I am a widow with young twins who inherited a £ 148,000 retirement pot after my husband passed away but has fallen by 18% – what should I do? Steve Webb answers
I want to ask you some serious questions about my retirement decisions. My husband died in the summer of 2019.
He had a lump sum pension with a large pension company. Recently, as a result of the virus outbreak, the value has plummeted from £ 148,400 to £ 121,000 in current market value.
I am under pressure to make a decision to either shut it off at a loss or wait for the market to get better, and I don’t know when the virus will be checked and stopped.
Retirement dilemma: I inherited a £ 148k pot after my husband died, but it dropped nearly a fifth (Stock image)
The deadline for me to make a decision on the full fixed amount without paying tax is due in the summer of 2021. Anything after that date, I have to pay up to 40 percent tax on the fixed amount when I take it out.
Please, I beg for your advice to make this decision while only taking care of my five year old twins after their father passed away last year. I’m really helpless right now.
I would really appreciate it if you could help me with my situations. Many thanks in advance. From a full-time mother.
Scroll down to see how you can ask STEVE YOUR PENSION REQUEST
Steve Webb replies: Dealing with young twins on your own should be tough enough in the best of times, and I’m sure it’s particularly difficult right now.
I hope I can reassure you about your financial position.
As you say, if someone dies under the age of 75, the person who inherits their pension fund can do so tax-free.
But this only applies if the money is withdrawn within two years, otherwise the pension provider will deduct the income tax before paying out.
Since you can pay up to 40 percent tax on each withdrawal, there is good reason to withdraw the money before the two-year deadline.
Steve Webb: Read in the box below how to ask the former Pensions Minister a question about your retirement savings
There may be a reason to withdraw the money faster if you are desperately short of money to live on, but ideally you should try to avoid using up the pot if possible.
However, as it takes more than a year to reach the deadline, there is no urgent need to make a decision.
Indeed, if you are stressed and have many other things on your mind, it may be best not to make a decision for the time being.
If things are a little more normal again, consider talking to a financial advisor, who would likely have a first call for free.
Assuming that it makes sense to withdraw the money before the two-year deadline, they could suggest where best to invest the money for the future, perhaps by mixing some money for your short-term needs investing for your longer term future.
As for the markets, there is no doubt that the recent slump has been frightening for many investors, and we have had many questions about this issue for the past week or two.
The short answer is that it is incredibly difficult to “time” the markets, so you invest just before they go up and get your money out just before they fall.
Assuming your deceased spouse has invested in retirement for many years, a significant portion of the money in the pot today will be the result of years of investment growth and it is easy to forget in times of declining markets.
From the age of your children, I suspect that you are relatively young and can invest for the long term.
In general, it would be good advice not to overreact to short-term market fluctuations, including by “blocking” your losses by selling immediately after a market drop, especially if you don’t need urgent access to the money.
ASK STEVE WEBB A PENSION QUESTION
Former Pensions Secretary Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are saving, quitting your job or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 elections. He is now a partner with actuary and consultancy Lane Clark & Peacock.
If you want to ask Steve a question about pensions, send him an email at [email protected]
Steve will do his best to reply to your message in an upcoming column, but he will not be able to reply to everyone or correspond privately with readers. Nothing in his answers constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Include a daytime phone number with your message – it will be kept confidential and not used for marketing purposes.
If Steve cannot answer your question, you can also contact The Pensions Advisory Service, a government-backed organization that provides free assistance to the public. TPAS can be found here and the number is 0800 011 3797.
Steve is frequently asked about the projections of the AOW and COPE – the outsourced pension equivalent. When you write Steve on this topic, he responds to a typical reader question here. It contains links to Steve’s previous columns on state pension projections and outsourcing, which can be helpful.
If you have a question about how to top up your AOW pension, Steve has written a guide that you can find here.
TOP SIPPS FOR DIY PENSION INVESTORS