What are the best options for me?
Discussion
Hi all,
Read a few threads recently, and hoping for some thoughts in terms of what I should consider doing financial planning wise.
I'm late 40's, and work for the local authority. A bit late getting into pensions as had far more fun wasting it on stuff in my younger days but now have a reasonable amount of disposable income each month - so rather than sitting looking at it in the bank, am minded of the need to do something sensible with it.
House wise - current mortgage has 18 months to run, which will leave me an outstanding balance of about £20k. (house value around £360k). Until now I've been focussed on overpaying, and then getting the balance paid off, but can now see the benefit of leaving this in situ and have the option to borrow against it / use the money to invest elsewhere.
Have Premium Bonds - a few '000 but not masses.
Have a Buy to Let flat, owned with my brother, which ticks overs - nothing special, just generates a little extra.
Have a LGPS pension.
Job is stable and I have a decent contingency pot should anything untoward happen.
So, what do I do next? Minded to add money to pension pot via AVC but equally think there are better, more interesting/exciting places to invest alongside/instead - happy for a mix of risk/return. Just not in a 'put it all on red' sort of way...
Over to you!
Read a few threads recently, and hoping for some thoughts in terms of what I should consider doing financial planning wise.
I'm late 40's, and work for the local authority. A bit late getting into pensions as had far more fun wasting it on stuff in my younger days but now have a reasonable amount of disposable income each month - so rather than sitting looking at it in the bank, am minded of the need to do something sensible with it.
House wise - current mortgage has 18 months to run, which will leave me an outstanding balance of about £20k. (house value around £360k). Until now I've been focussed on overpaying, and then getting the balance paid off, but can now see the benefit of leaving this in situ and have the option to borrow against it / use the money to invest elsewhere.
Have Premium Bonds - a few '000 but not masses.
Have a Buy to Let flat, owned with my brother, which ticks overs - nothing special, just generates a little extra.
Have a LGPS pension.
Job is stable and I have a decent contingency pot should anything untoward happen.
So, what do I do next? Minded to add money to pension pot via AVC but equally think there are better, more interesting/exciting places to invest alongside/instead - happy for a mix of risk/return. Just not in a 'put it all on red' sort of way...
Over to you!
AndyD360 said:
So, what do I do next? Minded to add money to pension pot via AVC but equally think there are better, more interesting/exciting places to invest alongside/instead - happy for a mix of risk/return.
If you're a 20% tax payer, £100 in AVCs only costs you £80, so you're earning 25% interest on day 1. If you're a 40% tax payer, £100 into AVCs costs you £60, so you're earning 66.66% interest on day 1. In these days of 0.5%/year returns on savings accounts, I'm not sure you can do much better than 25% or 66.66% in a single day. And that's not even allowing for any growth going forward!
The obvious ones are ISAs, as you have a cash contingency already, then something like well diversified equities from a group like Vanguard would seem sensible.
It would also make sense to write yourself a plan. When will you retire? Are you likely to move house? Do kids need support through university? etc, etc.
If you have clear goals then saving will make a lot more sense. There cannot then be a wrong answer.
It would also make sense to write yourself a plan. When will you retire? Are you likely to move house? Do kids need support through university? etc, etc.
If you have clear goals then saving will make a lot more sense. There cannot then be a wrong answer.
Here's the leftfield one:
You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
AndyD360 said:
So, what do I do next? Minded to add money to pension pot via AVC but equally think there are better, more interesting/exciting places to invest alongside/instead - happy for a mix of risk/return. Just not in a 'put it all on red' sort of way...
You could go with a SIPP rather than AVC (so it is still pension tax wrapped) and then pick the investment funds of your choice, but you'd want to put some time in understanding what you're doing if you're planning to make you're own investment decisions.DonkeyApple said:
Here's the leftfield one:
You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
Love the sound of this. Something pleasing about recycling funds like this. Has anyone done it? You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
brightmotiv said:
DonkeyApple said:
Here's the leftfield one:
You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
Love the sound of this. Something pleasing about recycling funds like this. Has anyone done it? You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
My OH sold her house and bought 50% of mine so i ended up with some cash (and an Atom!!
). I salary sacrificed down to minimum wage about £50k over the 2 years (20% tax and 13% NI so cost me £67 for £100 invested in pension) and used my savings to pay mortgage/live. Seemed a no brainer and will do it again when mortgage paid offFew people ever find themselves in the position to do it as you need to be young enough and with a reliable income while conversely have a property of value and almost no mortgage on it. So being at that latter point in your late 40s is unusual.
The more common scenario is inheritance windfalls where that cash is cycled into a pension wrapper at £40/annum (Max amount I think for tax relief?) or rather £40knofnincome is paid in and the person lives off £40k of inheritance/savings being semantic.
