£9k investment - should I buy extra pension or pay extra off mortage

lisag4123

I really could do with advice please.

I have been saving for 20 years into a stocks and shares ISA and have just cashed it in - awaiting cheque.

Current value is around £9k. I cashed it in as I was disappointed with the performance. I set it up as a means of saving long term for my pension.

I don’t know what to do with the money and here are the 2 options I'm considering – but I don’t know which is best:

- I am currently in my employers LGPS pension scheme for public sector. I could use the money to purchase additional pension – then again I could purchase extra for just myself or for me and my dependents (husband and 1 child). I also intend to purchase regular additional pension now I am no longer paying into the ISA.
- OR should I use the money to pay a lump sum off mortgage? According to the mortgage calculator on this site I could save over £7k in interest if I did that. To add an extra dimension we have 2 mortgages – one fixed term until March 2015 at 4.29% with £77k outstanding on it. Then there is additional borrowing of £24k outstanding on a tracker mortgage (with same provider 1st Direct) at 2.89% with no fees for ending it whenever. So if I was to make a lump sum payment best to make it off the larger debt. The mortgage doesn’t allow regular overpayments but does allow one off lump sums.

What is best financially to do?

Many thanks

greenglide

The best was probably to have left it in the S&S ISA with the funds it was invested in chosen better.

You do know that you could have left it there but switched funds, don't you?

Triumph13

If you set up an AVC with the LGPS before the end of this month (the rules are changing) then you could get tax relief on the amount contributed, but take it all as a tax free lump sum when you retire (as long as it is less than 25% of the combined value of the AVC fund and the defined benefit pension).
As a compromise, I'd therefore be tempted to put £7,200 into an AVC - which the tax relief woulf make back up to your original £9,000, and then pay the 'free' £1,800 off your mortgage as a lump sum

kidmugsy

i) Have you got a decent emergency fund?

ii) Have you got any other debt?

Given that you can presumably drive down the cost of the bigger mortgage loan in one year's time, overpaying now doesn't seem to me to be the first call on your money.

Perhaps you should put everything that isn't needed for (i) and (ii) into AVCs for the reason T13 explained.

atush

I agree, I would have changed the investments if you were unhappy as you have now lost the ISa wrapper.

So go Kidmugsy's way, and pay off debt and boost your emergency fund. Put the rest into your/a pension.

kidmugsy

One other thought: is your total LTV anywhere near the important thresholds of 60% or 65% or 75%? You might get a larger reduction in the interest rate on that bigger mortgage loan if you overpaid enough to get below one of these thresholds. So there's a case for putting the £9k into, say, one of the interest-bearing current accounts that pays a good rate (e.g. HBoS group, Santander, Clydesdale/Yorkshire, Nationwide) and waiting for a year to see what you can negotiate on that loan.

However I'd also check T13's suggestion; is it the case that if you open the AVC this month you get the advantage only from sums actually contributed this month, or do you get the same advantage from sums contributed later on too? If the latter you could open the AVC with whatever is the minimum contribution and then wait for a year to let the fog lift.

lisag4123

Thank you for the advice, ideas and suggestions.
I hadnt thought about some of the implications.
No other debt other than mortgage and have some other savings for emergency fund.
Waiting for pension lady to call me back to discuss.
Heres hoping i make the right decision !