Situation advice, what to do with money

[Otispunkmeyer]

Off the back of the income thread, i'd like some comments on our situation.

Mortgage:
50-60% LTV, was a 35 year term with 5 year fixed interest from santander. Borrowed about £130k. Currently pay off £535/mo. Ends Oct 2019.

Loan:
£6.6k outstanding on HSBC personal loan. Paying back at £280/mo

Pension:
Have 4 separate old pensions from previous jobs. All short lived due to going bust over and over and them starting new ones each time. Work for a proper company now with a proper pension. I can put in 4% and they'll put in 4% max for the first 2 years, then it goes up.

General: 4.5k net income. I've worked out that we must have between 1-2k/mo left over depending on whats gone on that month.

Plan then is this:

1) Check when mortgage exit fees (6k) no longer apply. Look at re-mortgaging with a 25 year term instead.
2) Pay off car loan. I can do this now. Set up an ISA to put the £300/mo (rounded up).
3) Consolidate/transfer all old pensions into a SIPP. Set up regular payments.
4) make more contribution to work pension when they increase their match offer. Increase risk appetite

Sensible?

Should note I have an on-line saver account with enough to cover the car loan. OH has a similar account with double that. Also has another savings account with another bank with decent money in and already has an ISA ( I think) with considerable amount in it. So I don't think she can open another ISA in her name? So we do have a fair bit of cash lying around (for us) and not sure whats best to do with it. We could just pay into her existing investments...but thats a bit all eggs in one basket I think.

My knowledge of SIPP/ISA is only limited, so I don't really know who the best suppliers are or anything.

[jonny70]

Whats apr on the loan?
Inflation is running at 2.6% so if I/R is near this effectively borrowing for free (as debt is eroded by 2.6% each year similar to to the interest cost)

You have stated your income/mortgage etc How much are your savings and investments? (if you want an accurate answer on what to do with your money its a pretty important factor in the answer)

[Otispunkmeyer]

3.6% the loan for the car.

Around 20-25k just sat in very low interest bank accounts

Several 10's of k already within some sort of investment wrapper with a company called quilter? That belongs to my wife. It was set by her parents. But it's perhaps something we can build upon.

[S9JTO]

Otispunkmeyer said:

Off the back of the income thread, i'd like some comments on our situation.

Mortgage:
50-60% LTV, was a 35 year term with 5 year fixed interest from santander. Borrowed about £130k. Currently pay off £535/mo. Ends Oct 2019.

Loan:
£6.6k outstanding on HSBC personal loan. Paying back at £280/mo

Pension:
Have 4 separate old pensions from previous jobs. All short lived due to going bust over and over and them starting new ones each time. Work for a proper company now with a proper pension. I can put in 4% and they'll put in 4% max for the first 2 years, then it goes up.

General: 4.5k net income. I've worked out that we must have between 1-2k/mo left over depending on whats gone on that month.

Plan then is this:

1) Check when mortgage exit fees (6k) no longer apply. Look at re-mortgaging with a 25 year term instead.
2) Pay off car loan. I can do this now. Set up an ISA to put the £300/mo (rounded up).
3) Consolidate/transfer all old pensions into a SIPP. Set up regular payments.
4) make more contribution to work pension when they increase their match offer. Increase risk appetite

Sensible?

Should note I have an on-line saver account with enough to cover the car loan. OH has a similar account with double that. Also has another savings account with another bank with decent money in and already has an ISA ( I think) with considerable amount in it. So I don't think she can open another ISA in her name? So we do have a fair bit of cash lying around (for us) and not sure whats best to do with it. We could just pay into her existing investments...but thats a bit all eggs in one basket I think.

My knowledge of SIPP/ISA is only limited, so I don't really know who the best suppliers are or anything.

All of the above is sensible - Those are the first things I'd do if I was you...

[Testaburger]

Otispunkmeyer said:

Off the back of the income thread, i'd like some comments on our situation.

