Should I invest redundancy money?
|Retirement | Investment Choice
Asked by kjflo1961, submitted
08 March 2012.
I am 55 years old and currently out of work being made redundant last year, but hope to be working soon.
I have an AVC and occupational pension amounting to around £12,000 in total, which obviously is not enough. I have £5,000 in redundancy money and am looking to invest for my retitement, could you give me some ideas?
Answered by Justin on 01 August 2012
Sorry to hear about your redundancy and hope you find another job soon, if you haven't already.
Assuming you don't have an income from elsewhere (e.g. a spouse) then I'm reticent to suggest you do anything with the money except put it in the most competitive instant access savings account you can find, at least until you find another job. Or, if you have expensive debts such as a credit card balance then pay them off first.
Investing the money will tie it up and that's probably a bad idea with so much financial uncertainty hanging over you. Assuming you're a non-taxpayer at the moment it doesn't matter whether you use a cash ISA or conventional savings account (competing form R85 will ensure interest is paid without deduction of tax). Websites like www.moneyfacts.co.uk Moneyfacts are a good place to find 'best buy' savings accounts. Just beware of accounts that have temporary bonuses, they're fine until the bonus ends then you'll need to look elsewhere.
When you have a stable income again that would be a better time to think towards retirement. A pension would likely work out more tax efficient than an ISA if you're a non-taxpayer in retirement. You could use a low cost stakeholder pension or perhaps make additional contributions to the scheme of a future employer - obviously impossible to weigh up which would be most cost effective until you get there. Just be careful regarding fund choice, you probably don't want to take excessive risk when you're close to retirement.
One thing to be aware of is the possibility of retirement savings simply replacing an otherwise 'free' state benefit - the Government's Pension Guarantee Credit. This scheme guarantees those over 60 a minimum weekly income in excess of the basic state pension, although if you have extra savings you might receive a small 'savings credit' to partially compensate. Of course, there's a big caveat - the pension credit system may well change over the next 10 years, the Government is already talking about a higher, flat state pension for everyone. Let's hope there's some clarity sooner than later.
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