Are we doing anything silly??

maddapple

Hello there, I’m looking to get a little steer just to make sure we are not doing something stupid or if we should be doing something different (very high possibility here). Our situation is as follows:
My wife and I earn relatively well and our gross income is around £145k, we are 3 years into a 10 year fixed rate mortgage at 3.49% (not great I know), we have been overpaying the 10% maximum we are allowed each year and now have £127k left to pay. We have a 7% redemption penalty until year 5 then it is decreasing by 1% per year.
There is a strong possibility that we may want to move to a bigger house in a few years, (it’s just not the right timing for childcare etc.)
Our total outgoings including mortgage, car, childcare, utilities are around £3.5k per month.
We both pay into our company pensions me 5% with 10% employer contribution and my wife 6% with 6% employer contribution. I also pay £350 per month into a share save scheme where which I also intend to form part of my eventual pension pot.
Outside of our work pensions we have around £100k in cash spread around a number of ISA’s, fixed rate savings and easy access account, we also have around £45k in stocks and shares ISA’s, £30k in premium bonds and around £5k in P2P lending.
None of this has been done with much thought and coordination and I’m sure that we are very probably doing something wrong or not doing something that we should do. I’m not expecting any detailed specific advice but simply want to make sure we are not making any obvious mistakes etc.
Thank you in advance

HappyHarry

You're at the kind of level where a review with an IFA is likely to be beneficial.

Most of your circumstances sounds sensible, but three things stand out for me:

1. Protection - do you have adequate financial protection for death / illness in place?
2. Do you have a reason for such a high cash balances? (£150k)
3. Sharesave schemes are great until the company providing you with your employment income starts to hit difficult times. At such times your job and a decent chunk of your investments may be on the line. It might be appropriate to accumulate company shares whilst you are getting a good discount on their purchase price, but divest yourself of any shares that are now income tax-free, and invest the proceeds in more diversified assets to help with your retirement planning.

An IFA will ask a lot more questions regarding your long-term and short-term objectives, breakdown of your income, retirement plans, expected income and expenditure changes, risk profiles, ages and so on, and armed with that information, would be better placed to highlight all sorts of areas where you could make improvement to better meet your objectives.

kidmugsy

maddapple wrote: »

... our gross income is around £145k

Our total outgoings including mortgage, car, childcare, utilities are around £3.5k per month.

So if you managed to contribute enough to pensions so that each of you was on a taxable £46,350 in 18/19 you'd have a joint income, after income tax and national insurance, far bigger than your current monthly outgoings. You'd be exploiting the 40% tax relief while it still exists. For all I know you'd be exploiting salary sacrifice while it too still exists. You'd be able to get full Child Benefit, I think.
https://www.gov.uk/child-benefit-tax-charge

Can you think of any reason not to take that course of action?

digbydog

HappyHarry wrote: »

Sharesave schemes are great until the company providing you with your employment income starts to hit difficult times. At such times your job and a decent chunk of your investments may be on the line. It might be appropriate to accumulate company shares whilst you are getting a good discount on their purchase price, but divest yourself of any shares that are now income tax-free, and invest the proceeds in more diversified assets to help with your retirement planning.

As someone who worked for Royal Bank Of Scotland I agree wholeheartedly. Make use of any discounts that you can get then once you have the shares get shot of them. I kept my RBS shares convinced that a FTSE 100 bank could not go wrong. It could and did.

maddapple

HappyHarry wrote: »

You're at the kind of level where a review with an IFA is likely to be beneficial.

Most of your circumstances sounds sensible, but three things stand out for me:

1. Protection - do you have adequate financial protection for death / illness in place?
2. Do you have a reason for such a high cash balances? (£150k)
3. Sharesave schemes are great until the company providing you with your employment income starts to hit difficult times. At such times your job and a decent chunk of your investments may be on the line. It might be appropriate to accumulate company shares whilst you are getting a good discount on their purchase price, but divest yourself of any shares that are now income tax-free, and invest the proceeds in more diversified assets to help with your retirement planning.

Good to know that we are not doing anything obviously silly.


There is no particular reason for such high cash it has just built up that way and not really knowing what best to do with it.


What would you say would be a reasonable amount of cash to hold?


Good point on the sharesave, the only reason I was keeping them is that they have a decent dividend yield (about 6%).

maddapple

kidmugsy wrote: »

So if you managed to contribute enough to pensions so that each of you was on a taxable £46,350 in 18/19 you'd have a joint income, after income tax and national insurance, far bigger than your current monthly outgoings. You'd be exploiting the 40% tax relief while it still exists. For all I know you'd be exploiting salary sacrifice while it too still exists. You'd be able to get full Child Benefit, I think.
https://www.gov.uk/child-benefit-tax-charge

Can you think of any reason not to take that course of action?

This is not something that i have even considered, i will have a look into this. I'm assuming its not something that would need to be done on a perminent basis, i.e. if we do move and need to pay higher outgoings we could reduce our contributions

AnotherJoe

I'd say yes you are doing two "silly"things: so, forgive the bluntness but

1. you are not contributing nearly enough to your pensions and as a result losing out substantially from tax relief. Why don't you just take some of your cash and set fire to it in the street? That's effectively what you might as well be doing.

2. You have a ridiculously high mortgage rate and should move to a more sensible one, taking the hit on ERC. What on Earth were you thinking three years ago taking out a 10 year mortgage at 3.5% ??

Audaxer

AnotherJoe wrote: »

Why don't you just take some of your cash and set fire to it in the street? That's effectively what you might as well be doing.

That really is a bit harsh.

maddapple

AnotherJoe wrote: »

I'd say yes you are doing two "silly"things: so, forgive the bluntness but

1. you are not contributing nearly enough to your pensions and as a result losing out substantially from tax relief. Why don't you just take some of your cash and set fire to it in the street? That's effectively what you might as well be doing.

2. You have a ridiculously high mortgage rate and should move to a more sensible one, taking the hit on ERC. What on Earth were you thinking three years ago taking out a 10 year mortgage at 3.5% ??

Seems to be a recurring theme on the pension, so something that I will take on board and investigate the best way to change this.


The mortgage part was in hindsight not the best thing to do, but if i'm going to take the hit on the ERC would it not be best to simply pay it all off and go mortgage free? Any views?

Linton

Nothing you are doing is particularly stupid - the problem is the things you aren't doing. Putting more money in your pensions is an obvious no-brainer. Do either of you pay tax at the Extra rate? Why only £45K between you in S&S ISAs? Surely you can afford put the maximum in every year for one or both of you.

Another thing notable for its absence is any mention of long term financial objectives and plans to achieve them. What you are doing seems somewhat arbitrary and disconnected. When do you plan to retire? How do you intend to have the money available to do it? How much will you need? What is your money for if your dont want to spend it all now?

I would support the view that an IFA could help you considerably in terms of you getting a coherent overall view of your financial situation and developing a long term strategy.

AnotherJoe

Audaxer wrote: »

That really is a bit harsh.

In what way? For every £1,000 OP doesn't put in their pension, bearing in mind they have oodles of money, eg tons of cash, and can afford to overpay a ridiculously expensive mortgage, have premium bonds (derisory interest rate), so could amke extra contributions without even noticing, they are losing at least £200 and most likely £250.