1200 pounds a month - Where to save?

greggymagic

Hi all - Newbie after some opinions

How would you spread 1200 pounds a month in savings and investments?

I am a 40% tax payer
I have used up my cash ISA allowance for this year and would be looking to put 3600 in straight away next April.
I have a 208k mortgage but am fixed for another 3 years at a good rate
I have no pension.

I have roughly 1200 pounds to save a month but would like opinions on how to spread it in such a way that I:

Have a slush fund easy access for emergencies
Have a fund for medium to long term growth over a number of years ie maybe to pay off a lump sum of the mortgage in 5 years).
Have a fund for retirement

Just wondered what the best order is?

Is it Cash Isa, then Pension, then Savings account, then Stocks and shares Isa then Pension...... or would people give priority for one over the other?
For instance as I am in 40% tax should I plough money into pension for maximum tax benefit as there is no guarantee that in 2 years time I'll still be in 40% bracket and I'd have missed my tax allowance?

Thank you for reading

whu

Hi
I would start a pension - do you have a company scheme you can pay into so that you get a contribution from your employer?

sympatex

Quite a broad set of questions and would have to make some assumptions. As a higher rate tax payer with 1200 spare to do what you want with i would suggest a pension would be your first option. (ISA vs Pension debate on this site is worth a look if you don't have company contributions). If you have access to a final salary/company contribution scheme those are priorities. Depending on your age and pension scheme you might have to save more or less than the 10% ball park figure suggested you should save each year towards retirement. I would personally break your question up and asking on the pensions board for suggestions on isa vs pension outside of company defined schemes. ISA is a use it or lose it feature so always use this over any other 'savings' schemes as the other schemes will always be available. You can select an easy access ISA to enable you to have both ready access money and money earning the most it can while its there.

Rafter

Pension is all about deferring your tax liability (not paying 40% tax now) and hopefully paying it at 0% or 20% when you retire, together with the compound investment return (tax free) until then.

From what you have said I'd look at index certificates from national savings to ensure you get some more tax free benefit their.

I'd steer clear of stocks and shares ISAs untill their is a clear picture about direction.

Cash seems to be kind right now and keeping it in UK based savings accounts and bonds seems to be giving a great return.

You should also look at whether you are allowed to make overpayments on your mortgage and think about an offset mortgage next time so you can earn 'tax free' income and pay down faster if your circumstances allow.

R.

greggymagic

Hi Guys

Thanks for your responses.

Am 31 and can go into my company stakeholder pension but they don't contribute anything to it so not sure whether its worth just getting a private pension.

I have a pension from a previous employer(axa equity is the pension company) with not very much in it and I haven't made contributions to it since I left the company 8 years ago.

Do you think it is worth phoning the company I already have that pension with and just making new contributions or should I start a new one from scratch after a chat with an IFA.

Sorry one more thing - am I right in thinking that although the tax is deffered now (@40%) by the time I get to take my pension the amount in the fund will most probably not give me an annual return that would put me in the highest tax bracket anyway (theoretically based on todays tax brackets) so that was my point about not wasting the years whilst I am in 40% bracket? (contributing 6000 per annum will put in 10,000 per annum but if I were to change jobs and be in a lower tax bracket then I would have to contribute 8000 net to get the same amount in my pension fund)

Cheers in advance

moneysavingwannabe

Hi,

Have you looked at overpaying your mortgage? Even a small amount of £1200 would knock years off your term. This would save you lots of interest try a mortgage calculator it will show you how many years you can save/interest you can save.

I am only overpaying £90 a month and can knock off 5 yrs and save over £10,000

jem16

greggymagic wrote: »

Do you think it is worth phoning the company I already have that pension with and just making new contributions or should I start a new one from scratch after a chat with an IFA.

With £1200pm to invest in a pension I would see an IFA. There may be better pensions available now than 8 years ago.

Sorry one more thing - am I right in thinking that although the tax is deffered now (@40%) by the time I get to take my pension the amount in the fund will most probably not give me an annual return that would put me in the highest tax bracket anyway (theoretically based on todays tax brackets) so that was my point about not wasting the years whilst I am in 40% bracket? (contributing 6000 per annum will put in 10,000 per annum but if I were to change jobs and be in a lower tax bracket then I would have to contribute 8000 net to get the same amount in my pension fund)

Cheers in advance

Yes that's the advantage of using a pension if you are a higher rate taxpayer now but not likely to be in retirement. It could also mean that if you pay enough into your pension at the moment it could bring you back below higher rate tax.

LongTermLurker

jem16 wrote: »

It could also mean that if you pay enough into your pension at the moment it could bring you back below higher rate tax.

Is that right? Isn't Income for tax purposes calculated BEFORE any deductions (even pensions)?

I can imagine that working for Salary Sacrifice, but surely not general pension contributions??

jem16

LongTermLurker wrote: »

Is that right? Isn't Income for tax purposes calculated BEFORE any deductions (even pensions)?

Technically yes if you are paying into a personal pension or stakeholder pension.

However when you complete your tax return at the end of the tax year you enter the gross pension payment. In the self assessment calculation the basic rate limit is increased by that gross amount.

So if you paid £8000 net into your pension, the gross amount would be £10,000 and the basic rate limit would be increased by £10,000.

If it's an occupational pension contributions are taken off before tax is deducted so your taxable income is reduced right away.

[Deleted User]

I'd suggest posting a separate thread on the Pension board (http://forums.moneysavingexpert.com/forumdisplay.html?f=19) for that aspect of your questions and 1 more thread on the Mortgage-Free Wannabe board (http://forums.moneysavingexpert.com/forumdisplay.html?f=98) to discuss paying it off early etc...

1. As you're already aware generally ISA's are a good place to start:

http://www.moneysavingexpert.com/sav...gs-without-tax
and http://forums.moneysavingexpert.com/....html?t=401374

2. Regular savings accounts are good too:

http://www.moneysavingexpert.com/sav...vings-accounts
and http://forums.moneysavingexpert.com/....html?t=608697

Regular savings accounts are generally a good place for new money e.g. monthly pay cheques, however if for example you have £3k in a 6% high-interest bank account drip-feeding into a 10% regular savings account then you're essentially getting 8% interest on average for your £3k which beats most fixed rate products - albeit with a bit more work.

3. If you want something with a little less work then fixed rate savings accounts are a good option:

http://www.moneysavingexpert.com/sav...interest#fixed
and http://www.thisismoney.co.uk/saving-...&in_page_id=50

4. One other thing you might like to consider is getting a decent instant access savings account:

http://www.moneysavingexpert.com/sav...st#topaccounts
and http://www.thisismoney.co.uk/saving-...&in_page_id=50

5. Finally as you're a higher rate tax payer then NS&I's 3 and 5 year Index Linked Savings (http://www.nsandi.com/products/ilsc/index.jsp) look good, paying 1% above the RPI inflation rate. Currently this is 4.3% so that’s a rate of 5.3% after-tax or 8.8% before. Finding a savings account paying this isn't common... It is tied to inflation however so if this rate drops then so does your interest.

greggymagic

Thank you very much everyone. Lots of things to think about! Thank you in particular to David MT83 for all the links that you have posted. Excellent.


Cheers