Savings / ISA / Pension

Mimi_Arc_en_ciel

Firstly, Let me just say, you guys have helped me no end this past year and I'm really REALLY grateful for it. You have no idea how much it has helped me both financially, and mentally! Now though, I need your advise again.

I don't have a pension (I know! but this is what this post is about) - I do have the work based pension, I don't add to this.

As it stands, I have 4 bank accounts and a CC (0% for 30 months with an outstanding balance) and I don't have a mortgage (Owned outright)

Bank Acc 1: Halifax - This is my "main" account where everything is paid into and bills come out of. I get the £5 reward

Bank Acc 2: Again, a Halifax and this is my "shopping" account (To limit how much i spend!)

Bank Acc 3: This is a TSB Classic Plus with 5%. This is currently at a balance of £1950ish. When it hits £2k I will add some of the money into my other TSB account to gain the interest. Then it will be on to another account to drip feed.


In this account are my "Annual" bills:

MOT
Car Tax
Car Insurance
House Insurance
Birthday money
Christmas
Savings for a new car etc

This account will go up and down depending on what it happening in the month (For example, in March my car tax is due, as well as my MOT so this money will be removed from this account)

Bank Acc 4: again, a TSB Classic Plus with 5% this account is at around £1500 and has:
Emergency savings
Credit card money (I'm paying minimum and transferring the "extra" payment into this account to earn interest)

I don't think I'm using my accounts "right" as such. I have started budgeting for a "pension" which I want to put in an ISA eventually. I work part time so it's not going to be a lot. At the moment its around £100 a month. if I go full time the this will change.

Can anyone make any suggestions?

Thanks!

atush

Dont you think it would be better to consolidate into one acct that pays interest?

Surely you can keep a spread sheet to know what money is for what purpose?

Why no regular savers?

Mimi_Arc_en_ciel

I have a spread sheet - it was set up ages ago to run my main account. It details how much I put away each month and what its for and what the "balance" is of that particular thing.


For example:


Car tax £12 away each month, balance currently £140.00 - Next month it will go to £152 and so on.


I want to keep my "main" account separate.


at the moment, with the cash I have, TSB is the best paying interest (I think)


and my regular savings is going into my emergency fund. I'm saving for a new car (I don't think mine will last much longer) and I'm just starting to sort ISA / Pension out (hence this post)


Obviously when I have finished saving for a new car that money can then be saved

bowlhead99

Mimi_Arc_en_ciel wrote: »

and I'm just starting to sort ISA / Pension out (hence this post)

But so far as I can see, you haven't actually asked any specific questions about the ISA or the pension.

Also, be clear on the difference between ISA and pension:

An ISA is paid into from your after tax salary, and can hold cash savings for a rainy day, or investments for the longer term. The cash or investments can go up in value tax free, but you have already paid income tax to get the money off your employer in the first place to get your hands on the £100pm to make the contributions .

By contrast, a pension is basically built up from your "before tax" salary (like where your employer is currently putting a small amount in for you) and if you make further contributions yourself they will go in gross of income tax (ie £100pm from your bank account is grossed back up to £125 by the pension provider speaking to HMRC - which is what the £100 would have been before basic income tax).

Then when you retire, whatever the £125 has grown into will be taxed at whatever rate you pay in retirement when drawing it out, with some of it tax free and the rest at your marginal tax rate which might be pretty low.

So, pensions can have some good tax advantages when used to build up long term retirement funds. The downside is that you have to lock the funds away until your late 50s before you can access them so they can't be used for emergencies.

However, you say:

I have started budgeting for a "pension" which I want to put in an ISA eventually. I work part time so it's not going to be a lot. At the moment its around £100 a month. if I go full time the this will change.

So, you're putting £100 awayas per your budget for the "pension" but do you really mean you are just putting it in the current account and marking it on a spreadsheet as being for pension? That won't help it grow, because you're not investing it, or help you get you any tax relief, because it's not a tax wrapper. And why "put in an ISA eventually"? Surely "put in a pension eventually" is the best end goal, once you know can afford it. And if you have a budget, you should know that you can afford it.

People put away a small amount of their gross salaries for 20-50 years when working, in the hope that they can draw out a larger percentage of their salaries when retired for another 20-50 years. The only way the maths can possibly work for that to happen is by using tax relief and using investments instead of cash savings accounts, otherwise there will be no significant real-terms growth in the value of what you put away.

So, you should definitely look into investment ISAs, personal pensions, or both, and potentially look again at your work pension if the employer would add extra money to match some of what you put in.

However, though you mention both ISA and pension in your post, I can't see what if anything you're doing about them, or what questions you are trying to ask about them. Give us a steer.

atush

Any money 'budgeted' for pension, should go into your pension. Now, not later.

Go to Moneyvator, and look up compounded returns

dunstonh

I don't think I'm using my accounts "right" as such. I have started budgeting for a "pension" which I want to put in an ISA eventually.

An ISA is an ISA. A pension is a pension. You cant put a pension into an ISA. Although you can put an ISA into a pension.

You dont appear to mention your age. You are very cash heavy in your proposals. So, this would suggest you are around age 58-65 as there is no logical reason to use cash if you are younger than that. That also assumes annuity purchase would be your plan as you wouldnt be in cash, even if aged 58-65, if you were going to use drawdown.

you do not state what you pay into the works pension or what they pay into it. If its say 4% between you then that it unlikely to be enough. Paying peanuts in means getting peanuts out. So, whilst paying into a pension may tick a box on your list, it is the actually the amount you pay in which dictates whether that box should be ticked or not.