Mortgage:
50-60% LTV, was a 35 year term with 5 year fixed interest from santander. Borrowed about £130k. Currently pay off £535/mo. Ends Oct 2019.

Loan:
£6.6k outstanding on HSBC personal loan. Paying back at £280/mo

Pension:
Have 4 separate old pensions from previous jobs. All short lived due to going bust over and over and them starting new ones each time. Work for a proper company now with a proper pension. I can put in 4% and they'll put in 4% max for the first 2 years, then it goes up.

General: 4.5k net income. I've worked out that we must have between 1-2k/mo left over depending on whats gone on that month.

Plan then is this:

1) Check when mortgage exit fees (6k) no longer apply. Look at re-mortgaging with a 25 year term instead.
2) Pay off car loan. I can do this now. Set up an ISA to put the £300/mo (rounded up).
3) Consolidate/transfer all old pensions into a SIPP. Set up regular payments.
4) make more contribution to work pension when they increase their match offer. Increase risk appetite

Sensible?

Should note I have an on-line saver account with enough to cover the car loan. OH has a similar account with double that. Also has another savings account with another bank with decent money in and already has an ISA ( I think) with considerable amount in it. So I don't think she can open another ISA in her name? So we do have a fair bit of cash lying around (for us) and not sure whats best to do with it. We could just pay into her existing investments...but thats a bit all eggs in one basket I think.

My knowledge of SIPP/ISA is only limited, so I don't really know who the best suppliers are or anything.

Sounds sensible. I’m not sure whether that list was in order, but if it were me, I’d prioritise maxing-out SIPP contributions - because the government will add tax relief to it. If you’re a higher rate taxpayer, if you put in 24k, the government will top it up to 40k.

You can only put 40k into you pension each year, so you’ll need to deduct what your workplace contributions from what you can invest into a SIPP, but that’s a hell of a return overnight.

Maybe build a small emergency fund in an ISA to start with - as there are hefty penalties for getting your cash out of your SIPP prior to retirement.

[JBM78]

Testaburger said:

.....because the government will add tax relief to it. If you’re a higher rate taxpayer, if you put in 24k, the government will top it up to 40k.

This isn't actually how it works - if you put £24k of your cash in, it will be topped up to £30k into your SIPP and you'll then be able to get a repayment of an additional £6k through self assessment.

[Jockman]

Testaburger said:

You can only put 40k into you pension each year.....

You can put in as much as you like. Tax Relief is limited to the first £40k though.

[Testaburger]

Jockman said:

You can put in as much as you like. Tax Relief is limited to the first £40k though.

Very true. However, if you’re in a position where you’ll likely hit the lifetime allowance, it makes sense to fill it with as much of the “government’s” money as possibly.

[bmwmike]

JBM78 said:

Testaburger said:

.....because the government will add tax relief to it. If you’re a higher rate taxpayer, if you put in 24k, the government will top it up to 40k.

This isn't actually how it works - if you put £24k of your cash in, it will be topped up to £30k into your SIPP and you'll then be able to get a repayment of an additional £6k through self assessment.

Glad someone pointed this out as I was about to question it too. In fact from what I've seen you don't get the 6k but 20% additional relief on the 6k.

[Testaburger]

bmwmike said:

Glad someone pointed this out as I was about to question it too. In fact from what I've seen you don't get the 6k but 20% additional relief on the 6k.

That isn’t true.

Apologies on the semantics. I’m not a U.K. tax resident, so not entirely clued up on the processes. Also, I should have said 32000, not 24000.

The point I was making wasn’t to spell out the process. It was advocating the use of a SIPP to take advantage of tax relief.

A quick look has told me that as a higher rate taxpayer - if I put in 32k, I will get it topped up to 40k, and get an additional 6k refunded back to me after self-assesssment.

That’s still retaining 14 grand a year which would be gone in a puff of smoke, if it was spent elsewhere.

The exact method to get there wasn’t relevant to my point.

[Otispunkmeyer]

Testaburger said:

Jockman said:

You can put in as much as you like. Tax Relief is limited to the first £40k though.

