{"id":7070262,"date":"2026-09-30T08:49:53","date_gmt":"2026-09-30T08:49:53","guid":{"rendered":"https:\/\/som2nypost.com\/?p=7070262"},"modified":"2026-09-30T08:49:53","modified_gmt":"2026-09-30T08:49:53","slug":"why-you-should-invest-an-inheritance-in-a-pension","status":"publish","type":"post","link":"https:\/\/som2nypost.com\/?p=7070262","title":{"rendered":"Why you should invest an inheritance in a pension"},"content":{"rendered":"


\n<\/p>\n

\n

A<\/span> friend of mine expects to receive a modest windfall from an inheritance. Their now-deceased relative was sufficiently twice-removed to make the money both unexpected and also unencumbered with emotional baggage. (Notwithstanding my envious side-eye\u2026)<\/p>\n

\u201cWell, I\u2019d put it in a pension,\u201d <\/em>I said.<\/p>\n

Just because the money had effectively fallen out of the sky, that doesn\u2019t mean they should flush it down the toilet.<\/p>\n

\u201cOf course,\u201d<\/em> I continued, \u201cI am not your financial advisor. Everyone\u2019s situation is different so seek professional advice if you need it.\u201d<\/em><\/p>\n

Now it was my turn to get the side-eye.<\/p>\n

\u201cAlso,\u201d <\/em>I whispered, leaning in, \u201cYour capital is at risk, and you may get back less money than you started with.\u201d<\/em><\/p>\n

My friend did not get the joke. But they did buy me a coffee to hear more.<\/p>\n

Why invest an inheritance in a pension?<\/h2>\n

My friend expects to receive about \u00a330,000. That\u2019s a significant amount of money for most people, but not a life-changing one.<\/p>\n

Certainly not if they blow it on a car<\/a> and a luxury family holiday to St Lucia.<\/p>\n

For perspective, the average inheritance in the UK is around \u00a311,000<\/a>. Those average folks will have to pick either<\/em> the car or the hols, I guess.<\/p>\n

None of these sums will seem very big to Monevator<\/em> readers well on their way to financial independence.<\/p>\n

Indeed even if you\u2019re younger, assuming you\u2019ve calculated<\/a> the vast wodge you\u2019ll need to create a post-work income, you\u2019ll know \u00a311,000 doesn\u2019t touch the sides.<\/p>\n

However we should never underestimate the power of time, global equities, and compound interest:<\/p>\n\n\n\n\n\n\n\n
\u00a311,000 earning 10%<\/td>\nFinal amount<\/td>\n<\/tr>\n
Initial sum spunked away<\/a> on holidays<\/td>\n\u00a30<\/td>\n<\/tr>\n
Invested for 10 years<\/td>\n\u00a328,531<\/td>\n<\/tr>\n
Invested for 20 years<\/td>\n\u00a374,003<\/td>\n<\/tr>\n
Invested for 30 years<\/td>\n\u00a3191,943<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Yes yes, 10% is an optimistic return. And that \u00a3191,943 will probably be worth only \u00a3100,000 or so in three decades\u2019 time in today\u2019s money, assuming vaguely on-target inflation.<\/p>\n

Then again, global equities have done about 10% over the past few decades.<\/p>\n

What\u2019s more, if you think returns are going to be a lot lower, then that\u2019s even more reason to invest the money. You\u2019ll need it!<\/p>\n

Fun-sized frittering<\/h4>\n

A quick note before we get into taxes \u2013 I know, contain yourselves \u2013 on the hedonistic alternative to investing an inheritance in a pension.<\/p>\n

I\u2019m talking about the holidays, the conservatory, and the fancy cars.<\/p>\n

I get it. Yes, I\u2019d invest the money. But I said that\u2019s what I\u2019d do. I know myself!<\/p>\n

For many people, spending an inheritance on something fun or meaningful \u2013 or both \u2013 will seem like a bigger bang for their buck than watching it vanish into a SIPP.<\/p>\n

You might even decide that\u2019s what the money was meant for. Especially if it\u2019s something that enhances your quality of life on an enduring basis. Say a house extension, or a trip to see much-loved but far-flung relatives.<\/p>\n

We all tend to mentally bucket<\/a> money. Windfalls and inheritances for most people will land in a different \u2013 and perhaps entirely new \u2013 receptacle.<\/p>\n

A compromise could be to tithe off some of the windfall for these non-investing purposes, then resolve to invest the rest. I\u2019d suggest a percentage rather than some arbitrarily-sized fun fund. Cut your cloth, in other words.<\/p>\n

Then again, you might know that your relative would have preferred you to save or invest the windfall. In that case investing will come easier.<\/p>\n

What about the mortgage?<\/h4>\n

Sensible money goals like paying off your mortgage or \u2013\u00a0heaven forbid \u2013 any other outstanding debt<\/a> sits alongside investing in the sound choice bucket.<\/p>\n

Paying off your mortgage or investing is a live decision<\/a> for anyone seeking financial independence. Especially so if you\u2019re on a quick march.<\/p>\n

But you should revisit your plan after a chunky windfall.<\/p>\n

You might decide the lump sum gives you the luxury of being more risk averse, and hence paying down the mortgage.<\/p>\n

On the other hand, perhaps it gives you the confidence to invest more instead?<\/p>\n

Only you can decide what works best for you.<\/p>\n

A puffed-up pensioned legacy<\/h2>\n

Let\u2019s get back to doing something really<\/em> fun with your money\u00a0\u2013 like investing it in a pension<\/a>! (Hey, this is Monevator<\/em>. We do things differently here\u2026)<\/p>\n

The big bonus of putting your bequest into a pension is the immediate boost you\u2019ll get from tax relief.<\/p>\n

(I\u2019m assuming here you\u2019re still in your working years, rather than that you\u2019re passing down wealth through a family of Methusalehs<\/a>\u2026)<\/p>\n

Getting tax relief on pension contributions is the nearest thing to free money since, well, an inheritance. <\/p>\n

Say you\u2019re a higher-rate taxpayer. In this case your \u00a311,000 pension contribution gets 20% tax relief upfront\u00a0(\u00a32,750).<\/p>\n

That\u2019s now \u00a313,750 invested inside the pension.<\/p>\n

As a 40% taxpayer you can then claim another 20% tax relief via self-assessment or your PAYE tax code. This will effectively refund you another \u00a32,750 in cash.<\/p>\n

Show me the money!<\/h3>\n

All told, your \u00a311,000 inheritance has already \u2018returned\u2019 66.67%:<\/p>\n