Finally debt free and now need to make up some ground.

rigpig

Hello Everyone,

I finally became debt free earlier this year (Unsecured credit) and it's a wonderful position to be in. I now need to make up some ground and am looking for some advice on the way forward.

This might be a fairly long post but I'll start with a brief history, say where I'm at now and then what I'm planning to do to see if I have got it right. I would really appreciate some input.

I got into serious debt in my late 20's and early 30's like most people I had no concept of how serious this could get and for a lot of years lived on revolving credit and taking the equity out of our home as it became available. I guess my first LBM was around a decade ago and I started to put things right but in 2005 we had the opportunity to move to Spain and rented a house there while we found our feet and assesed if it was something we wanted to do long term. Living there for the first year was like being on permanent holiday and our debts increased but we sold our UK house and bought a house in Spain, we made a fair bit of money on our UK sale and the original plan was to pay everything off and start from scratch. However you need around a 29% deposit to buy a house in Spain so needless to say this didn't happen as planned, we got the house we wanted and paid off some debt and refinanced the rest on a better deal. Long story short is that we became debt free last July. This has been an absolutly wonderful experience and I don't think it has really sunk in yet.

In August this year I found out about a UK Govt scheme called QROPS which meant that I could possibly get all of my UK private pensions back as a tax free lump sum, we pursued this and last month recieved, after commisions and transfer fees a net lump sum of 210,000 sterling. Talk about a year of changes!

I really didn't know what to do with this money and have spent a lot of time thinking of the best way to spend it, eventually we decided to pay of a large portion of our mortgage, lend some to our eldest daughter (Who was making most of the same mistakes we did) which leaves me with 95,000 sterling sat in the bank and gaining no interest at the moment.

Anyway we now have a much increased net income due to the loans and credit cards being paid off so I have decided to up my pension payments (I'm now 46 and would like to retire at around 60) The reasoning for this is that my current employer will match payments up to 5% and so with their guaranteed contribution plus the 5% and my contribution I'm putting around 17.5% of my gross income away. This will reasonably give me around $500,000 (US company) at the time I turn 60. This leaves me wondering what to do with the 95,000 sterling that is sat in the bank and earning nothing. The company that reclaimed my UK pension funds for me under the QROPS scheme are experts in expat investments and are saying they average a net return of around 6%. My mortgage balance is now 150,000 euros with an interest rate of 3.65% so I'd rather invest the money for growth and add to it at around 5000 pounds per year and just let the mortgage run it's course as the payment is manageable and I can get a better return by investing the cash and growing another large sum of money.

Does this all make sense? Is there something I'm missing out on? I've never had money to invest before and it's causing me a fair bit of stress in case I make the wrong choices (It's a nice kind of stress though and beats the old kind hands down :))

TIA for any advice or insights you can offer, I realise that living outside the UK I'm not the normal profile for such questions but the basics should be the same?

Rigpig.

DiggerUK

rigpig, You may want to take a long hard look at were your pension fund is being invested. Then take a deep breath and square that with the current economic situation. Then decide if you still think it is the smart place for your cash to be.

The reason I ask you to do that, is because I don't have a lot of empathy with those who say "I didn't realise how so much unsecured credit could become such a problem" and I suspect that your learning curve, regards finance, has some way to travel.

To demonstrate what I am trying to get at, would you know how to make a considered decision between advice to invest in gold, or a balanced portfolio?

Best of fortune.
..._

Tuesday_Tenor

Someone who has that much in a current account earning 0% interest is clearly doesn't have much of a clue. (And that's why you've posted, of course! Welcome!)

At the simplest level you can put it in instant access savings accounts earning about 3% per annum while you decide what to do. Interest is of course, taxable income.

You need to find our about ISAs for tax-free savings, and other savings options. See here to start with: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

You need to learn the difference between saving and investment and think about how risk averse you are.
Savings pose little risk to your capital. (But note the effect of inflation). [But any savings account will be better than leaving so much in a current account, so everything's relative] .
Investment is longer term, with greater risks to your capital, but the chance of greater returns, depending when you cash in your investment.

I am totally risk-averse so deal only with savings, not investments. My sister invests and seems to do well.

HTH

rigpig

Thanks for the reply Digger.

The mistakes I made were a long time ago and I learnt a fair bit getting out of them. I¨m not an expert by any means but I´m not totally ignorant either.

My comppany pension fund has full online access and I can research and choose what percentage of contributions go where in to various differnet options. Currently I have split the bulk of the money in it between bonds and money markets until the current instability sorts itself out one way or another. I´m fairly happy with this set up for now.

It´s the new money that I have that I´m looking for help with. I´ll be going to see the company that got my UK pensions back and have a list of questions I want answered but would like a second opinion and a bit of foreknowledge before I go.

I have been advised to buy gold by so many people lately, needless to say I have not caved in yet .

I´m in for the longer haul with a balanced portfolio with steady inflation beating growth if such a thing is still a reality.

Rigpig.

rigpig

Tuesday_Tenor wrote: »

Someone who has that much in a current account earning 0% interest is clearly doesn't have much of a clue. (And that's why you've posted, of course! Welcome!)

I am totally risk-averse so deal only with savings, not investments. My sister invests and seems to do well.

