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

kidmugsy

i) If the terms on the salary sacrifice are good enough it may be wise to put more into the pension than the small annual amount required to get you out of the 40% tax band. The big deal question is whether your employer is sharing with you part of his savings on National Insurance when you sacrifice some salary.

ii) After that, in your shoes I'd be tempted to pay a bit more off the mortgage: 2.79% is better than you'll get on an instant access Cash ISA at the moment, and mortgage reduction is less risky than shares in an S&S ISA (especially if you hold predominantly shares in your pension).

latecomer

innovate wrote: »

Don't forget that company cars, free petrol, medical insurance etc all count as taxable perks and can add a heck of a lot to your gross salary figure.

The only thing we get which is taxable as a benefit in kind is private health insurance. Thats taken into account for my tax code so will need to use that to get an accurate figure.

There is a bonus scheme but I dont know the details about when its paid but it will almost certainly pay out as the company has done well this year.

latecomer

kidmugsy wrote: »

i) If the terms on the salary sacrifice are good enough it may be wise to put more into the pension than the small annual amount required to get you out of the 40% tax band. The big deal question is whether your employer is sharing with you part of his savings on National Insurance when you sacrifice some salary.

ii) After that, in your shoes I'd be tempted to pay a bit more off the mortgage: 2.79% is better than you'll get on an instant access Cash ISA at the moment, and mortgage reduction is less risky than shares in an S&S ISA (especially if you hold predominantly shares in your pension).

Will need to check on the terms of the salary sacrifice at this compnay as I dont think its as good as the previous company who gave us all of the NI savings back - I think it could be 50% of the NI saving here.

Am tempted to look more at either the pension or S&S ISA - probably a little of both.

Cash savings will probably go into the mortgage overpayment fund which allows up to £13,000 per year and thats probably enough at the moment.

Robert99

A further thought for the group. There will be at least 6 governments that will come into power and change the rules of investing between now and the time you retire. The pension gives you tax relief but I think the official term they use is 'tax deferral' in the halls of power as they think you are going to pay it someday.

I would look long and hard about building up an S&S ISA investment in parallel with your pension as it gives flexibility just in case.

As for the funds there are a number of good portfolios that are worth looking at against the low cost Vanguard funds
http://www.hl.co.uk/funds/master-portfolios
https://select.bestinvest.co.uk/products-services/isa/readymade-isa-portfolios

You don't have invest with them to make it happen - it just needs some writing down of fund names

There is quite a neat tool here that allows you to compare them
https://www.rplan.co.uk/virtualpots/new#overview

If you compare the
- Vanguard Lifestrategy 60% fund it has gone up 9.6% in the last 12 months
- Hargreaves balanced portfolio 10.5%
- Bestinvest 12.8%

innovate

I would be reluctant about portfolios suggested by a platform. They are more than likely to promote funds that make the most money (directly and indirectly).

Looking at just a one year change is not really very meaningful. And comparing the Lifestrategy funds with a platform-suggested portfolio is a bit like apples and pears. Lifestrategy funds literally come with in-built rebalancing for the next 5-10 years or may be even longer. The others you have to manage a lot more yourself.

IMO, anyway.

donniej

Looking at S&S ISA vs. pension - pensions give you tax relief, so you get around 40% more on what you put in (in terms of post-tax income) compared to an ISA (if you are a higher-rate taxpayer.)

On the flipside, Isas are much more flexible, because you have access to the money whenever you need it.

If you think you are going need the money before you retire, the S+S ISA is probably best. Otherwise, the pension is better, because you get more for the money you put in.

I try to contribute a fixed amount to my pension (e.g. 100-300pm), use up as much of my ISA allowance as possible, and then put any surplus towards the mortgage (because the mortgage rates are low enough currently that I'm better off investing it.)

innovate

You will eventually pay tax for your pension as well (apart from may be a 25% tax-free lump sum) - but you have the money tax-free in your pension savings for years.

I have seen heated debates on "ISA or Pension" - I think it's a personal choice, and if you can do both, that might be the best of both worlds.

kidmugsy

If all you are avoiding is 20% tax I'd prefer an ISA to a pension under nearly all circs. But with sal sac, you're avoiding also the 11% (is it?) National Insurance AND any of the employer's NI saving that he assigns to you.

marathonic

kidmugsy wrote: »

If all you are avoiding is 20% tax I'd prefer an ISA to a pension under nearly all circs. But with sal sac, you're avoiding also the 11% (is it?) National Insurance AND any of the employer's NI saving that he assigns to you.

I'm a lower rate tax payer and my employer pays ALL their saved NI into my scheme.

With tax at 20% and NI at 12%, a 100 contribution costs me 68.

Then, when the employer pays their 13.8% saving into the scheme, I have 113.80 for a personal contribution of 68 - 40.24% relief.

kidmugsy

latecomer wrote: »

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.

Paying down the mortgage seems to me to be a good idea while its interest rate is larger than you can get on your savings - particularly if you can ever pay down enough to get the LTV low enough to qualify you for a cheaper mortgage. It's especially good if the mortgage terms allow you to borrow back any overpayments later on - though I have been warned hereabouts that borrowing back doesn't always work as smoothly as you might hope. (Though it always has for us.)