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  • FIRST POST
    • mike_302
    • By mike_302 15th Jul 17, 7:55 PM
    • 14Posts
    • 0Thanks
    mike_302
    Investing Advice
    • #1
    • 15th Jul 17, 7:55 PM
    Investing Advice 15th Jul 17 at 7:55 PM
    Hello all,

    I hope you will allow me to provide an overview of my scenario, and provide feedback on my thoughts for my savings/investment strategy going forward. I think you will find that while I have a unique profile, my investment/savings options aren't that unique, and others might be facing a similar question.

    I am a young Canadian living in the UK for just about a year now, with no intentions to return to Canada -- loving my current situation and intending to stay for the long term, but also not currently looking at home ownership. As for staying in the UK: this is the likely scenario, but you never know in today's fast changing, geo-politically unstable world... I also have savings and investments growing in Canada, in CAD$.

    I am earning enough here to contribute to my workplace pension scheme and to get the maximum employer-matched contribution, and I still have enough left over in the monthly budget to save more (albeit, I'm still a basic rate tax payer). For example, I could max out the Lifetime ISA / annum and still have a reasonable amount leftover. So my big question of the day is: what do I do with that money, because it's sitting and just growing at the bank's promo interest rate at the moment...

    Options:
    (a) Contribute more to the pension plan, saving the income tax on whatever I decide to contribute; but then I'm contributing to a corporate pension plan, and that's pretty well locked in until retirement, with no other options to use that money without paying a penalty.

    (b) Take the income and put it into a Stocks and Investment flavoured Lifetime ISA. 25% return is great, plus whatever I can make the portfolio achieve (I would likely invest in a diverse range of 3-5 ETF's, with a balanced-to-moderate risk profile). Put the additional savings into a regular stocks and investment flavoured ISA, and mirror the portfolio in the LISA account.

    (c) Simply put all of the savings in a regular stocks and investment ISA. This would be forfeiting a massive free-money bonus compared to (a) or (b), but it would give me the freedom to move the money if the UK/GBP£ nose-dives in terms of geo-political / financial status due to certain topical issues...

    (d) Other comparably good savings options?

    Can anyone add some commentary to this?

    Some commentary from me to kickstart:
    (a) and (b) effectively result in earning £100 for every £80 of savings you commit to (quoting an MSE article):
    With a pension you save from gross (pre-tax) income. So, as a basic-rate taxpayer, to save £100 only costs you £80 from your pay packet, as that's all you would've received.
    With a LISA you save from net (after-tax) income. So, to put £80 in costs you £80. However, if 25% is added to it, that means you've got £100.

    With case (a), I assume there's some extortionately high penalty for taking money out of your pension account early, so putting all of my savings into the pension account would not allow me to take it out to buy a house, or to fund some other major expense if necessary (if that's what I ever decided to do).
    With case (b), I gather there's effectively a 6.25% penalty for withdrawing from the LISA if you aren't buying a house and taking it out before 60.

    Any further thoughts? Is there some way to combine my ISA allowance with my pre-tax income (e.g. contributing to a pension that is located in a stocks and investment ISA?)
    Last edited by mike_302; 15-07-2017 at 8:19 PM.
Page 1
    • TomSurrey
    • By TomSurrey 16th Jul 17, 2:27 PM
    • 17 Posts
    • 13 Thanks
    TomSurrey
    • #2
    • 16th Jul 17, 2:27 PM
    • #2
    • 16th Jul 17, 2:27 PM
    Hi Mike, what do you want to do in life? What are your objectives of saving? If you get the question right the answer is the easy bit.
    • mike_302
    • By mike_302 16th Jul 17, 2:58 PM
    • 14 Posts
    • 0 Thanks
    mike_302
    • #3
    • 16th Jul 17, 2:58 PM
    • #3
    • 16th Jul 17, 2:58 PM
    Hi Tom,

    I think there's a lot of opportunities ahead. It would be wrong to say I never want to buy a home. I may get a house, but not likely in the next 10 years. It'd be better to save and grow that pot of money for a larger mortgage down payment, I think, and get the best mortgage rate possible, in 10+ years; or to get a reasonable mortgage sooner if we can make a property work as both primary residence and a source of income somehow.

    I have resigned to building up a pension in the UK too --- my employer offers a contribution matching incentive, so why not build a pot of money, some of it for free money, and just remember it's there when I come around to retiring, wherever I am....

    But then there's the possibility of some other major expenditure -- what if I want to support my partner through some additional studies / career training?

    I've kept thinking about this original post since last night. I think it's sensible to use the LISA to it's max if we think there's even a small (say 20%) chance that we'll buy a house here in the future. If we don't buy, then the LISA has effectively acted as a pension, albeit a slightly more expensive one because there are NI savings to be had by contributing directly to the pension fund. If we do buy a house eventually, then the LISA has been an effective tool for savings and growth. If I only used the pension, we wouldn't even have the option of using any savings for a house, albeit my pension would be in great shape...

    I'm also finding that I'm doing a fairly good job at saving, if the "half your age = pension contribution %"-rule of thumb is to be believed. At 25, I'm saving something like 48% of my earnings, inclusive of my employers pension contribution. A portion of that goes to my pension scheme, and the rest is what I'm trying to figure out what to do with here.

    One final thing I'm trying to understand is whether I can contribute some of my salary, pre-tax, to a stocks and savings ISA... The pension fund company my employer uses (a major one) seems to suggest that I can contribute to one of their ISA's or to a pension fund, but whether the ISA contribution would be pre- or post-tax is unclear to me as of yet... It seems toogoodto be true to save the tax on my salary and also to have the flexibility of an ISA.
    • Alexland
    • By Alexland 17th Jul 17, 7:51 PM
    • 39 Posts
    • 20 Thanks
    Alexland
    • #4
    • 17th Jul 17, 7:51 PM
    • #4
    • 17th Jul 17, 7:51 PM
    ISA savings are made from your after tax income.
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