Is Financial Advice worthwhile?
Question asked by John Sinclair
I’ve used up my ISA allowance for this year and I’m trying to find other tax-efficient ways of investing my money. I’m 37 and have a pension I pay into regularly. Is now the right time to invest a lump sum in my pension or should I hold off?
The short answer is as soon as possible.
The sooner you invest a lump sum in your pension, the longer it will have to grow. The later your start saving, the more you’ll have to pay into your pension to achieve the best retirement income.
You’ll also be able to take on more investment risk if you invest a lump sum early on, which could offer more chance for growth.
This is opposed to investing later in life as you approach retirement, when it’s likely your pension pot will effectively be ‘de-risking’. This involves a shift into safer investments, such as cash and gilts, to help insulate you from market shocks at a stage in your life where you don’t have much time left before retirement to rebuild your fund should it suffer heavy losses.
As you’ve mentioned, investing into a pension — whether regularly or as a lump sum — is a tax-efficient investment choice. Not only will you get tax-free growth on your savings, but you’ll also benefit from valuable tax relief on any lump sum contribution into your pension, worth 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.
However, remember that you won’t be able to get your hands on your savings again until you reach the age of 55, so you’ll need to be certain that you won’t need to access your money before this age before you invest any lump sum.
You haven’t mentioned any family, but some parents — acting in the capacity of the Bank of Mum and Dad — are increasingly offering their children help with a mortgage deposit, for example. Locking away a lump sum in your pension today might mean you don’t have access to your cash if you need it.
If you’re not sure, then it might be worth putting some of your lump sum into a pension and the remainder somewhere more easily accessible.
Before making any big investment decision, you should strongly consider getting financial advice and/or pensions advice. An adviser will be able to help you make sure it’s the right decision for you.