Optimising savings and pension

[GroundEffect]

Around one year ago I bought my first house. That was to be a part of my pension pot. I am on a 2 year fixed mortgage at 4% (26yo with 90% LTV didn't help).

I was calculating my pension pot the other day and with the stakeholder agreement my company has and the current 3%/6% payment plan I'm destined for a very apologetic pension pot come 58yo - the earliest I can retire. I will increase pension contributions when I can - in 4 years.

What I want to do is optimise my savings and mortgage payments. Each month I have around £1200 of unused income. On my own (the Mrs and I don't share income).

My first intention is to increase mortgage payments now that I can easily afford to. Is there anything else I should be doing? At this moment I don't have much liquid savings because of outgoings in 2014. I want to maximise things so that I'm mortgage free before retirement and have a useful pot outside of work.

[mike9009]

Is the house BTL or your home??

I presume you are a higher tax rate payer?

Does your company make any pension contributions?

Mike

[GroundEffect]

My home.
Yes higher rate.
They contribute 6% to my 3%. The Max for them 11% but you need to be with the company five years to do so - I'm at 14 months (contractor before).

I have just taken out £7k of premium bonds on money I do have.

[anonymous-user]

If your maximising your pension contributions, then overpaying the mortgage will likely have the biggest impact at this stage. Stick whatever is left in ISAs.

Once you've built up a bit more of a pot then maybe you could look at some more fruitful things to invest in, such as BTLs or investment products.

[Claudia Skies]

Paying down debt (mortgage) is generally a good place to start. All the more so if rates start to rise.

Pension contributions are great if you can get tax relief at 40%.

ISAs are great if you are (a) a 20 taxpayer and/or (b) want maximum flexibility, but the tax relief comes later (not going in, which holds back the rate of growth).

[SunsetZed]

Firstly good on you at 26 for looking at doing something sensible long term with the cash.

GroundEffect said:

come 58yo - the earliest I can retire.

A little bad news for you buddy, it's likely to be older than 58 that you'll be allowed to access your private pension:
http://www.telegraph.co.uk/finance/personalfinance...

Personally it's the uncertainty of when I'll be able to access my private pension that prevents me paying more in and is why I'm looking at ISA's and BTL's as well. I'd hate to be 55 in a job I wasn't enjoying and with enough money to retire on but forced to keep working for another 5 years simply because it was all tied up so that might be worth thinking about.

Have you looked to see what sort of difference the interest rate on your mortgage rate would be if you made it to a better LTV by the time you renew? There's a great spreadsheet for comparing mortgages here:
http://www.locostfireblade.co.uk/spreadsheet/Index...

[Simpo Two]

And this is the problem with private pensions - you can't actually plan anything, because by the time you get there everything will have been totally changed by 5-10 different Governments - all cash-starved.

If you pay 40% tax then it's still worth it, but for anything else I grow increasingly anti-pension. There are many other ways to save for yor future/retirement; a pension is only one form of investment vehicle and they're political footballs.

[GroundEffect]

Hmm. Not good news.

I have estimated by the time I cab remortgage (March 2016) that my house will be worth £25k more than I paid for it because of the stupid south east housing market. This would change my LTV to around 78% at current rates. This would definitely help. I have a loooong mortgage term of 34 years left but at remortgage with various calcs I could reduce to 20 years with the same payments. That's a good start.

I plan on getting stock in a few years when I've sorted out the housing situation.

[mike9009]

Simpo Two said:

And this is the problem with private pensions - you can't actually plan anything, because by the time you get there everything will have been totally changed by 5-10 different Governments - all cash-starved.

If you pay 40% tax then it's still worth it, but for anything else I grow increasingly anti-pension. There are many other ways to save for yor future/retirement; a pension is only one form of investment vehicle and they're political footballs.

Agree with the sentiment, but most investments are political footballs. I reckon the BTL market maybe hit soon, as this is one reason for rising house prices as more people jump on the bandwagon.

ISA terms can be changed readily.

Speculatively, most people have pensions as their only investment vehicle (other than their home) and I think looking forward pensions will still have some protection. How long the higher rate tax payer will get an advantage is debateable.