Please advise on maximising savings

dthom

I have recently taken up a job that pays me close to 140k per year.

In addition if I contribute 5.5% (through salary sacrifice) to the designated group pension the employer tops it up by 10 %, which I have currently signed up for.

I do not need more than £2500 to spend per month (including my mortgage of about £1400 at 3.45 %) and am keen to reduce my taxable earnings to below 100k.

My plan is therefore as follows:

• Maximise the pension contributions (approx. 27 k not including employer contributions)

• Fill in my ISA (15 k)

• Overpay mortgage (24 k)

• Put any additional money in VCTs (which if I’m honest I know nothing about)

Does this sound like a viable plan or are there other things I should consider?

I’m 36, have no children, my wife works full time, and we have about 15 k in various high interest current/regular saver accounts.

I have about 12 k debt spread across various 0% credit cards that accumulated through stoozing; I do not plan to replay it in full anytime soon. I have no other debt.

I was previously in the NHS and was in the 1995 pension that is expected to pay about 9k per year when I turn 60. I did not make the full 40 K of contributions in the last 3 years, there might be some additional pensions contributions I can make.

I used an IFA last year to fill up our (my wife’s and mine) ISAs; this year I haven’t decided whether to do it on my own or to enlist his help again.



Thanks,

AlanP_2

I'm no expert and don't earn that sort of salary but there have been discussions on here re reduced Tax Allowance as salary moves up towards that level and suggestions that paying more into pensions can alleviate the impact. Worth doing a search maybe?

Without prying what is the plan for children (if at all) and when do you think you might want to retire?

Children are expensive even if private education is put to one side.

Pension investments to maximise the 40% tax relief on offer are a sensible approach but the money cannot be accessed until you are 55/57'ish.

Consensus of opinion seems to be that the 40% pension tax break will be reined in over the next year or so so taking advantage of that whilst it is on offer could be a good option particularly as you have some Annual Allowance carry forward to use up.

What is your wife's pension situation as it is sensible to spread retirement income across both of you rather than have one person getting £75k in pension and then other £5k for example.

I have no idea on VCTs and work on the adage that if I don't understand I don't invest, so for me a lot of research would be needed before I went down that route.

Please don't take this the wrong way - if you used an IFA for something as relatively easy as setting up ISAs last year VCTs may be a step too far at the moment if you elect to DIY.

Personally I would look to have more CASH in current accounts earning 3-5% as opposed to overpaying mortgage (assuming rate is a lot less). Depending on Ts&Cs you could always overpay a lump sum if mortgage rate goes up and/or savings rate decreases. (see below).

I doubt we will see relative Borrowing Rates at %, Inflation at <1% and Saver Rates at >3% once rates start to move. Can you imagine we will get 30-50x inflation paid out on current / regular savings accounts if it goes up to 4% for example?

Added - Just reread your post and saw your mortgage rate so the balance is a bit finer for you than in my case at under 2%. As £500 (BR taxpayer) or £1000 (HR taxpayer) of interest will be tax free after April 2016 getting the cash savings up to a level that generates those incomes would still pay off though.

FOREVER21

With a salary of £140k I would be looking to get advice from an IFA .

ratechaser

FOREVER21 wrote: »

With a salary of £140k I would be looking to get advice from an IFA .

I never bothered with one, but each to their own I guess...

OP, if your overriding objective is to make your earnings as tax efficient as possible, then be aware that the plan you've outlined would leave you with about 13k of income annually that would be taxed at an effective rate of 62% - that is the case for all taxable income earned between £100,000 and £121,600 because of the effect of your personal allowance being reduced by £1 for every £2 of income above £100k

It sounds like between you and your employer, you are trying to use the max 40k annual pension contribution limit, but if you have unused allowance from the past 3 years, you can carry that over to give you more allowance in the current year.

This may of course all be moot for a couple of reasons - firstly if you're only just starting this job and were not earning anywhere near that much previously then your total earnings for the 2015/6 tax year may not be over 100k anyway. And with all the predicted tinkering of pension rules that may happen in the 2016 tax year onwards, I wouldn't like to guess what you'll be allowed to benefit from.

But that last point is why I personally would be putting every last penny available into pensions right now while these tax reliefs are still available!

racing_blue

Overpaying your mortgage will not reduce your tax liability. Nor will paying into ISAs.

Pension and VCTs will. Enterprise investment schemes are another route.

Are you directly employed- is there an option to contract as a limited company