Advice on where to invest £800 per month

suweb5

First post.
Through a combination of having paid off our mortgage and no longer having to support daughter my husband and I have about £1000 a month more money than we did six months ago. We have decided that we will spend about £200 a month on frivolities like nice meals and theatre trips but want to invest £800 per month approx.Since we have been used to the money going out of our account, I have been transferring the money each month to a savings account (in my name;) he's a hr taxpayer). However, since we are in our fifties our thoughts naturally go towards retirement income. My question therefore is whether it would be better to put the money into pensions or a stocks and shares ISA? Alternatively would it be better to continue with the savings schemes?

Thank you for any advice.
Susan

dunstonh

My question therefore is whether it would be better to put the money into pensions or a stocks and shares ISA?

Could be one or the other or both.

Both pensions and ISAs are tax wrappers. Containers for investments. The same investments can be placed in both so investment returns would be identical. The only real difference is the tax handling and the maturity process.

For most people, a bit of both is the best option. However, what you should pay into each will depend on personal circumstances and objectives.

Alternatively would it be better to continue with the savings schemes?

Having some cash makes sense but you shoulnt be too top heavy in any one option. Savings are safe but dont offer much potential to beat inflation. In addition to inflation risk you also have shortfall risk. So, you are just replacing one type of risk with another. Having a spread of areas helps reduce the impact of the various risks.

EdInvestor

Do you already have private/company pension provision?

How about your state pensions, what are you expecting there?

suweb5

Thank you for your responses
Our situation is:
Husband is in final salary pension scheme which was expected to pay about £28k+ pa in 13 years but his company is going to have 'consultations' about closing it and changing to money purchase so we are not quite sure what the situation will be there:(
He will have full state pension and also has a Plan 32 policy (I think that's what it's called) from a previous pension scheme but I'm not sure what that's worth.
My pension provision is not very good because I did not work from 1993 until 2004 because I was looking after my disabled son so only started contributing to a pension about 5 years ago when i started a stakeholder because my then employer didn't have a pension scheme.
I have a preserved index linked Civil Service pension which will pay about £3kpa in todays money plus a lump sum of £7k when I am 60. I have the stakeholder pension with Legal & General which according to the latest statement might pay about £1.5k pa at 60, I pay about £240(net) per month into that. I have been in a company scheme (with Standard Life) for nearly two years, I pay £61.74(net) into that and my employer pays £158.33. i don't have the latest statement for that yet but last year's projected £1.9kpa at 65. I obtained a pensions forcast recently and I am entitled to a full State pension.
We feel reasonably comfortable about our retirement income but obviously it's impossible to know what the future will bring as to care needs etc.
Thank you for reading this.
Susan

nrsql

You might look into paying into a pension, taking the 25% tax free lump sum (as you are over 50) and paying that (or part of it) into an isa. Could reduce your tax liability.

I would also look at other things like ns&i index linked certificates.

p.s. section 32 buyout.

DiggerUK

Suweb5,
Despite the real prospect of your husband losing the final salary pension, your well positioned for a retirement out of the poor house.
Even if the projections of 34K income p.a. turn out in reality to be 24K (+ state) when the time comes you have the number 1 asset to survive.
You're debt free, in particular the mortgage gone.

I'd advise building up a retirement chest of cash savings for now. The economic situation is too dire to take risks with equity type savings. Both of you should be using your ISA allowances to the max.

Premium Bonds are always a bit of fun, whats wrong with a bit of daydreaming. It's were we keep our emergency funds.

We're partial to gold, you should consider putting a few sovereigns by. The time frame you are looking at is ideal, and at about 145 each, affordable. You are relying on capital growth only, but with the advantage that you will never own a worthless piece of gold. Hang on to any old jewelry you have as well.

You have had an eventful life, your retirement looks good from what you have described.

Best of fortune.

Bob_the_Saver

Invest half in wine, women and song then waste the rest!

EdInvestor

When you retire you will both have tax allowances of around 10k and it is very sensible to make sure that neither is wasted.Already your husband's income is likely to be above the level where there is age allowance is clawed back at punitive tax rates - so he should extract cash lump sums where possible to be invested to provide a non taxable income stream.via ISAs and other tax free savings and investments.

It looks like your own 10k allowance is already filled up with as well.

Thus my suggestion is you maximise your ISA allowances - from October 10.2 k a year each.You can use half for cash (if you want)and half for stocks and shares, or put all the money in risk based investments (which sounds like the best route) if you like. Income and capital gains will be tax free when you draw on them in retirement. Suggest you split the money half each with accounts in both n ames.

https://www.h-l.co.uk is a discount broker which rebates charges to fund investors.

suweb5

Thank you all for your advice. As a first step we are both going to use our S + S ISA allowances for this year (we have both already contributed the full allowance to our cash ISAs). Then I think we will consider the pensions question once we know the effect of my husband's company closing their final salary scheme as it may be better to put our spare money into any future money purchase scheme his company set up rather than my stakeholder (more tax relief ).
We were going to consult an IFA anyway because we are expecting to receive some money once probate is granted on a relative's will so we will get some advice about retirement planning too.
Once again thank you.
Susan

samnorris2

suweb
Im no expert on this and just been reading through the tax shelter options available just now... many people here have mentioned ISAs but there may be a possible opportunity for you in SIPPs. This idea just came into my head as I was reading through your posts and you'd be best to get some professional advise on this if it was an option.

You could also look into the Hargreaves and Lansdown SIPP (self Invested Personal Pension. With an investment of £800 invested in a SIPP the government tops up £200 and then your husband as a HR tax payer can claim back £200. Your £1000 investment then only cost you £600.


Now, I saw someone mention you are over 50, excuse me if you're not. I think this might work but you'd be best to get professional advise on it.....

With a SIPP though you can only start to withdraw at 55. And the same rules apply as withdrawing from a pension.

.... The advantage of the SIPP is that you can still hold cash in it, so even if you are say 52, you could invest cash in a SIPP for 3 years until the age of 55. There is no regular investment required but a minimum of £800 for each transfer (coincidence or what!). So say you did invest the maximum over 3 years
quick calc
Your investment £800 x 36 = £28,800
Governement topup £200 x 36 = £7,200
Husband can reclaim £200 x 36 = £7,200

So you get cash available in account of £36,000 for an investment of £21,600

That's a 66% growth in your investment over 3 years and it's in cash so there's little risk. Not many funds or ISAs will get you anywhere near that.

The same rules apply as typical pensions where you can only withdraw the 25% tax free (£8000) and then the rest on the usual payment scheme which is taxed but at a lower percentage - even then it is possibly worth a look.

Here is the link
http://www.h-l.co.uk/pensions/The-tax-benefits-of-a-SIPP

All the best

Sam

suweb5

Samnorris2
I have copied your post and am going to take it with me when my husband and I see the IFA. It sounds a 'no brainer' but you're right we do need to get professional advice. Thank you so much for taking the time to post this advice.
Susan