Very true. However, if you’re in a position where you’ll likely hit the lifetime allowance, it makes sense to fill it with as much of the “government’s” money as possibly.

I am missing something here...are you taking about those lifetime ISA things? How/why would the gov top up a personal pension?

[xeny]

Otispunkmeyer said:

I am missing something here...are you taking about those lifetime ISA things? How/why would the gov top up a personal pension?

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief ?

[Testaburger]

Otispunkmeyer said:

I am missing something here...are you taking about those lifetime ISA things? How/why would the gov top up a personal pension?

Essentially, if you put cash into a SIPP from your NET pay, you get rebated the income tax you paid on that cash.

Up to a limit (which is all pension contributions for the year of 40k).

So, assuming as a higher rate taxpayer with no other pension contributions, put in 32k, and the government tops that up to 40k - and you claim a further 6k as a cash refund after your self-assessment. The top-up is normally done automatically these days. Your investment provider will do it for you.

It also brings down your adjusted income to protect your personal allowance - if that’s a factor (earning over 100k).

[red_slr]

How old are you and at what age do you plan to retire?

[Jambo85]

jonny70 said:

Whats apr on the loan?
Inflation is running at 2.6% so if I/R is near this effectively borrowing for free (as debt is eroded by 2.6% each year similar to to the interest cost)

For the above to be relevant Is there an underlying assumption that OP's net income is growing with inflation? Can't speak for the OP but mine isn't.

[mcg_]

Wish I knew how people had so much left over at the end of every month! There's been a few threads recently along similar lines

[Heres Johnny]

You don’t necesarily need to change your mortgage to reduce the term, if you’re happy with the rate, or are locked in with exit fees, look at making over payments, you’re usually allowed to make some, up to a point. This will reduce your debt and the mortgage won’t run the full term anyway.

[DonkeyApple]

Otispunkmeyer said:

Off the back of the income thread, i'd like some comments on our situation.

Mortgage:
50-60% LTV, was a 35 year term with 5 year fixed interest from santander. Borrowed about £130k. Currently pay off £535/mo. Ends Oct 2019.

Loan:
£6.6k outstanding on HSBC personal loan. Paying back at £280/mo

Pension:
Have 4 separate old pensions from previous jobs. All short lived due to going bust over and over and them starting new ones each time. Work for a proper company now with a proper pension. I can put in 4% and they'll put in 4% max for the first 2 years, then it goes up.

General: 4.5k net income. I've worked out that we must have between 1-2k/mo left over depending on whats gone on that month.

Plan then is this:

1) Check when mortgage exit fees (6k) no longer apply. Look at re-mortgaging with a 25 year term instead.
2) Pay off car loan. I can do this now. Set up an ISA to put the £300/mo (rounded up).
3) Consolidate/transfer all old pensions into a SIPP. Set up regular payments.
4) make more contribution to work pension when they increase their match offer. Increase risk appetite

Sensible?

Should note I have an on-line saver account with enough to cover the car loan. OH has a similar account with double that. Also has another savings account with another bank with decent money in and already has an ISA ( I think) with considerable amount in it. So I don't think she can open another ISA in her name? So we do have a fair bit of cash lying around (for us) and not sure whats best to do with it. We could just pay into her existing investments...but thats a bit all eggs in one basket I think.

My knowledge of SIPP/ISA is only limited, so I don't really know who the best suppliers are or anything.

A lot depends on how old you are, when you plan to retire and how much income you will want as to how much you favour your pension over other elements. That really is going to be the key driver.

However, you have a small mortgage which means one of your big risks is mortgage fees. The industry will want to roll you over every 2 years and collect fees from you each time. These fees tend to be fixed and as a percentage of a small mortgage can therefore be enormous and have a big impact on how much your mortgage costs you over your lifetime. You really want to run the sums on longer contract options.

Car loan. Doesn’t seem to be that relevant to be honest. It’s a small amount and at a small rate. But at the same time, it appears that you have cash so looks like you are just paying a bank a load of interest and fees for no real reason? Might make more sense next time to just buy the car outright and give £500/£1000 to a bank of your choice. You have the same end result but without having to fill out any paperwork.

