What's better - savings, overpay mortgage, increase pension contributions?

Parsimonia

Hi guys

I'd really appreciate your thoughts and advice...

I earn a pretty good salary, but have vowed to be more frugal and thrifty in 2014. If I can manage to save an extra £200 per month, what would be the best thing to do with the freed-up money?

Would it be better to overpay my mortgage? To save the money in an ISA? To make additional pension payments?

We have a smallish mortgage, which will be fully paid off (without making overpayments) in November 2017. It's a repayment mortgage, which we switched from an endowment mortgage about 10 years ago as we had a forecast deficit. We've kept up the endowment payments, and should have a payout of about £20k in April 2017.

We currently have about £5,000 in a regular savings account (not an ISA).

My husband doesn't work due to ill health, but is likely to lose his incapacity benefit in March 2014, so we'll need to tighten our belts quite a bit to make up the shortfall from his benefit withdrawal. He's paid enough NI contributions to get a full state pension at 67 (he's currently 51).

Until finding this site a month ago, my plan had been to simply continue making our regular mortgage payment, and put any freed-up money from being frugal into a regular savings account or an ISA. Then, when the mortgage matures in 2017, I planned to put the freed-up mortgage payments also into regular savings...the plan being to have a large amount of savings by the time I retire in 2020 to add to my NHS lump sum and NHS reduced pension.

However, instead of just saving the cash, would I be better to increase our mortgage payments or to buy extra years for my pension?

My priority is to give us a comfortable retirement, but I need to know the best way to achieve that goal...

What do you reckon is my best strategy??

Thanks in advance for your help!

UPDATE - Hubby lost his appeal, so any plans to save are now completely out of the window....we're struggling just to make ends meet now, so I'll have to think of a different plan!

bigadaj

Just wanted to check a few things.

Firstly shouldn't your retirement age be 66 rather than 63' in terms of state pension payment?

Have you investigated buying additional years pension if possible, which I'm not sure it is, this is often a good deal.

Overpaying the mortgage will be dependent on the rate you are paying, worthwhile potentially at higher rates.

Many people would be saving into stocks and shares isas, though people do seem to think they are complicated, they do provide the potential for higher growth and can be useful for filling in between early retirement and state pension age.

Additional pension outisde your nhs scheme can also be worthwhile as you can draw on this from 55 though you'd have to state your approximate salary to determine how useful this might be.

planteria

good advice from bigadaj..
it is difficult to answer without more information.
clearly doing as much as you can to build up your Savings/Investments (including Pension) is a good idea...exactly how is another matter.
i suspect using your money to invest will be better than using it to pay down your mortgage, which is coming to the end anyway

atush

Can't your OH do some sort of work? If his incapacity benefit is being withdrawn, surely his doctor and the authourities feel he can do something?

In the meantime, we can't say to overpay or not w/o more info like the rate you pay.

What actuarial reduction will your pension take at age 55? Could you work longer, as every month/year will help with a higher pension? If you can't buy added pension, think about S&Sisas for the next 6-10 years to build up a big enough pot you can retire w/o taking the NHS pension early.

Do you pay tax? If so, you are paying tax on t he 10K so not very MSE. Either put it in your OH's name if he doesnt' and register for gross interest, or use both your ISa allowances.

Parsimonia

First off, thanks for your input so far - I really appreciate you taking the time to thing about my best options.

To address your points in turn:

Yes, you're right, my retirement age is 66 not 63 (at the moment! Who knows what it'll be by the time it actually comes around!)

I can purchase additional pension - I have a quote which tells me that buying an additional £1500 pa of pension with dependent's benefits would cost me an additional £358.80 pcm for the next 6 years. I'm just not sure that it's worth it, as I should have an OK pension anyway for a couple with no children, living in a a tiny cottage and with modest spending habits, who by that time will have minimal outgoings.

Hubby has a frozen personal pension worth just over £3k pa at age 65, and according to the forecast tool on the DWP website he's already paid enough contributions to earn his full basic pension as he'd worked full time from age 16 to age 40, and then received incapacity benefit from ages 40 to 51 (he's 51 at the moment).