In this case there isn't that windfall and it is just recycling of your own wealth out of a property asset, into a pension wrapper and eventually back out into the property for no net gain other than the clawing back of all your income tax over multiple years.
You would definitely want to pay some money to an advisor to flesh out the exact numbers for your circumstances
I assume there is a realistic limit on how long you can run this for.
You can only use 3 previous years pension allowance, and with life time limit around a million you will soon hit the buffers.
There is no saying what shafting the government is likely to introduce. I would have thought this more likely now.
You would need £800k in the pot to get enough tax free to pay off the mortgage.
Nice idea though if it works.
You can only use 3 previous years pension allowance, and with life time limit around a million you will soon hit the buffers.
There is no saying what shafting the government is likely to introduce. I would have thought this more likely now.
You would need £800k in the pot to get enough tax free to pay off the mortgage.
Nice idea though if it works.
Would it be worth still keeping a very small mortgage going?
I say this from experience from my parents.
They paid the mortgage off very quickly. Had a bit of bad luck with the house and it need some renovations which wasn’t cheap.
They had to take out a loan to get the renovations done which was quite a high APR compared to the mortgage they had. They couldn’t take out a new mortgage because my dad had gone self employed at the same time and needed to prove his income which he couldn’t do. If they still had a small mortgage it would have been increased with no questions asked but a new one requires all the extra checks.
It was rotten luck at the time for my dad to be happy that he could go self employed and choose his own hour and at the same time the house then needing a major repair. He ended up having to go back to his old employer cap in hand.
Just food for thought, expect the unexpected.
I say this from experience from my parents.
They paid the mortgage off very quickly. Had a bit of bad luck with the house and it need some renovations which wasn’t cheap.
They had to take out a loan to get the renovations done which was quite a high APR compared to the mortgage they had. They couldn’t take out a new mortgage because my dad had gone self employed at the same time and needed to prove his income which he couldn’t do. If they still had a small mortgage it would have been increased with no questions asked but a new one requires all the extra checks.
It was rotten luck at the time for my dad to be happy that he could go self employed and choose his own hour and at the same time the house then needing a major repair. He ended up having to go back to his old employer cap in hand.
Just food for thought, expect the unexpected.
Edited by Aiminghigh123 on Wednesday 6th January 07:55
My wife is in the LGPS and only slightly older than you.
She is paying over half her income (taxed at basic rate) into a SIPP and will continue to do this until age 57.
If all goes to plan then at 57 she will stop working and then take income as follows:
- At age 57, take the 25% tax free lump sum from the SIPP
- From age 57, start drawing down £12,500 per year from the SIPP. Hopefully this will last until age 67.
- From age 65, start LGPS pension (final salary scheme)
- From age 67. start LGPS pension (career average scheme post 2014)
- From age 67, start State Pension
Unless something changes then that plan should allow her to keep 100% of her income from now until age 67 when her income will be above the personal income tax allowance.
She is paying over half her income (taxed at basic rate) into a SIPP and will continue to do this until age 57.
If all goes to plan then at 57 she will stop working and then take income as follows:
- At age 57, take the 25% tax free lump sum from the SIPP
- From age 57, start drawing down £12,500 per year from the SIPP. Hopefully this will last until age 67.
- From age 65, start LGPS pension (final salary scheme)
- From age 67. start LGPS pension (career average scheme post 2014)
- From age 67, start State Pension
Unless something changes then that plan should allow her to keep 100% of her income from now until age 67 when her income will be above the personal income tax allowance.
Edited by LeoSayer on Wednesday 6th January 08:53
supersport said:
I assume there is a realistic limit on how long you can run this for.
You can only use 3 previous years pension allowance, and with life time limit around a million you will soon hit the buffers.
There is no saying what shafting the government is likely to introduce. I would have thought this more likely now.
You would need £800k in the pot to get enough tax free to pay off the mortgage.
Nice idea though if it works.
Yup. Plus the £40k annual limit. You need to sit down with a spreadsheet and work out how much you can borrow and the rate, you need to know how much you earn and as you say, what the lump sum is that you can remove and then assuming you work for another decade until 65 what the repaymentsbon the remaining mortgage will be to clear within those ten years. You can only use 3 previous years pension allowance, and with life time limit around a million you will soon hit the buffers.
There is no saying what shafting the government is likely to introduce. I would have thought this more likely now.
You would need £800k in the pot to get enough tax free to pay off the mortgage.
Nice idea though if it works.
It needs work, planning and disciple, it's not like your fire and forget guaranteed 10%/annum bamboo farm.
I agree with xeny above. If the range of AVC investments available is too narrow for you, just open a SIPP. But remember up to 100% of scheme AVCs can be used for your tax free cash but only 25% of SIPP can be taken as tax free cash.