HTH

Thanks for the reply,

The cash has not been there long and won´t be staying there a day longer than necessary. Every day pains me

I have had some serious decisions to make and thought I would take a time out to decide, living in Spain there are not as many financial products and it´s not easy to move between them without charges, hence the money sat in a Spanish bank sterling account while I decide.

I´m an investor not a saver, don´t mind a reasonable risk but looking for a balance.

Rigpig.

hugheskevi

In August this year I found out about a UK Govt scheme called QROPS which meant that I could possibly get all of my UK private pensions back as a tax free lump sum

Did the transfer meet the requirement that at least 70% of the funds transferred will be designated by the scheme manager for the purpose of providing the member with an income for life?

If not, HMRC might get interested at some point in the future.

rigpig

hugheskevi wrote: »

Did the transfer meet the requirement that at least 70% of the funds transferred will be designated by the scheme manager for the purpose of providing the member with an income for life?

If not, HMRC might get interested at some point in the future.

As I understand it that only applies if you have been a UK taxpayer in the previous five years. I am not and have not been since 2004.

All of the money will be invested in one form or another, I can´t afford to spend it but I was tempted to buy an Aston Martin for a few minutes

hugheskevi

You might be interested in this article. And in particular:

However, some people are using the 5 year non residency basis as the controlling rule. For example, someone who has been non resident for 4 years is entering a QROPS and taking the money out as cash after a further year, i.e. after 5 years non residency. Do not do this OR join any QROPS scheme that is doing this. IF, and again it is accepted that it is an IF, the ambiguity is decided in favour of the 5 year scheme reporting requirement (and not the 5 year non residency) the consequences for your pension are dire. You will suffer UK tax (even though you do not live in the UK any more) of between 40 to 55%. In the above example, on a pension fund of 250,000€ this will cost you up to 137,500€. Err on the side of caution and expect to have to keep your QROPS pension.

I've no idea of its accuracy, and my knowledge of QROPS is hazy. Some of the folks over on the pensions board will have a lot more expertise about them than me, so just something to consider.

Tuesday_Tenor

I'm speaking as though you're in the UK. Others will say if any of this is irrelevant to your position abroad, or if there are other special considerations to be made.

---

You also need to look at
(a) What you WANT to do with the next 10-20 years of your life. Do you need monay accessible for travels, weddings, gifts.
(b) What you would do in the case of emergencies. i.e. if you lost you job, if you became ill.

My priority order would be

1. Making use of tax-free ISAs on an annual basis, to build up a considerable sum over time which is NOT taxed.

2. Keeping enough in instant access savings for irregular necessities (car repairs, new washing machine etc)

3. Keeping 3-6 months salary-equivalent in fairly instant access savings in case you lose your job. If things going pear-sheped would mean a return to the UK, you'd probably need a much greater contingency pot than this.

4. Keeping enough in 1- or 2-year fixed-term savings (earning better interest) for when you expect to make really major spends such as a new car, or for major things you're planning to do in future: travel, set up own business etc.

5. Then planning what to do with the surplus: whatever you want! You might find that after making such contingency measures 1-4 you don't have much of 98K left to play with. If you do, then that's the element to consider investing, if you're prepared to risk losing some of it for the chance of better gains. As I say, I'm risk averse so don't invest my 'surplus' but put it in longer term (3-5 years) fixed savings.

I'll leave others to advise on pensions and life insurance as my attitude is a bit different to many peoples and I don't have children/family to consider. I HAVE made some small pension provision. Beyond that though, I'm prepared to risk being poor in old age as (a) most of my pleasures aren't bought with money, (b) I could manage without a car where I live and (c) I own my own home outright which will pay for long-term care if needed. Too many friends/aquaintances/nieghbours have died aged 55-65 over the last 2 years, which has re-inforced my general belief in living life focussed on the next 10 years, not 30 years ahead. As you have children you proably DO want to consider different scenarios for 30 years ahead: both of you in good health; one or both of you deceased; one or both of you ill. Sorry, but that's life (and death)!

Best of luck in your short, medium and long-term thinking!

rigpig

hugheskevi wrote: »

I've no idea of its accuracy, and my knowledge of QROPS is hazy. Some of the folks over on the pensions board will have a lot more expertise about them than me, so just something to consider.

Thanks for that, the company that organised the transfer are UK financial advisors with offices in Spain, they went to some length to demonstrate that I was a long term non resident / taxpayer and all the forms from the UK govt were duly filled in and submitted before the tansferrs went ahead. I´m confident that it´s all above board but Ill ask some pointed questions next time I go to see them.

Tuesday_Tenor

>>>>> I´m an investor not a saver
That's helpful, as I can't help further!

Except to say:

Surely you need to be both?
Savings for emergencies, contingencies and your plans for the next 5 years.
Investment of any surplus for gains (or losses) further into the future. I understand that even 5 years is quite short-term for an investment.

You say you've had money problems in the past. Not having savings to deal with emergencies and your short-term plans could lead to money problems in the future!

(I know you HAVEN'T said you're going to invest it ALL, so I'll credit you with SOME common sense. It was just the 'not a saver' which set a few alarm bells ringing, so I just wanted to re-iterate my point. Good luck!)