pension, S&S ISA or just keep on filling up Cash ISA

latecomer

Question is where should I be putting any extra cash we have?

Currently have a decent amount in Cash ISAs earning around 3%-ish. Our cash savings are mostly going into our mortgage next month which we hope to pay off in around 9 years - we will also have an accessible overpayment facility with the new mortgage for future overpayments.

About me:
Age 37
Married with one small child
Pension pot currently around £48,000 - currently paying in 15% (9% employer + 6% me )
High rate tax payer but only just
OH works part time but earns nearly the same as me

We have an emergency fund which could keep us going for about a year without any change in lifestyle if only one of us was working.

I've just started a new job and have transferred my pension over (which is how I know the value ). The financial advisor was keen to suggest putting as much as possible into the pension rather than putting it into the mortgage or more ISAs. But then being rather cynical by nature I wouldn't expect someone who is looking after our pensions to say anything else

That said I do plan to put any pay rise I get into my pension and possibly increase it a little on top. I also need to understand what happens to my pension should I die both prior to taking it and afterwards as this might influence my decision.

I understand that there is large benefit to paying more into the pension due to the tax relief but then there is also the downside of not being able to access it for at least 18 years.

Savings rates are dire and cash ISA rates aren't much better. I'm hence tempted to look at S&S ISAs but am not convinced I can make a consistently good return as I wont spend my life researching and watching prices and indices. I appreciate this is also along term investment although with the possibility of withdrawing should we ever really need to.

I was considering matching my pension advisors selection in a S&S ISA but given its a medium to high risk selection am not sure its a good idea. In fact I'm not sure about anything at the moment.

I do intend on reading up on the subject of investing but dont have much time at the moment hence my reluctance to jump in. We should have enough to fill this years ISAs before the deadline so I'll probably go for a cash ISA to get the money into the ISA system prior to the end of year as we've not subscribed to an ISA this year.

From general reading on this board I see that the recommended approach is to slowly build up a portfolio by adding in each month. Is taking ~£5500 (the cash currently ear marked for the 2012-13 cash ISA) and starting off with that just a bad idea? OHs cash will almost certainly go into cash ISA.

Another long post but then this reflects my thought process.
OK here is the short version:

Given reasonable salary, considerable equity in house and cash ISAs - should I
1. Start paying a lot more into my pension to benefit from the 40% tax relief
2. Start a S&S ISA and do my own research
3. Start a S&S ISA and use my pension advisors selection to start with and build around that
4. Be a coward and put it into a Cash ISA for little or no real return
5. Do all of the above
6. Go away and leave you all in peace

Thanks for reading and any replies

Lokolo

Do you do salary sacrifice? If so, do it to reduce your taxabale income back to 20% (if you can afford to).

Between 2 and 3. You could always do both. One using your ISA allowance (with the IFA) and one using your wifes (using your own selection). That way you can decide in 5 years whether you want to continue using IFA services or you are comfortable DIYing.

I wouldn't bother with more Cash ISA if you have a "decent amount", how much that is I don't know but you do say you can live a year without jobs, which I think is plenty.

innovate

I would agree, putting much more into cash ISAs might not be the best choice.

If possible/sensible, make additional pensions contributions to bring yourself back to below 40% tax. With the remaining surplus, you could start a S&S ISA with a "passive" portfolio, may be using Vanguard Lifestyle funds. It's relatively painless to get up to speed with the "passive" approach - you could start reading about it on monevator.com. There are also books you can read about it, the most widely known probably being Tim Hale's "http://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Results/dp/0273722077". Monevator will tell you everything in a condensed form, though, and will have some up-to-date suggestions on which funds/portfolios could be appropriate.

kidmugsy

What interest rate will you be paying on your new mortgage?

Carpi09

I'm also interested in the answers.

latecomer

kidmugsy wrote: »

What interest rate will you be paying on your new mortgage?

New rate will be 2.79%

We would like to get the mortgage paid off and while I understand it may not be the best use of our money its something we would like to focus on - particularly when our cash savings are getting such poor returns.

latecomer

Lokolo wrote: »

Do you do salary sacrifice? If so, do it to reduce your taxabale income back to 20% (if you can afford to).

Between 2 and 3. You could always do both. One using your ISA allowance (with the IFA) and one using your wifes (using your own selection). That way you can decide in 5 years whether you want to continue using IFA services or you are comfortable DIYing.

I wouldn't bother with more Cash ISA if you have a "decent amount", how much that is I don't know but you do say you can live a year without jobs, which I think is plenty.

My pension contributions are by salary sacrifice. I have read people talking about using their pension contributions to get back into the lower tax bracket but I'm not entirely sure I understand the benefits unless you have other income thats also getting taxed?

Wife's ISA will probably be a cash one as she's not interested in a S&S ISA although perhaps could be persuaded in a few years if I was successful with my S&S ISA approach.

Just to clarify in point 3, I was planning on just echoing the Pension advisors choice but setting it up myself.

latecomer

innovate wrote: »

If possible/sensible, make additional pensions contributions to bring yourself back to below 40% tax. With the remaining surplus, you could start a S&S ISA with a "passive" portfolio, may be using Vanguard Lifestyle funds. It's relatively painless to get up to speed with the "passive" approach - you could start reading about it on monevator.com. There are also books you can read about it, the most widely known probably being Tim Hale's "http://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Results/dp/0273722077". Monevator will tell you everything in a condensed form, though, and will have some up-to-date suggestions on which funds/portfolios could be appropriate.

As above - not sure I understand the benefits of being back in the 20% tax bracket if my earnings are only just over the threshold. I'm guessing interest on savings now being 40% needs to be taken into account although are going to move it into OHs accounts as she is just under the 40% bracket at the moment. If everything else in ISAs the tax rate should be irrelevant?

I've seen the monevator site linked to repeatedly along with references to the Tim Hale book and will try and do some research once I have a little time. From what little I understand I think a passive portfolio is going to be the most suitable, at least to start with.

somethingcorporate

Well the income on any pound over the limit you earn will be taxed at 40p rather than 20p if you sacrifice to below the limit.

Lokolo

somethingcorporate wrote: »

Well the income on any pound over the limit you earn will be taxed at 40p rather than 20p if you sacrifice to below the limit.

Doesn't it also reduce National Insurance (and if applicable, Student Loan payments)?

latecomer

somethingcorporate wrote: »

Well the income on any pound over the limit you earn will be taxed at 40p rather than 20p if you sacrifice to below the limit.

I understand that much (and the fact the same applies to interest on savings) - but wasn't sure if there are any other implications. Being a higher rate tax payer is new to me