If hubby were at all academic, cerebral or intellectual he could get a job, but unfortunately he doesn't have a cerebral cell in his body! He's practical (manual/blue collar) through and through, and the thought of him getting a job in an office or something similar is frankly laughable. He'd be utterly, utterly hopeless. As it is, he's had 37 operations (including 19 very major ones) in the past 14 years , which have included a kidney transplant, multiple vascular repairs to a recurring brachial aneurysm, a bowel resection following rupture of his large intestine and appendix, surgeries to address his skin cancer...the list goes on and on and on. He's the least workshy man I know, and he'd gladly get a job if it was one where he didn't need to use his arms at all....if you can think of something that fits the bill I'd be eternally grateful!!!

So, it looks as though he'll lose his incapacity benefit...and we can cope with some belt tightening, so we mustn't complain. This is the only benefit he gets, out of which he pays for his own prescriptions, his dentistry, opticians etc. We pay full council tax, don't get any other kind of rebate etc...

We have a split mortgage (both parts with the same lender) and both parts mature in November 2017.

Part 1 is a variable rate (currently 1.532%) - balance just under £14k

Part 2 is 4.19% fixed until Feb 2017, at which point it increases to 5.59% for the remaining 9 months of the mortgage term. Current balance £17k.

We can make 10% overpayments each year without incurring penalties.

As for savings - we have money in a Nationwide regular savings account, which I'm guessing you'll tell me to switch into an ISA??? I'm not sure if hubby pays tax (he's certainly taxed on our savings at the moment (the account is in his name), though his tax code is 747L and he wasn't taxed on his incapacity benefit....does this mean we should try to get his saving interest paid gross rather than net? We're not talking mega bucks here (we have under £10k in savings), but if he should be getting the interest gross I'd be happy to pursue this!

As for my tax code - I've just checked and for the past 3 years I've been taxed on code D0, which I've just read on the HM Revenue site : "Is used when all your income is taxed at the higher rate of tax - currently 40 per cent (most commonly used for a second job or pension)".

This isn't a second job for me, and I pay a crippling amount of tax, but I just assumed that was because I'm on a good salary (£67k). Christ, I'm hopeless! I should have checked this sooner!!! Does this mean I'm paying too much tax? If so, a rebate would be a nice bonus!!!

Help!!!!!!

As you can see, I'm far far from being a MSE, and I really need some help and advice!!!

Thanks in advance!!!

atush

Does HRMC know about your current pension contribs? If so, they should have been taking some off your tax (as you should get extra relief) second, if you are earning 67K, that is high enough you should look into extra personal pension contribs- every 100 into your pension will only cost you 60!!

this pension can also be taken at 55 or later, which would help you NOT take your FS pension earlier. Esp if you are working PT for that charity as that will pay somehting? Well maybe you can 't hold out til age 60, but every year/month you can delay after age 56 will help. So do look into this.

From your husbands list of ailments, sounds like you need to appeal. Was your GP any help here?

If they won't relent after, have him sign up for jobseekers. At least he'll get something. And I may not have added up correctly but he
ll need at least 35 years to get full state pension, not 30. I get he has 33. JS will give him NICS to get to 35. I think a PT job in a DIY store, or autoparts, builder's merchants etc might suit him? If he can manage, Might be good for his mental health too if you are out all day, and could earn him NICs to get to 35.

Your salary may be high enough you are ineligible for some benefits for the OH- do go to CAB for advice here. Maybe age concern too.

Parsimonia

atush wrote: »

Does HRMC know about your current pension contribs? If so, they should have been taking some off your tax (as you should get extra relief) second, if you are earning 67K, that is high enough you should look into extra personal pension contribs- every 100 into your pension will only cost you 60!!

I was assuming HRMC knew about the pension contributions as they're deducted at source (I'm in the NHS pension scheme), so I only pay tax on what remains after the pension has been deducted.

atush wrote: »

This pension can also be taken at 55 or later, which would help you NOT take your FS pension earlier. Esp if you are working PT for that charity as that will pay somehting? Well maybe you can 't hold out til age 60, but every year/month you can delay after age 56 will help. So do look into this.

