I'm after your opinion...

ElleStar

Hi, I’m just looking for some differing opinions on my financial situation…

Me: 40, single, female & no dependents
Salary: £45,000
Mortgage: £150K (property value £400K) Interest rate: 2.5%

Savings: ISAs x2 – worth £11,228
Other cash: £2,000

Pension: 2 pots – combined value today: £73,000. Both group pensions from previous employments. Haven’t paid into a pension for 3 years.

Debts: - none

I’m looking to save/invest £6,000 - £8,000 per annum but I’m struggling to work out where to put it. I’m very aware, I need to be thinking about my pension. For the last two years, I’ve filled a cash ISA and overpaid on the mortgage. I’m probably naturally quite risk-adverse but given current interest rates, I think I probably need to be a bit more adventurous.

So really just after a few suggestions as to where best toput my money....

Gadfium

Get 6 months of cash into an "emergency" fund first. Fill up the cash ISA allowance early next FY.

It depends on what you want to do. Create a retirement pot (SIPPs? Do you want to lock your cash away for the next 15 years?)?
Or create a portfolio of cash and investments?

Linton

ElleStar wrote: »

Hi, I’m just looking for some differing opinions on my financial situation…

Me: 40, single, female & no dependents
Salary: £45,000
Mortgage: £150K (property value £400K) Interest rate: 2.5%

Savings: ISAs x2 – worth £11,228
Other cash: £2,000

Pension: 2 pots – combined value today: £73,000. Both group pensions from previous employments. Haven’t paid into a pension for 3 years.

Debts: - none

I’m looking to save/invest £6,000 - £8,000 per annum but I’m struggling to work out where to put it. I’m very aware, I need to be thinking about my pension. For the last two years, I’ve filled a cash ISA and overpaid on the mortgage. I’m probably naturally quite risk-adverse but given current interest rates, I think I probably need to be a bit more adventurous.

So really just after a few suggestions as to where best toput my money....

You would seem to be a higher rate tax payer. As you have a reasonable amount of cash for emergencies and paying a low mortgage rate putting money into a pensions seems the obvious answer. You would gain 40% tax relief and yet probably only pay 20% on retirement. If your employer offers one and provides a contribution you would be foolish in my view not to join. Otherwise consider a private pension.

Your current pension pot today would provide a non-inflation linked pension of about £4000 per year. Even adding in State pension at say £7500, in retirement you would still be a long way from the standard of living you are used to now.

Consumerist

Bear in mind that mortgage rates are historically low at the moment but that won't last for ever. Plan to pay as much of your mortgage as soon you need to when the inevitable rises come. So after providing yourself with a reasonable pension, perhaps plan to pay down the mortgage when the time comes.

ElleStar

Thank you for your replies.

I am acutely aware that my current pension pot is woefully inadequate!!

My company doesn't offer a pension which is why i've not been paying into one for the last 3 years.

This morning I have changed one of my group pensions into a personal pension so I will start paying into that.

Can I move my old cash ISAs into a S&S ISA? Or do i need to start from scratch?

Linton

ElleStar wrote: »

Can I move my old cash ISAs into a S&S ISA? Or do i need to start from scratch?

You can but whether its a good idea is another matter. Before investing in shares, it is considered sensible to have a significant amount in cash, say 6 months living expenses, to cover emergencies. S&S investments are for the long term, you dont want to have to sell at a time when values are at a short term low if for example your boiler urgently needs replacing or you lose your job.

Gadfium

If you pump money into your mortgage you are effectively investing in your property. That means that the cash is locked away until you come to sell the property, or you take out a loan secured on the house. You've already got £250K locked away in it as it is.

Personally, I'd build up some more cash reserves. The interest rate isn't great, but you have cover if you need it in a hurry. You could always stick some in Premium Bonds if you fancy a (long-shot) flutter...

A more radical approach would be to release some of the equity in the house. Do you need to have all that money locked up in the property?

Radiantsoul

Gadfium wrote: »

If you pump money into your mortgage you are effectively investing in your property. That means that the cash is locked away until you come to sell the property, or you take out a loan secured on the house. You've already got £250K locked away in it as it is.

No, if you are not investing more in property by overpaying a mortgage. You make the investment when you purchase the property. Overpaying a mortgage reduces an outstanding debt, it is a form of saving and a tax-effient one at that.

Gadfium

Radiantsoul wrote: »

No, if you are not investing more in property by overpaying a mortgage. You make the investment when you purchase the property. Overpaying a mortgage reduces an outstanding debt, it is a form of saving and a tax-effient one at that.

Good clarification, thank you.

The money is still locked until you sell though, or take out a loan against the property.

Radiantsoul

ElleStar wrote: »

I’m looking to save/invest £6,000 - £8,000 per annum but I’m struggling to work out where to put it. I’m very aware, I need to be thinking about my pension. For the last two years, I’ve filled a cash ISA and overpaid on the mortgage. I’m probably naturally quite risk-adverse but given current interest rates, I think I probably need to be a bit more adventurous.

I guess the challenge is can you be more risk adverse just because interest rates are low though. To get higher returns you need to dabble in shares - probably via funds held within a pension fund or stocks and share isa tax wrapper. Psychologically could you stay the course if your investments collapsed?

Radiantsoul

Gadfium wrote: »

The money is still locked until you sell though, or take out a loan against the property.

A bit less locked up than in a pension though. And with any kind of investment you are to some extent locked in based on the whim of the market. If the market lacks liquidity(as in 2008) you will pay a pretty hefty price tag to access your money.