Ok then - How do I choose a S&S ISA!

jamesd

stphnstevey, barring an unexpected surprise today or tomorrow I'm going to be putting all but about 6500 (plus working tax credits) of my income into pension investments this year. New owner of my employer has a salary sacrifice pension scheme and reduced price markets provide an opportunity. Better still, one of the options can just collect money and then transfer it to any pension of my choice, so I'm not restricted to either of the two pensions available inside the scheme, neither of which is great (a few trackers in one, Standard Life GPP/SIPP the other - too few fund choices in the GPP and costs too high to use the SIPP option it has at my pension pot size).

This works well with my intent to use a pension mortgage to increase pension income and mortgage repayment efficiency. Savings or borrowing will fund the S&S ISA this year and top up my income as necessary.

Try to remember that drops are sale prices... tough when you've lost money. But I still sold most of my China value and half of the SE Asia because of the direction of Chinese government market interventions and the depressed markets I expect that to cause this year. Not a buying opportunity if you expect prices to continue to drop... but adding back over time will happen.

A quarter of my new money may go into frontier markets this year. Not a short term deal, just looking for long term opportunity and it'll take investment trusts rather than unit trusts/OEICs to try it. Lots of volatility expected because it'll be a seriously unbalanced portfolio for quite a while.

THENOX

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jamesd

;10258467]This works well with my intent to use a pension mortgage to increase pension income and mortgage repayment efficiency. Savings or borrowing will fund the S&S ISA this year and top up my income as necessary. [/quote]

Hello!.:-)

Could you explain this quote (as I'm not in a mortgage business yet :mad:) but it sounds interesting :rolleyes:: pension mortgage that increases pension income -so far so good but how it relates to rising mortgage repayment efficiency?

Thanks,

THE NOX

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Hold to What you Know…

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dunstonh

pension mortgages are something for the experienced investor and its best if you are a higher rate taxpayer and have secondary funds available. If it works you can do very very well out of it. If it doesnt, you need a fallback.

THENOX

Thanks for clarifying this issue a bit, could you refer to how it relates to rising mortgage repayment efficiency?

Huge thanks,

THE NOX

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Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
(B. M. Barber, T. Odean - The Journal of Finance, 2000)

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dunstonh

could you refer to how it relates to rising mortgage repayment efficiency?

You get 40% tax relief on your pension contributions. So, a fund of £200,000 has cost you £120,000. You can then take 25% of that £200,000 tax free so thats £50,000 available to repay the mortgage. You adjust your contributions to make sure the 25% matches you mortgage requirement at a sensible target growth rate.

If you qualify for working/childrens tax credits or are borderline then the pension contributions can increase those as well giving you an potential maximum effective tax relief of upto 72%.

The argument for pension mortgages is that the tax relief on the pensions is helping to repay your mortgage. For a basic rate taxpayer its not worth the effort but a higher rate taxpayer could see some benefit still if they accept the investment and tax wrapper risk.

stphnstevey

Do the payments vary with the interest rate of the mortgage then?

Also I guess that a proportion of the pension payment goes towards paying the interest on the mortgage which limits the amount going in as contribution to the pension?

I presume it's just the same as someone saving money in an ISA to pay off their mortgage (same tax benefit)? Apart from the 25% tax free lump sum

Is the tax free lump sum limited to a certain retirement age?

If the mortgage is to be paid off by the 25% lump sum and only part of your contributions go towards the pension - you would have to make some huge contributions! (200K mortgage = 600K pension fund needed = over 25 yrs, at least 24k/YR + INTEREST AT ~5% (10k) = £34k A YR pension contributions???)

turbobob

Pension contributions and the interest payments on your mortgage would be completely separate. The mortgage interest payments would not be deducted from your pension contributions. It would be up to you to fund the pension to a level that would be enough to pay off the mortgage.

jamesd

You get an interest only mortgage and pay the interest in it. With an interest only mortgage you can then make it an ISA mortgage by using a stocks and shares ISA, a pension mortgage by using a pension, or a mixture by using both.

In the pension case you can only use the lump sum and from 2010 it can't be taken until you're 55.

At 5% growth rate for a 200,000 mortgage over 25 years you need to be paying in 1338 a month, after tax relief. Per dunstonh's 1.67 times factor for higher rate tax that costs you 1338 / 1.67 = 801.20 a month.

At 6% you need 1149 that costs you 688.
At 7% you need 982 that costs you 412.
At 8% you need 836 that costs you 501.
At 9% you need 709 that costs you 425.
At 10% you need 598 that costs you 358.
At 11% you need 503 that costs you 302.
At 12% you need 422 that costs you 252.

And 12% is the long term average for the UK stock market so I'll stop there. For a 200,000 mortgage over 25 years the starting difference between repayment and interest only is 312 a month. If you got 9% average you'd end up with the 200k mortgage paid and 600k in the pension pot, having paid only 113 a month more to get that pot.

So, add your mortgage repayment part to your pension contributions and end up doing rather nicely because of the extra money you have growing in the pension instead of just repaying debt and making only 5-6% from saved debt interest.

dunstonh

A more "sensible" target growth rate is around the 5 to 7% mark (before charges) but keep under frequent review and adjust every few years.

Remember that whilst those monthly costs seem high, it is also doubling up as your retirement provision. (thats ignoring any child/working tax credits that may be increased due to pension contributions)

I will repeat that it is something that really should only be considered by a higher rate taxpayer or someone that has other means to repay the mortgage. The timescale needs to match as well.

butterfly72

Phew, managed to read the whole thread! I've got some cash sitting in my HL 07/08 ISA account that I need to allocate. I'm not sure how long HL allow you to keep cash in the account? Anyway, I'm trying to decide and so far have come up with:

Invesco Perpetual monthly income plus
Allianz BRIC
Neptune Global equity.
An alternative energy fund

(this is todays list.. tomorrow I might like something else.. its driving me mad!)

I already hold:
JPmorgan NR
Gartmore European selected opportunities
OMG I can't remember my other 3 but they are europe/UK (not with HL - paper statements that I've filed too safetly!!!)
Edit: Threadneedle european is one of them!

Any thoughts?