What to do with an inheritance

[Member869894]

I'm 56, single, have two dependant older teenagers, and work with the local authority earning 46k. No mortgage, no savings.
I know the local government pension scheme is good but I only started a pension at 50 so have a lot of catching up to do!. For the last 4 years I have been paying 400 a month in avcs.
My lovely father died this year and I will receive approx 70K inheritance. I'm wondering if should just pay at least 60k into my pension . What would you do with it if you were me?
Any advice welcome

I’m very sorry for your loss. Can you confirm that you own your own home?

Thank you Beelady. I miss him. Yes I own my own home. It's worth approx 270k. I may downsize when the two dcs have left

I would put it into an ISA, clearly not all in one go, but there is a new tax year coming so you can have this years and next years allowance. I just googled and it seems like the limit is £20k per year so you could easily get more than half of it into an ISA. If your teens are 18+ you could put a bit into an ISA for them as well.

Another option is a SIPP and you can pay up to £40k per tax year into a pension, probably in total, as in including your main job pension.

Meaningful Money is a very good source of financial information and he has a YouTube video called pension Vs ISA which is probably worth a watch.

If you have no savings it's probably worth keeping some back to cover things like car replacement and home improvements but if you're mortgage free on a reasonable salary saving most of it to top up your retirement income in one way or another is probably the way to go.

I’d pay it into a pension. Like you, I started late.

SIPPs often have quite high management fees which can erode growth if you aren't taking an active role in assessing shifting risks and moving your money around in response to market events. If you don't have the time to do that then a simple (non SIPP) personal pension scheme will likely have lower management fees. Make sure you read the small print for what will be deducted.

You need independent financial advice. I was advised not to make AVCs into my local government pension as I would not see the benefit. I set up a separate pension and paid extra into that. I was nearly 50 at the time.

NarrowboatDi why did they think you wouldn't see the benefit of paying into AVCs? Did you get a pension advisor, and if so, how did you find one? Am genuinely interested as I have similar decisions to make as OP

You can't just pay £60k to a pension or SIPP, at least not in one tax year, as you do not earn that amount.

Go through the UK Personal Finance Flowchart

flowchart.ukpersonal.finance/

Some money I expect will form an Emergency Fund. Then some may be invested in an accessible investment such as Stocks & Shares ISA, some will go to pension.

I have a small amount of money in an ISA and the return i get from my premium bonds has been much larger!

@Bettyboop3 Not sure what you are doing wrong with your ISA but my return is over 5% during the last 12 months.

[quote nannynick]@Bettyboop3 Not sure what you are doing wrong with your ISA but my return is over 5% during the last 12 months.
[/quote]
What sort of ISA is that ?

Premium bonds have returned me about 1% this last year. Though I find that is down to luck. One year I got £500 winning in one draw. Most of the time it is £25 a time and sometimes nothing at all.

@FabNotFat Stocks & Shares ISA mostly invested in an 80% equity multi-asset fund.

It has lost money the last two months, but is still up over the last 12 months. it's a rollercoaster, you need to be on it for the long term .. at least 5 years.

Yes, a pension investment sounds very sensible in your case. Speak to your pension provider to see what you would get for overpaying. I believe the local government scheme is defined benefit, so you should be able to buy "years" with it. If it doesn't seem favourable, you can invest I to a defined contribution sipp and get the tax relief. Then have an amount at retirement to buy an annuity with or draw down from. As pp said, there will be a maximum amount you xan add per tax year, so good to invest some soon if possible, then do more in new tax year.

You can pay 60k into a pension in one year as i did just that. You can claim the tax back if you have unused allowance pension from previous years. I got 12k back from the taxman making it a very good investment. You need to check with your pension scheme and get sound financial advice.

How much you get back will depend on how much tax much tax you have paid of course. As I said before, do get good financial advice.

Rather than listen to the armchair MN financial advisors, I'd seek professional advice from an independent financial advisor who will be able to give you options based on your desired outcomes.

Ex LA employee here, now retired. I'm really pleased I paid into AVCs and wish I'd started earlier. I was a higher rate tax payer so this contribution earned 40% tax relief (in effect bumping up the investment), which I took as a tax free lump sum on retirement.

Although it is possible to find higher returns and tax relief via a SIPP, the AVC route is very simple. I increased my payments each year and ended up with a considerable lump to boost my LA pension.

Could you put the maximum amount you are allowed into your work pension each month as a start?

I put some of my inheritance in a stocks and shares isa and use the profits for fun stuff but obviously you could keep it all invested.