Mimi_Arc_en_ciel

bowlhead99 wrote: »

But so far as I can see, you haven't actually asked any specific questions about the ISA or the pension.

Also, be clear on the difference between ISA and pension:

An ISA is paid into from your after tax salary, and can hold cash savings for a rainy day, or investments for the longer term. The cash or investments can go up in value tax free, but you have already paid income tax to get the money off your employer in the first place to get your hands on the £100pm to make the contributions .

By contrast, a pension is basically built up from your "before tax" salary (like where your employer is currently putting a small amount in for you) and if you make further contributions yourself they will go in gross of income tax (ie £100pm from your bank account is grossed back up to £125 by the pension provider speaking to HMRC - which is what the £100 would have been before basic income tax).

Then when you retire, whatever the £125 has grown into will be taxed at whatever rate you pay in retirement when drawing it out, with some of it tax free and the rest at your marginal tax rate which might be pretty low.

So, pensions can have some good tax advantages when used to build up long term retirement funds. The downside is that you have to lock the funds away until your late 50s before you can access them so they can't be used for emergencies.

However, you say:


So, you're putting £100 awayas per your budget for the "pension" but do you really mean you are just putting it in the current account and marking it on a spreadsheet as being for pension? That won't help it grow, because you're not investing it, or help you get you any tax relief, because it's not a tax wrapper. And why "put in an ISA eventually"? Surely "put in a pension eventually" is the best end goal, once you know can afford it. And if you have a budget, you should know that you can afford it.

People put away a small amount of their gross salaries for 20-50 years when working, in the hope that they can draw out a larger percentage of their salaries when retired for another 20-50 years. The only way the maths can possibly work for that to happen is by using tax relief and using investments instead of cash savings accounts, otherwise there will be no significant real-terms growth in the value of what you put away.

So, you should definitely look into investment ISAs, personal pensions, or both, and potentially look again at your work pension if the employer would add extra money to match some of what you put in.

However, though you mention both ISA and pension in your post, I can't see what if anything you're doing about them, or what questions you are trying to ask about them. Give us a steer.

sorry - I've re-read my post, and although it makes sense in my head I realised after it probably doesn't help anyone else

My plan is: use the bank Ac to full potential before moving on to the next "savings" - I'm still undecided about ISA/Pension (see below) I know I need to save for my retirement. I've not been in the position to do this before now.

At the moment I earn less than £200 above the tax rate so pay very little tax which is why I'm trying to build it up before I pop it into an ISA. Obviously if I go full time then I need to review what I am doing.

The "pension fund" is as you say - marked on a spread sheet and kept in current Ac.


I'm trying to figure out whether to add to a pension, or add to an ISA. Still undecided (And reading martins blogs)


Works Pension - The company they use charge me monthly for using the service if I contribute, which I think is pointless.

jimjames

atush wrote: »

Dont you think it would be better to consolidate into one acct that pays interest?

Surely you can keep a spread sheet to know what money is for what purpose?

Why no regular savers?

I read it as the OP is making the most of the accounts that pay the most interest so I can't see a benefit of consolidation. Adding additional 5% accounts would make sense rather than consolidating at a lower rate.

Mimi_Arc_en_ciel wrote: »

Works Pension - The company they use charge me monthly for using the service if I contribute, which I think is pointless.

Most pensions charge fees but it's generally worthwhile if your employer will match your contributions.

What are the fees for this pension? Mine is 0.5% pa for employer scheme. If not pension then S&S ISA is an option for long term but I wouldn't keep cash as pension savings/investments.

Mimi_Arc_en_ciel

dunstonh wrote: »

An ISA is an ISA. A pension is a pension. You cant put a pension into an ISA. Although you can put an ISA into a pension.

You dont appear to mention your age. You are very cash heavy in your proposals. So, this would suggest you are around age 58-65 as there is no logical reason to use cash if you are younger than that. That also assumes annuity purchase would be your plan as you wouldnt be in cash, even if aged 58-65, if you were going to use drawdown.

you do not state what you pay into the works pension or what they pay into it. If its say 4% between you then that it unlikely to be enough. Paying peanuts in means getting peanuts out. So, whilst paying into a pension may tick a box on your list, it is the actually the amount you pay in which dictates whether that box should be ticked or not.

EEK no not that "old" (no offence to anyone in their 50s!)


I'm 32. My ex got me into (A LOT) of debt because I was very naïve. We broke up and I got back on my feet. About 2 years ago I had a shock and started to put away for me, and my children. I don't have a lot of "spare" cash - I definitely spend much more on my children than I should - and now that I'm "ok" (for now) I need to start looking at when I'm older.


I have a good job, albeit its part time but my children are still quite young. I'm looking at increasing my hours, but this is something in the future

Mimi_Arc_en_ciel

jimjames wrote: »

Most pensions charge fees but it's generally worthwhile if your employer will match your contributions.

What are the fees for this pension? Mine is 0.5% pa for employer scheme. If not pension then S&S ISA is an option for long term but I wouldn't keep cash as pension savings/investments.

I don't have the fee's at the mo (just looking through paperwork)


My employer puts 2% of my wage in per month (less than £20)

Mimi_Arc_en_ciel

It says:


"Your yearly charge 0.85%"