable cost. If you have paid anything in to a Cash ISA this tax year, then be aware that you have used some of your ISA allowance, so won't then have the full £20k available.
4. Parking money whilst you think about to do with it is a good idea. It is safe in premium bonds, may not get any 'interest' so may devalue over time. Cannot move £50k from premium bonds to ISA... could do £20k to your ISA, £20k to DH ISA, leaving £10k in premium bonds.
5. Personally I would keep filling Pension and ISA each year. You may even consider giving some to children (if under age 18)... using their Pension and their Junior ISA allowances. If your children are adults, you may want to gift them some money.

Paying for advice is not a bad idea, keep talking to financial planners. Expect it to cost £3k-£5k initially, then there being an ongoing assets under management fee of around 0.75%.

Put as much as we can through salary sacrifice into my USS pension (up to £40k pa). So far we have used about half of our Annual Allowance, so could increase this. BUT my understanding is that this "pot" will be less good if I want to retire early? Is this correct, and is this a reason to set up a SIPP? Is the USS with salary sacrifice always going to be better than any other pension / SIPP?

Can you explain a bit more about why you think this pot will be 'less good'? The link here suggests you can access it from minimum retirement age in just the same way as a SIPP - i.e. you don't need to take your defined benefit pension at the same time. www.uss.co.uk/for-members/thinking-about-your-future/understanding-your-options/using-your-investment-builder-pot

The advantages of contributing to USS are the salary sacrifice savings and the employer subsidises the fees. There is also a benefit to the way that the tax free lump sum is calculated if you take both parts of the pension together but I can't remember the fine details just now...

This thread might be useful for you forums.moneysavingexpert.com/discussion/6268961/uss-investment-builder/p1

When do you plan to retire? A SIPP would be available to you pretty soon, though less than a recommended time horizon for investing. ISA would work too, and rather than Premium Bonds, you can put the extra in a GIA and transfer it over to the ISA each tax year.

I'm in the USS too, and also recently inherited a lump sum. It seems to me that the advantagebof the USS over other pensions is that the fees are covered by your employer. Fees can massively eat into investments.

In your position I would be aiming to pay off the BTL mortgage in 3 years when the fixed rate ends. In the meantime, I'd put the money in a fixed term savings account that pays more interest than the mortgage is eating up. I wouldn't put it in S&S because the market will inevitably remain volatile over the next 2-3 years.
But maybe use your ISA allowance for a longer term investment.

Thank you all - really helpful. Good to have confirmed what we are thinking, and that the tax benefits of inc'g inputs into pension and then ISAs means this is the way to go. And we'll consider again re reducing the mortgage on the BTL in 3 yrs.

Unfortunately the pension advisor we spoke to in our institution was pretty clueless (and wrong on some of the things she told us...). @Ana86 my understanding re the USS "pot" not being so good was somehow related to the reduced benefits if you take it early. But I wasn't clear on this, and will read the links you suggest. But good to have it confirmed that salary sacrifice and employer paying the fees are part of why it is so good.

I haven't really thought about when I want to retire, except I think it likely I'll want to go before I'm 67! But it depends on success with research grants etc, so I guess I'm thinking maybe 60...

my understanding re the USS "pot" not being so good was somehow related to the reduced benefits if you take it early

My understanding is that you can choose to take the two parts of the scheme separately or together. If you take them seperately then you can think of them as two separate pensions so taking the investment builder early won't affect your db benefits when you take it down the line.

What you might be thinking of is that there are good reasons for considering taking them together, even if that results in you taking your db benefits early and so accepting that the annual payment will be reduced. This is because if you take them together you can calculate your tax free lump sum on the basis of your USS benefits as a whole. That can be advantageous depending on the amounts you have.

One other point is that the retirement age has changed over time and if you retire early the reduction will vary according to when it was accrued. If you have been in uss a while (pre 2011 and esp per 1995) this is worth looking at as the reduction for early payment might be less than you think.

I would talk to an IFA who has experience of the scheme. If you are good at reading pension details then the rules are explained for IFAs in the document here www.uss.co.uk/financial-advisers see esp page 3 for the changing retirement age and page 9 for the flexibility on accessing the investment builder.

Everyone seems focused on products! The first question should be "what are your objectives?"

Are you happy with your current lifestyle? Are you looking to use these assets to fund that same lifestyle in retirement, or have you got other plans/dreams/aspirations? Until you know what the money is for it's a bit pointless speculating about what you should do with it.

Everyone seems focused on products! Her first question is about the pros and cons of paying more into her occupational pension vs a SIPP.

Ask away on the bigger picture.

@Ana86 The OP is asking for comment on their numbered points. Until the bigger picture is understood it is impossible to comment on those details.

Sure ask her about the bigger picture that's fine and helpful. But there is no need to criticise posters who have taken time to post detailed answers to the specific questions about how her occupational pension works and whether it is a better vehicle for early retirement than a SIPP. Those questions can be answered whether or not additional pension contributions are right for her.

But how can you know what is the better vehicle without knowing what the bigger picture is?

Because additional contributions to her occupational pension go into a scheme that has the same flexibility and access age as a SIPP (and the option to transfer into one at a later date) but additional benefits that are connected to salary sacrifice, fee subsidy and the calculation of the tax free lump sum. Unless she wants to invest in something not available in that scheme then it's difficult to see how it would not be the best vehicle at this stage, even if she chooses to transfer to a SIPP in the future.

She was concerned that there were also cons in that accessing the dc part of the scheme before retirement would necessarily impact her db payments but that does not seem to be the case.

Thank you @Ana86 for your really helpful replies - they were exactly what I was hoping for / needing and so are really appreciated! You have spelt out really clearly the additional benefits of putting more into USS (salary sacrifice, fee subsidy and the calculation of the tax free lump sum), and further confirmed our ideas. I've also just had a (free) chat with someone from the UCU rec'd IFAs (Lighthouse), which was helpful - although I think he knew less about USS than you do!

Re the bigger picture - what do we all want... health and happiness and as much financial security as possible as we grow old. I don't even know when I want to retire! As it is an inheritance that started this all off, I also have a sense of responsibility of not "wasting" my mum's money - who lived modestly and frugally her entire life.

Thanks again!