Advice please..30 something basic rate tax payer

Mirtiz

Hello all,

I'm 36, basic rate tax payer (36k/year) and still only have the auto enrolled Peoples Pension through my workplace which my employer only contributes 1%. I've been told by my employer that they will not match increased contributions and if I want to increase my contributions , I will need to contact Peoples Pension directly to set up a direct debit directly.... I'm trying to work out if it's worth me opening a Lifetime ISA or not instead. I'm already a home owner, currently overpaying 200 quid+ a month (on a 1.94% mortgage of about 108k , 19 years left on term but if I carry on overpayments, it allegedly will take 13 years to pay). Am I best stopping the overpayments on mortgage and setting up direct debit to increase contribution to pension and opening a Lifetime ISA? Or reduce overpayments and combine all 3? I'm confused....

Appreciate any advice.

Thanks.

chappye

From everything I've read and heard, you are much better putting more into your pension and stop over paying your mortgage. However your employee's are pretty measly at just putting 1% in
You would be better putting that over payment somewhere else.

Mirtiz

Thanks chappe. I guess I've always heard that overpaying on the mortgage is the best thing to do. But I suppose with low interest rates, it's not the best thing to do. I don't want to pay the bank anymore than I need to though. What would you recommend I do then? I have recently opened a S &S ISA with Charles Stanley with 250 quid but haven't purchased any funds yet as I have barely any idea what I am doing...

xylophone

The employer pension contributions should increase in due course as will yours.

https://thepeoplespension.co.uk/employees/being-a-member-of-the-peoples-pension/grow-your-pension-pot/

https://www.nowpensions.com/help-centre/faqs/contributions/what-are-auto-enrolment-contribution-rates

You could increase your personal contribution over the basic requirement. - see first link.

You could open another personal pension, including a SIPP but in your circumstances increasing your contributions to your workplace scheme might be the easier option?

Mogley

Overpaying your mortgage and being mortgage free at 49 has psychological benefits but is not the most financially savvy thing to do when your rate is just 1.94%. If you are looking to re-mortgage at any point, overpaying has its benefits to the point of getting below 60%LTV to achieve the best re-mortgage rates.


You don't say how much you are contributing to your pension or the current value of your pension funds but I would definitely look to shift most if not all the overpayment to a pension. I do not know about the peoples pension and you are not just limited to investing in this pension fund (see xylophone's links above). Do some research for the best options that suit your needs.


If you were starting a pension today I would be looking for a total contribution value (employer and you) of 18% of your total income (half your age), so £540/month. This is a rule of thumb and depends on your personal retirement requirements. The % would be lower if you started earlier in life. You don't hear of people complaining that they saved too much for their retirement!!


Once your pension contributions are sorted, look to develop your emergency cash savings fund, then S&S ISA's (could be used to pay-off the mortgage in time) and then maybe a LISA to top up your pension and add a bit of flexibility to your retirement planning.

atush

You could open another personal pension, including a SIPP but in your circumstances increasing your contributions to your workplace scheme might be the easier option?

This. Open a PP or Sipp and contribute funds there instead of your employers pension. A S&S isa is also a good idea. Choose a mixed asset fund like the Vanguard series, or a global tracker.

Mirtiz

xylophone wrote: »

The employer pension contributions should increase in due course as will yours.


You could increase your personal contribution over the basic requirement. - see first link.

You could open another personal pension, including a SIPP but in your circumstances increasing your contributions to your workplace scheme might be the easier option?

Thanks Xylophone, I'm arranging to setup a direct debit from my account direct to pension, thinking I'm going to start with circa 200/250 month so with tax relief and the increased mandatory contributions, that's going to be better than nothing.

Mirtiz

Mogley wrote: »

Overpaying your mortgage and being mortgage free at 49 has psychological benefits but is not the most financially savvy thing to do when your rate is just 1.94%. If you are looking to re-mortgage at any point, overpaying has its benefits to the point of getting below 60%LTV to achieve the best re-mortgage rates.


You don't say how much you are contributing to your pension or the current value of your pension funds but I would definitely look to shift most if not all the overpayment to a pension. I do not know about the peoples pension and you are not just limited to investing in this pension fund (see xylophone's links above). Do some research for the best options that suit your needs.


If you were starting a pension today I would be looking for a total contribution value (employer and you) of 18% of your total income (half your age), so £540/month. This is a rule of thumb and depends on your personal retirement requirements. The % would be lower if you started earlier in life. You don't hear of people complaining that they saved too much for their retirement!!


Once your pension contributions are sorted, look to develop your emergency cash savings fund, then S&S ISA's (could be used to pay-off the mortgage in time) and then maybe a LISA to top up your pension and add a bit of flexibility to your retirement planning.

That's very useful, thanks Mogley. The mortgage is below 60% LTV, we only have 109k to go, I suppose these low interest rates mean taking on a revised view of the traditional mortgage repayment ways..how long they last is my only worry, but we have just started 5 year fix so plenty of time to think about repaying more if I need to..

As for current pension, I'm slightly ashamed to say I have only been paying the min autoenrolled contribution so..something like 0.8% for the past 2/3 years...I've always been cautious with money preferring to have some cash to fall back on in the bank but since buying our house 4 years ago, my reserve is down to historic lows. I have arranged for dd form to be sent regards pension contributions so will be increasing it, was thinking circa 200+ month but what you say about half your age is probably wise..just a bit frightening to lock that money away for so long..thanks again.

Mirtiz

atush wrote: »

This. Open a PP or Sipp and contribute funds there instead of your employers pension. A S&S isa is also a good idea. Choose a mixed asset fund like the Vanguard series, or a global tracker.

Thanks but can you please clarify what why I should open a SIPP instead of contributing more to my employers pension?

xylophone

Thanks but can you please clarify what why I should open a SIPP instead of contributing more to my employers pension?

It gives you more choice and flexibility but you need to be prepared to DIY.

http://monevator.com/category/investing/passive-investing-investing/

http://monevator.com/compare-uk-cheapest-online-brokers/

Mogley

Mirtiz wrote: »

As for current pension, I'm slightly ashamed to say I have only been paying the min autoenrolled contribution so..something like 0.8% for the past 2/3 years...I've always been cautious with money preferring to have some cash to fall back on in the bank but since buying our house 4 years ago, my reserve is down to historic lows. I have arranged for dd form to be sent regards pension contributions so will be increasing it, was thinking circa 200+ month but what you say about half your age is probably wise..just a bit frightening to lock that money away for so long..thanks again.

I'm 36 and only started my pension 7 years ago. This was mainly due to family commitments and I didn't recognise the value of saving for a pension. I was fortunate enough that, between me and my employer at the time, my pension contribution % was half my age (although I didn't know the rule of thumb at the time). I have just tried to maintain this same % of my earnings ever since. I find that locking the money away just means I have to live on less money, but you soon get used to it. Your future self will thank you for the positive decisions you make on their behalf .