ISA savings of a few tens of £. What’s the reason for the ISA? What is that wrapper giving you for your fee that you cannot get without paying a fee every year?

Quilter used to charge 1% annual management fee and an extra 0.50% for the ISA. So you are giving them 1.5% of your savings every year. Do you know why you are paying this? Have you worked out whether that is good for you?

And that is even before you analyse the performance. An entity such as Quilter almost certainly benchmarks against the APCIMs or FTSE UK Private Investor Balanced index which are designed to flatter so you want to compare against the real world etc.

Personally, I would consider a long dated offset mortgage as it will reduce fees and you and your wife clearly are capable of saving so you’re not at risk of mismanagement. Store your cash savings against that and add a repayment element each month and chuck a bit more in on top.

I would consider, based on your ages etc, whether planning to use the 25% tax free pension drawdown to pay off the last chunk of your mortgage might be a cheaper and more efficient tool.

I would question whether you need an ISA as well as the services of Quilter for a small portfolio. Between you and your wife you have an enormous annual CGT allowance that you can utilise for free. Quilter are geared towards multi million GBP portfolios so their charges at the smaller end are quite high. Properly evaluating what you have received for that cost is important.

Consolidating old pensions into a SIPP might be the best solution there. I never see any harm in running a personal pension alongside a company scheme. I see it as a bit of a hedge.

But all in, from the basic numbers you give, you’re probably in the top few percent of people in the country given that you have savings and negligible debt and that being tax and fee efficient is likely your largest area of importance.

[Fipster]

Testaburger said:

Otispunkmeyer said:

I am missing something here...are you taking about those lifetime ISA things? How/why would the gov top up a personal pension?

Essentially, if you put cash into a SIPP from your NET pay, you get rebated the income tax you paid on that cash.

Up to a limit (which is all pension contributions for the year of 40k).

So, assuming as a higher rate taxpayer with no other pension contributions, put in 32k, and the government tops that up to 40k - and you claim a further 6k as a cash refund after your self-assessment. The top-up is normally done automatically these days. Your investment provider will do it for you.

It also brings down your adjusted income to protect your personal allowance - if that’s a factor (earning over 100k).

It’s £8k you’d be getting back, not £6k. Overall, the £40k in your pension will cost you £24k (assuming all of it falls into higher rate earnings)

[Otispunkmeyer]

DonkeyApple said:

Otispunkmeyer said:

Off the back of the income thread, i'd like some comments on our situation.

Mortgage:
50-60% LTV, was a 35 year term with 5 year fixed interest from santander. Borrowed about £130k. Currently pay off £535/mo. Ends Oct 2019.

Loan:
£6.6k outstanding on HSBC personal loan. Paying back at £280/mo

Pension:
Have 4 separate old pensions from previous jobs. All short lived due to going bust over and over and them starting new ones each time. Work for a proper company now with a proper pension. I can put in 4% and they'll put in 4% max for the first 2 years, then it goes up.

General: 4.5k net income. I've worked out that we must have between 1-2k/mo left over depending on whats gone on that month.

Plan then is this:

1) Check when mortgage exit fees (6k) no longer apply. Look at re-mortgaging with a 25 year term instead.
2) Pay off car loan. I can do this now. Set up an ISA to put the £300/mo (rounded up).
3) Consolidate/transfer all old pensions into a SIPP. Set up regular payments.
4) make more contribution to work pension when they increase their match offer. Increase risk appetite

Sensible?

Should note I have an on-line saver account with enough to cover the car loan. OH has a similar account with double that. Also has another savings account with another bank with decent money in and already has an ISA ( I think) with considerable amount in it. So I don't think she can open another ISA in her name? So we do have a fair bit of cash lying around (for us) and not sure whats best to do with it. We could just pay into her existing investments...but thats a bit all eggs in one basket I think.

