Should our daughter take income or a lump sum?

Angela Murfitt
21 December 2016

Q

Our 45-year-old daughter was in a road accident three years ago that has left her with a mild brain injury. The other driver pleaded guilty.

Now she has lost her job and been given a disability pension. My daughter has been offered either a full pension of £650 a month or £499 a month and a £39,000 lump sum. If she takes the cash, where can she invest part of it to keep it growing? And is it the right choice? She has debts of£8,000 with no money coming in.

From
NH/Worthing

A

Income is the overriding and important need here since if your daughter has guaranteed income, she has the ability to carry on supporting herself and servicing her debts.

I would suggest that your daughter’s capacity for loss is likely to be very low and therefore she could not really afford to take a risk with any investment. Losing capital would have a signifi cant impact on her situation overall.

I am not convinced, therefore, that taking the cash lump sum is the best course of action. She could well be eligible for state benefits due to her disability and current inability to work.

Some of these benefits may be means tested. Taking the cash would allow your daughter to clear her debts, leaving her with £31,000. This would exceed any allowable capital level for means-tested benefits and remove her eligibility for state support.

 

At the same time, while it is tempting to take the cash now, your daughter’s life expectancy could mean she will live for many years to come and is likely to receive more in the additional income over that period than the value of the cash lump sum offered now.

A compromise may be to consider a ‘half-way house’ approach and request the pension provider gives £14,000 cash, which could be used to repay the debt leaving £6,000 capital for investment (which is the maximum allowable capital for the means test). I reckon this would result in an income of somewhere around £596 a month and, therefore, offers a good level of guaranteed monthly income, enables the debt to repaid (which frees up the income she would be paying out each month to service it) and still leave a nest egg for emergencies.

 

Due to her low capacity for loss, I would suggest that stock market-related investments are not appropriate. Therefore, I could only recommend cash or cashlike investments, such as NS&I Premium bonds, as a suitable home for this money.