Suggestions for investing/saving

pauljoecoe

OK - simple answers please.

£500 per month for 7 years. whats my options?

I'm a higher rate tax payer. No mortgage. Looking to retire in 7 years. £500 is a very manageable amount for me. Nothing in ISA at the moment. Already filled my allowance of any decent rate savings/current accounts. Just looking to create a bit of a lump sum for when I give up work.

Probably willing to go for medium risk.

westy22

1. Pension contributions to reduce or eliminate HR tax liability

2. S&S ISA

pauljoecoe

Pensions - happy with my pension provision as I'm in a final salary scheme and want to create a lump sum rather than increase the pension.

I had been looking a S & S ISA but get very confused by all the options. Is there a simple 'heres my money sort it' one?

Mistermeaner

pauljoecoe wrote: »

I had been looking a S & S ISA but get very confused by all the options. Is there a simple 'heres my money sort it' one?

Charles stanley direct S&S ISA, 100% of your money in Vanguard life Strategy 40 /60

pauljoecoe

Yes...read your thread relating to that and it seems sensible.

anyone care to comment in this:

https://www.teachersassurance.co.uk/faqs/invest-future-guaranteed-savings-plan?promoCode=gn061

(I am a teacher)

jimjames

pauljoecoe wrote: »

Yes...read your thread relating to that and it seems sensible.

anyone care to comment in this:

https://www.teachersassurance.co.uk/faqs/invest-future-guaranteed-savings-plan?promoCode=gn061

(I am a teacher)

Have you compared charges? Bet it is way more than the option above.

kidmugsy

pauljoecoe wrote: »

Pensions - happy with my pension provision as I'm in a final salary scheme and want to create a lump sum rather than increase the pension.

Westy is right. You miss the point. With the new pension freedoms introduced by the Great Liberator, a pension is a wonderful way to create a lump sum (unless you expect to be a higher rate taxpayer in retirement.)

9_inch

Put in bank account.

AlwaysLearnin

+1 on the pension. To (crudely) demonstrate, ignoring growth, inflation, fees etc for ease:

£500 p/m for 7 years is £42k.

However, stick £500 p/m in a pension and it gets a 20% uplift for tax relief, so £625 p/m. That makes £52.5k over 7 years. Taking 25% tax free, and assuming the rest can be drawn at 20% tax, that's £44,625. BUT, if all contributions were from your 40% earnings you can claim more tax back (about £17.5k over 7 years I think - back of fag packet calc, so you could be looking at about £62k).

A difference at least worth consideration in my book.

pauljoecoe

9_inch wrote: »

Put in bank account.

If you read the above you'd see that I have used up interest paying bank accounts. I won't go into how many I have got...it would take too long.

kidmugsy wrote: »

Westy is right. You miss the point. With the new pension freedoms introduced by the Great Liberator, a pension is a wonderful way to create a lump sum (unless you expect to be a higher rate taxpayer in retirement.)

I have a teacher pension. Its a final salary scheme. I have the choice when I retire to choose a certain proportion as a lump sum and the rest as a monthly/yearly pension payment. this is allowed within certain parameters. If I pay any extra in at is as AVC's and then yes I could take this as a lump sum. However, I am not sure that the return on this is guaranteed to be any better than any other way of saving other than it is tax free. (as would be a S & S ISA), My wife is already making the maximum AVC so I am not really wanting to go down this route also.

bowlhead99

The general comment that pensions can be considered when you're a higher rate taxpayer doesn't just mean stick it in the existing scheme as an AVC. You can open up a new personal pension (or SIPP, depending on what type of funds you want to hold), and have access to the exact same underlying investments as you get in an ISA.

I am not sure that the return on this is guaranteed to be any better than any other way of saving other than it is tax free.

Well, is not paying 40% tax on the income that you use to buy the investment not a pretty good incentive to do it

(as would be a S & S ISA)

With a S&S ISA only the returns are tax free. You are still getting hammered with 40% tax on your earnings from employment, that you used to buy the investment.

Basically if you know you can afford to leave it in the investment until age 55, you should consider pension as a very useful option.

With pension you can earn £1000 now, pay no tax, get £1000 of investment pot. After tax you would have only had £600 of investment pot. You would get the same investment performance because you can invest in the same asset.

Say it doubles over 7-10 years. You will end up with £2000 in the pension vs £1200 in the ISA. If you then want to cash in your chips, the ISA would be tax free and yours to keep because you already paid tax. With the pension, you might need to pay 40% tax if you are a high rate taxpayer when you cash it in , so the £2000 is only worth £1200 net.

"Ah, this is all the same, it's no better, I can't be bothered messing around with more pension", you think to yourself.

However - it's only no better if you are still a high rate taxpayer when you take it. Particularly if you haven't started to draw your state pension or occupational pension, you might only be a basic rate taxpayer, so the £2000 would be £1600 in retirement, which is a third more net cash than having a £1200 ISA pot.

AND, this completely ignores the '25% tax free lump sum' that people can take from a pension, whether or not they are high rate, low rate, or whatever. So perhaps you'd pull out £500 tax free and pay basic rate tax on the remaining £1500 (leaving £1200 net from that part of it). Giving £1700 total, instead of the £1200 total you'd have after doubling your money inside an ISA that you'd invested from after-tax income.