My knowledge of SIPP/ISA is only limited, so I don't really know who the best suppliers are or anything.

A lot depends on how old you are, when you plan to retire and how much income you will want as to how much you favour your pension over other elements. That really is going to be the key driver.

However, you have a small mortgage which means one of your big risks is mortgage fees. The industry will want to roll you over every 2 years and collect fees from you each time. These fees tend to be fixed and as a percentage of a small mortgage can therefore be enormous and have a big impact on how much your mortgage costs you over your lifetime. You really want to run the sums on longer contract options.

Car loan. Doesn’t seem to be that relevant to be honest. It’s a small amount and at a small rate. But at the same time, it appears that you have cash so looks like you are just paying a bank a load of interest and fees for no real reason? Might make more sense next time to just buy the car outright and give £500/£1000 to a bank of your choice. You have the same end result but without having to fill out any paperwork.

ISA savings of a few tens of £. What’s the reason for the ISA? What is that wrapper giving you for your fee that you cannot get without paying a fee every year?

Quilter used to charge 1% annual management fee and an extra 0.50% for the ISA. So you are giving them 1.5% of your savings every year. Do you know why you are paying this? Have you worked out whether that is good for you?

And that is even before you analyse the performance. An entity such as Quilter almost certainly benchmarks against the APCIMs or FTSE UK Private Investor Balanced index which are designed to flatter so you want to compare against the real world etc.

Personally, I would consider a long dated offset mortgage as it will reduce fees and you and your wife clearly are capable of saving so you’re not at risk of mismanagement. Store your cash savings against that and add a repayment element each month and chuck a bit more in on top.

I would consider, based on your ages etc, whether planning to use the 25% tax free pension drawdown to pay off the last chunk of your mortgage might be a cheaper and more efficient tool.

I would question whether you need an ISA as well as the services of Quilter for a small portfolio. Between you and your wife you have an enormous annual CGT allowance that you can utilise for free. Quilter are geared towards multi million GBP portfolios so their charges at the smaller end are quite high. Properly evaluating what you have received for that cost is important.

Consolidating old pensions into a SIPP might be the best solution there. I never see any harm in running a personal pension alongside a company scheme. I see it as a bit of a hedge.

But all in, from the basic numbers you give, you’re probably in the top few percent of people in the country given that you have savings and negligible debt and that being tax and fee efficient is likely your largest area of importance.

That is a lot to digest!

The car loan is just a result of circumstances. I did t have the money at the time and needed a decent car. Didn't think much of it as it was 10k and about £400 costs. But if I pay that off today, then I've had the loan < 12 months and I'll be refunded some of that interest.

The ISA my wife has? No idea why it was set up or why with quilter. Her parents set this up a while ago and they have large investments with them. Aside from being aware of it, I kinda keep my neb out...I don't want to wade I suggesting we transfer it all elsewhere. But from looking over the reports it seems to be not that shabby? I mean in the last two years another 7-8k has been generated. I didn't think that was too bad? Certainly way better than a bank account.

I mentioned another ISA just because I know I can have one too and make use of the same benefits. Wasn't sure if that was a good or bad idea though.

So a SIPP sounds like a worthwhile venture and I'll do some research of offset mortgages. I've heard of them and know basically how they work but I need further understanding of the pros and cons.

It's just getting an understanding of all the other stuff you mention. That big CGT allowance...no idea how I'd utilise that.

We're both early 30s and as for retirement? At the moment I'm not of the early retirement mindset. I work in a job I really like in an industry I have intense interest in. I can really see myself working up to exec level over the next 30 years and, health allowing, continuing to work well into 60s/70s in some form. parents have done similar, my current boss is like that now. If they can do it today, we'll be able to do it in 30-40 years time. We're not ones for staying idle. My dad is late 60s and has just gone out to Basra to help BP train up the locals on the oil fields. He was retired but that didn't last long!....he does get driven everywhere with 3 armed guards mind! Bit sketchy!

But of course, who can predict the future eh? I am just trying to prepare as best I think I can for later life. Whatever that is.