How to avoid frittering a lump sum?

[MyNameIsUrl]

Semi-retired friends are trying to plan their finances and they are about to get a lump sum which is meant to be spent in equal instalments over the next 8 months. They have a bit of a tendency to succumb to temptation and the money needs to be organised to make discipline easier. It seems to me a monthly standing order into their current account would be a help.

The lump sum is going to come from a Youinvest sipp, and their current account is Barclays. Can anyone suggest a practical set-up to hold the lump sum so it’s relatively difficult to fritter away yet has the facility for a standing order?

[Dod101]

If others are like me I think we may be having some difficulty in understanding the question. Why is the sum from the SIPP being paid as a lump sum? Why not have it paid direct from the SIPP in 8 equal instalments monthly at monthly intervals?

Dod

[Alaric]

Why is the sum from the SIPP being paid as a lump sum?

Would it be the tax free 25% Pension Commencement Lump Sum.

[Dod101]

Can it not be paid in instalments? I must say some time ago I took mine as a oner to help with house purchase so I really do not know and will now bow out.

Dod

[tikunetih]

Semi-retired friends are trying to plan their finances and they are about to get a lump sum which is meant to be spent in equal instalments over the next 8 months. They have a bit of a tendency to succumb to temptation and the money needs to be organised to make discipline easier.

Manage to save up throughout their lives and yet now can't help blowing a chunk of it on something daft rather than buying regular food, heating etc? Bizarre.

Me? I'd tell them to get a grip and act responsibly because silly actions have consequences!

[MyNameIsUrl]

Why is the sum from the SIPP being paid as a lump sum? Why not have it paid direct from the SIPP in 8 equal instalments monthly at monthly intervals?

Youinvest charge £25 per payment, which is greater than 5% of the monthly amount, so it's not really cost effective

Would it be the tax free 25% Pension Commencement Lump Sum.

Yes, there are employment earnings this year and tax to pay, so the pcls is a way of getting cash without paying extra tax. Next year there will be lower earnings and the taxable element of the sipp will start to be extracted.

Manage to save up throughout their lives and yet now can't help blowing a chunk of it on something daft rather than buying regular food, heating etc?

I don’t think they would blow a chunk of it, it’s just that if the whole amount were in their current account, there might be a tendency to fritter it on little extras and gradually burn through it a bit quicker, whilst at the same time getting used to a higher level of spending.

Really it’s the basic mechanics I’m trying to solve: if the cash is in the current account it will likely be frittered. If it’s transferred from the Youinvest sipp to a Youinvest isa, there is no standing order facility, so they would have to do a manual transfer each month – with a temptation to have a little extra or do it a little earlier. Their current account is Barclays and I can’t see a separate account they could open which would ring-fence the lump sum yet has a standing order facility.

[JuanDB]

I believe Barclays current accounts allow the creation of, up to 10, additional sub accounts. I have a range of accounts I use for cash ear marked for near term use. Easy to manage through online banking and can be friendly named e.g. “holiday savings”. For me it solves the problem of having the money logically separate but easy to access.

Thanks,

Juan.

[Dod101]

If the OP is writing of close relatives, I understand. If not, I would just keep well away.

Dod

[Lootman]

Me? I'd tell them to get a grip and act responsibly because silly actions have consequences!

I'd tell them to fritter away at least some of it. You have to have a little bit of fun with a windfall.

A few years ago a friend of mine got a decent-sized inheritance. I asked him what he planned to do with it. He replied "Fritter it away pleasurably".

[swill453]

Do they really need to have it this year? If they can manage without it there would be no tax disadvantages leaving the SIPP uncrystallised until next year.

Scott.

[MyNameIsUrl]

Do they really need to have it this year? If they can manage without it there would be no tax disadvantages leaving the SIPP uncrystallised until next year.

Yes, they really need it, they are sinking in debt and cannot last 3 more months. Hence the urgent need to extract cash from their pensions.

I'd tell them to fritter away at least some of it. You have to have a little bit of fun with a windfall.

Yes, I might agree if it were an unexpected windfall and they had enough money to have a comfortable old age; in this case though, it's frittering that has led them to be on the brink of a rather hard-up retirement, and this lump sum is a chunk of their assets they can ill afford.

[swill453]

Yes, they really need it, they are sinking in debt and cannot last 3 more months. Hence the urgent need to extract cash from their pensions.

So can't they use it all straight away to pay off their debts? Then it's simply not there to be frittered away.

Of course we don't know whether their debt is more or less than the lump sum.

Scott.

[MyNameIsUrl]

So can't they use it all straight away to pay off their debts? Then it's simply not there to be frittered away.

The debts (credit cards) are not particularly large, but they are constantly growing due to ongoing overspending. The idea is to extract the lump sum now, use part of it to pay off the existing debt, then use a consistent monthly withdrawal from the remainder to top up their income. As this would give enough income to fund their existing lifestyle, the hope is that the credit cards would not be needed in future. Of course it's clear how this plan may go wrong, and my original question was about how to reduce the temptation to fritter the lump sum. A separate risk is that they won't stop using the credit cards, and we've discussed the 'freezing in a block of ice' strategy.

[staffordian]

Sorry, but from what you have said, I can see no way this will end well.

Unless or until they have that "lightbulb moment" it can only get worse whatever attempts are made to help.

