I am 60 and will retire in about 5 years time and have just received
£40,000 from an endowment policy. If I put this amount in a Bank or
Building society for 5 years i would get about 3% interest per year. Is
there a pension fund (or account) where i can put this cash lump sum and
get 20% tax relief paid in by the goverment and also earn about 3%
interest. Would i be able to take some of the if 5 Years as a lump sum?
If you were to pay it in to a pension then the government would add
another 10K. So you need to have had at least 50K taxable income in the
tax year. Additionally, 50K would put you about 10K into the HRT bracket
so you should be able to reclaim about another 2K tax relief either by
getting your tax code changed or when you do your tax return (more if
your income is more than 50K).
I think you will be able to take 25% as a tax free lump sum when you
retire. The rest will have to go to buying an annuity or do income
As far as investing the money, if you put it in a SIPP then you can do
what you like with it. In general SIPPs don't pay a good rate for cash
but sometimes you can get a better deal and you may be able to get 3% if
you shop around.
Were you, instead, to buy 50K of the 2017 index linked treasury then
you'd get (approximately) at maturity:
50K*100/114 = 43859 at maturity
plus 50K*1.25%*6 = 3750 in coupons
47500 Total at maturity.
This is, of course, less than you started with. However neglecting
inflation acting on the coupon payments, that 47K is in todays terms.
If inflation continues to run at 5% for the next six years then you'll
actually have something like 62K which is not very dissimilar to 50K at
3% for six years.
Assuming you wait to maturity then this should be a very low risk
strategy. If inflation does go negative in the next five years then you
could lose out. If you're confident that inflation will stay high then
you might do better buying a longer dated treasury and then relying on
its price being close to or above what you paid for it. But then you're
exposed if the price does fall significantly.
I believe that the capital gains on UK treasuries are tax free so you
can do the same investment strategy outside of a pension as well. Of
course, you won't then get the 25% boost from tax relief but in 2017
you'll have all the money to do what you want with.