I will do - thank you!

atush wrote: »

From your husbands list of ailments, sounds like you need to appeal. Was your GP any help here?


If they won't relent after, have him sign up for jobseekers. At least he'll get something. And I may not have added up correctly but he
ll need at least 35 years to get full state pension, not 30. I get he has 33. JS will give him NICS to get to 35. I think a PT job in a DIY store, or autoparts, builder's merchants etc might suit him? If he can manage, Might be good for his mental health too if you are out all day, and could earn him NICs to get to 35.



Your salary may be high enough you are ineligible for some benefits for the OH- do go to CAB for advice here. Maybe age concern too.

GP was no help, and we've so far only had one appointment with a benefits advisor. His appeal is currently going through its final stage, but we're not hopeful as they've rejected his appeal twice, despite two strongly supportive letters from his renal and vascular consultants saying that in their opinion he is unfit for work.

He's actively looking for work (we both agree it would be good for his mental health, as he's very isolated), but his options are incredibly limited. We can do without his benefit if we have to, but I am concerned about him getting a full state pension. I'm trying to earn a big enough pension to look after both of us, but I don't know how much 'enough' is...as I said, we have modest habits, but his health problems may mean we have more expenses not less as we grow older - I want the security of knowing that if he needs (as an example) a mobility scooter or an adapted car, that we'd be able to afford one...

Not many employers will give a 51 year old a job if he admits he can't lift, move or push anything....his recurring arm aneurysms are the things that really hold him back...

Once again, I really do appreciate your help and advice...

atush

Ok, so if he gets rejected and all appeals fail (check to see if he is still getting NICS while you go thru all the appeals) then he can sign on for jobseekers for 2 years to get to 35 years Nics. If they can't find him a job he can do, then he gets his NICS anyway? As a very last resort, register him as self employed. And pay the lowe SE nics at 2.30 per week for him for 2 years.

I can't see how his GP is giving no healp when he can see the consultants favour his retaining incapacity?

Anyway,

I was assuming HRMC knew about the pension contributions as they're deducted at source (I'm in the NHS pension scheme), so I only pay tax on what remains after the pension has been deducted.

Dont assume HMRC know anything, call them Immediately so they can take into acct your pension contribs. They only tend to acct for the Basic rate in pensions, generally those who pay higher rate tax tend to claim the rest back from HMRC. In your case you may have to claim back a number of years worth so might get a cheque if you are owed anything.

This will be the way it works with any personal pension you set up outside the NHS pension. You'll get credit.uplift by BRTax for what you put in, to get the rest you contact HMRC who will lower your tax paid under saye to take them into acct.

jem16

Parsimonia wrote: »

As for my tax code - I've just checked and for the past 3 years I've been taxed on code D0, which I've just read on the HM Revenue site : "Is used when all your income is taxed at the higher rate of tax - currently 40 per cent (most commonly used for a second job or pension)".

This isn't a second job for me, and I pay a crippling amount of tax, but I just assumed that was because I'm on a good salary (£67k). Christ, I'm hopeless! I should have checked this sooner!!! Does this mean I'm paying too much tax? If so, a rebate would be a nice bonus!!!

Yes you are paying far too much tax. You are paying 40% tax on all of your income instead of some at 0%, some at 20% and some at 40%.

Phone HMRC immediately and get yourself onto a proper tax code. Then go about claiming back that excess tax paid - you should be in for a nice repayment cheque. You'll get this year's rebate in your wages as soon as they apply the new code but ask for a cheque for the rest.

Parsimonia wrote: »

I was assuming HRMC knew about the pension contributions as they're deducted at source (I'm in the NHS pension scheme), so I only pay tax on what remains after the pension has been deducted.

You're quite correct - NHS pension contributions are paid from gross salary and then you are taxed after that. You are getting the full tax relief at source. There is no need to inform HMRC about this pension scheme and it would only confuse matters if you did.