[tikunetih]

Semi-retired friends

Are these friends perhaps drug or gambling addicts, alcoholics or suffering from mental health issues that explain their inability to act responsibly?

[Tempi]

Semi-retired friends

Are these friends perhaps drug or gambling addicts, alcoholics or suffering from mental health issues that explain their inability to act responsibly?

I feel that is quite a strong reply from a Forum that also supports those 'Dealing with Debt' in a non-judgemental way. Lots of people fail to manage money from many reasons.

MyNameIsUrl, perhaps the best way to help them is to direct them to the Dealing with Debt Board, to help them understand their spending habits to help control matters. Whatever structural/management devises such as accounts that are put in place, as the others have said, may not assist if the basics are not addressed.

[tikunetih]

I feel that is quite a strong reply from a Forum that also supports those 'Dealing with Debt' in a non-judgemental way. Lots of people fail to manage money from many reasons.

It was a straightforward non-pejorative question.

This site hosts forums and sub-forums covering a variety of subject areas. The scenario the OP describes doesn't fit the usual pattern of questions asked in this specific Retirement Investing sub-forum, and the behaviour of the OP's friends suggests there may be underlying issues giving rise to poor mental wellbeing which in turn affects their ability to manage their money.

Attempts to impose a "system" upon the friends' finances to protect them from themselves may be undermined if there are underlying issues that remain unaddressed.

[Tempi]

I feel that is quite a strong reply from a Forum that also supports those 'Dealing with Debt' in a non-judgemental way. Lots of people fail to manage money from many reasons.

It was a straightforward non-pejorative question.

This site hosts forums and sub-forums covering a variety of subject areas. The scenario the OP describes doesn't fit the usual pattern of questions asked in this specific Retirement Investing sub-forum, and the behaviour of the OP's friends suggests there may be underlying issues giving rise to poor mental wellbeing which in turn affects their ability to manage their money.

Attempts to impose a "system" upon the friends' finances to protect them from themselves may be undermined if there are underlying issues that remain unaddressed.

I would respectfully disagree that your question is put forward in a non-pejorative manner, especially bearing in mind your earlier statement of

Me? I'd tell them to get a grip and act responsibly because silly actions have consequences!

Also, not all people who get into debt have 'poor mental wellbeing'. That's presumably your opinion.

However, I'm glad we agree that there are some underlying issues that need addressing, and that the friends are the only ones, in essence, that can actually help themselves.

The context we were given at the beginning of the thread is

They have a bit of a tendency to succumb to temptation and the money needs to be organised to make discipline easier.

along with comments of 'frittering'.

Essentially, the friends are spending above their means and hence have incurred debt; rather than living below their means. My view is that the friends need to be more organised and disciplined about their behaviour with money, not just where the money comes from, although that may help. Directing the friends to the sub forum of 'Living Below Your Means' may also be helpful to encourage the friends to have their 'lightbulb moment'.

[Itsallaguess]

MyNameIsUrl, perhaps the best way to help them is to direct them to the Dealing with Debt Board, to help them understand their spending habits to help control matters.

Whatever structural/management devises such as accounts that are put in place, as the others have said, may not assist if the basics are not addressed.

I think this is a great idea.

This way, they get what might be seen initially as 'the slightly unwelcome advice' that they might ultimately need, and in a way that doesn't directly involve MyNameIsUrl.....

Win-win in my book....

Cheers,

Itsallaguess

[tikunetih]

I would respectfully disagree that your question is put forward in a non-pejorative manner, especially bearing in mind your earlier statement of

Me? I'd tell them to get a grip and act responsibly because silly actions have consequences!

When people post questions and solicit input from what are effectively strangers on the internet neither they nor other readers get to control the responses they might receive. Not all of the replies may be to their liking and yet pertinent input may lie within some of those uncomfortable responses.

A reminder: this is the Retirement Investing board, not Comfort Cafe. Posters or readers here should not expect those responding to write their replies as if treading on eggshells, and posters should be able to write what they think so long as they're civil and adhere to the posting rules.


The phrase "get a grip" was from an earlier post, appropriate for the context in which it was used, based on the level of detail the OP had revealed about their friends up to that point. It's what I would say, and have said, to a friend of mine if they were being silly with their money and needed a kick up the @rse to start behaving responsibly again.

When the OP subsequently revealed further details about their friends, details which indicated that they might be suffering from poor mental wellbeing, I enquired further with my straightforward question regarding addiction and mental health.


I say "might be suffering from poor mental wellbeing" because research indicates that roughly half of people in problem debt have a mental health issue.

If that's the case here, then the OP's attempts at putting a scheme in place to circumvent their friends' money management problems may come to nought if the underlying cause of their difficulties is not recognised or taken account of. Hence my question, because it's relevant to the problem the OP is attempting to address.

Also, not all people who get into debt have 'poor mental wellbeing'. That's presumably your opinion.

You've perhaps misread or in any case have misunderstood what I wrote, which was: "the behaviour of the OP's friends suggests there may be underlying issues giving rise to poor mental wellbeing". Your presumption of my opinion, therefore, isn't in accordance with what I wrote. You're jumping to conclusions.

As I stated further up this post, poor mental wellbeing and mental health issues are a common factor in people with problem debt, and based on what the OP disclosed, this might apply here, hence my question which I believed and still believe to be pertinent.

If this offends you then there's little I can do about that.