Where’s best to invest for my pension?

6 March 2013

Q

In a few months, I will receive about £20,000 from cashing in a life insurance endowment policy that will be coming to an end. I am 55 and want to invest this money for growth and not touch it, so it will be part of my savings for my pension.My first preference was to invest in company bonds as they can be fairly secure and guarantee a known return over five to 10 years. Can you give me some advice on how to invest it?
From
JG, London

A

If you are a higher-rate taxpayer with an existing pension, first consider topping this up with a lump sum payment. In doing so, you will benefit from tax relief at your highest rate. This will effectively reduce the cost to invest by £8,000.

If, however, you are a basic-rate taxpayer, or you require access to the capital, then investing in an ISA will provide you with greater flexibility in planning for the medium to longer term. Up to £11,280 can be allocated in the current tax year. This will increase to £11,520 at the start of the new financial year (2013/14), in April.

Find the best Cash ISA or savings account for you

Interest rates are likely to remain low for the remainder of this decade. This will have a detrimental effect upon the returns from corporate bonds, which provide a fixed rate of interest.

Moreover, inflation could erode the value of bonds over a 10-year period. In order to strike a balance between risk and return, a blend of different asset classes is therefore needed.

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I advise investment into collective funds, such as unit trusts or open ended investment companies (OEICs), which are professionally managed and are easy to buy and sell within the ISA.

The investment return will be free of any personal liability to tax and provide a tax-exempt income when you retire.