I personally would not borrow against my own home to invest elsewhere. However, if you made sure your borrowings don't exceed the value of your half of the BTL you could try to tell yourself you weren't really putting your home at risk.
I personally would not borrow against my own home to invest elsewhere. However, if you made sure your borrowings don't exceed the value of your half of the BTL you could try to tell yourself you weren't really putting your home at risk.
Aiminghigh123 said:
Would it be worth still keeping a very small mortgage going?
I say this from experience from my parents.
They paid the mortgage off very quickly. Had a bit of bad luck with the house and it need some renovations which wasn’t cheap.
They had to take out a loan to get the renovations done which was quite a high APR compared to the mortgage they had. They couldn’t take out a new mortgage because my dad had gone self employed at the same time and needed to prove his income which he couldn’t do. If they still had a small mortgage it would have been increased with no questions asked but a new one requires all the extra checks.
It was rotten luck at the time for my dad to be happy that he could go self employed and the house then needing a major repair.
Just food for thought, expect the unexpected.
Your dad would have still needed to qualify for the mortgage even if he still had a small balance remaining.I say this from experience from my parents.
They paid the mortgage off very quickly. Had a bit of bad luck with the house and it need some renovations which wasn’t cheap.
They had to take out a loan to get the renovations done which was quite a high APR compared to the mortgage they had. They couldn’t take out a new mortgage because my dad had gone self employed at the same time and needed to prove his income which he couldn’t do. If they still had a small mortgage it would have been increased with no questions asked but a new one requires all the extra checks.
It was rotten luck at the time for my dad to be happy that he could go self employed and the house then needing a major repair.
Just food for thought, expect the unexpected.
LeoSayer said:
If all goes to plan then at 57 she will stop working and then take income as follows:
- At age 57, take the 25% tax free lump sum from the SIPP
- From age 57, start drawing down £12,500 per year from the SIPP. Hopefully this will last until age 67.
Wouldn't the 25% tax free lump sum be better left in the pension, to grow and be passed down free of IHT should anything happen to her.- At age 57, take the 25% tax free lump sum from the SIPP
- From age 57, start drawing down £12,500 per year from the SIPP. Hopefully this will last until age 67.
Instead of taking it, why not just take £16,666 a year, your £12500 tax free allowance and your 25% tax free on top.
Unless you have specific plans for it. But no point in taking it out and squirrelling it away somewhere.
TwigtheWonderkid said:
Wouldn't the 25% tax free lump sum be better left in the pension, to grow and be passed down free of IHT should anything happen to her.
Instead of taking it, why not just take £16,666 a year, your £12500 tax free allowance and your 25% tax free on top.
Unless you have specific plans for it. But no point in taking it out and squirrelling it away somewhere.
You are right of course. Instead of taking it, why not just take £16,666 a year, your £12500 tax free allowance and your 25% tax free on top.
Unless you have specific plans for it. But no point in taking it out and squirrelling it away somewhere.
We had planned to borrow from the mortgage to make pension contributions in the expectation of my wife receiving an endowment maturity due in the next year. The purpose of the lump sum plan was to 'pay back the endowment' which is more psychological than prudent if the funds aren't required.
Various things changed meaning that we now don't need to borrow and she has increased the contributions to a level that should allow her to bridge the income gap from 57 to 67 as mentioned above.
One thing I still can't quite my head around is why you can get tax relief on 100% of your income, including the £12,500 personal allowance.
DonkeyApple said:
Here's the leftfield one:
You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
I cut the cut of your jib Sir! You have enormous property equity and a solid job, plus excess income. At the same time you are approaching 50 and I believe it is still the case that you can draw from your pension at 55. To cap this you suggest that you've stopped mad spending and now have a saving mentality which suggests that you can sit on a big pot of cash and not spend it.
On this premis this is what would be worth exploring:
Take out the biggest offset mortgage that you can. Maybe you could take out a loan for as much as £200k. Then leave it in the offset account so you effectively pay nothing each month to start with.
Then open a pension. In year 1 take an amount from your offset account that is enough to match that year's taxable income and pay it into the SIPP and claim all your income tax back. You can possibly still backdate payments for up to five previous years if you wanted? You do this each tax year so that while your mortgage debt grows your pension grows by the same amount plus every year you get all your income tax back.
Then, when you can draw from your pension you remove the tax free lump sum and use it to pay down your mortgage debt.
You need to play around with a spreadsheet and get it approved by a proper pension chappie but because you are in the position that you are in you could effectively not pay any income tax going forward for years which would very crudely equate to an annual investment return of around 20% without even investing in anything and carrying any risk.
Not leftfield, just innovative rather than passive advice.
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