Best thing to do with £15k?

brianfall

I am lucky enough to have just been gifted £15k :j

There is nothing I need to buy, so I am wondering what to do with it. I don't want to just blow it all on something frivolous.

It might help to have a bit of background. I am 45, in a secure public sector job, with a partner (aged 36, also public sector) but no kids (and no plans to have any).

We owe £250,000 on our mortgage. Our mortgage payments are £1,350 a month, but I overpay by £500 a month. We have 19 years left on our mortgage. Current LTV is 70%.

We are both lucky enough to have public sector defined benefit pensions.

We have also put a bit into stakeholder pensions (Index Trackers, £27k in mine, £10k in my partners).

We have put a bit by into savings (£13.5k in Premium Bonds, £1.5k in cash ISAs and £3k in an index tracker ISA).

So I'm wondering should I....

1. Pay a chunk off the mortgage (checking that I wouldn't incur any over payment fee first)

2. Stick it into our stakeholder pensions

3. Stick it in our index tracker ISAs

4. Do something else that's more clever that I haven't thought of yet.

Interested in your thoughts

enthusiasticsaver

I would do a combination of all three.

dunstonh

1. Pay a chunk off the mortgage (checking that I wouldn't incur any over payment fee first)

2. Stick it into our stakeholder pensions

3. Stick it in our index tracker ISAs

4. Do something else that's more clever that I haven't thought of yet.

All of those would work but some are better than the other.

e.g. stakeholder pensions are largely old hat now. There is no cost difference for using trackers or managed in a stakeholder. So, if you prefer a passive strategy then a stakeholder is unlikely to be best. Plus, 27k is not much to be building a portfolio of funds. Usually multi-asset is better at that level.

The mortgage rate is likely to be low. So, investing is likely to offer the higher return in the long run.

You dont mention your tax status. So, its difficult to say what would actually be best.

You dont mention how long you have been in the DB scheme. So difficult to guess whether it is sufficient or not.

brianfall

dunstonh wrote: »

stakeholder pensions are largely old hat now. There is no cost difference for using trackers or managed in a stakeholder. So, if you prefer a passive strategy then a stakeholder is unlikely to be best. Plus, 27k is not much to be building a portfolio of funds. Usually multi-asset is better at that level.

Thanks so much for your reply. I'm a newbie so forgive my stupid questions! I prefer a passive strategy but don't know anything about multi-asset pensions. Could you point me in the direction of a site that explains what these are and how they work? Could I transfer what I have into something better with lower fees?

dunstonh wrote: »

The mortgage rate is likely to be low. So, investing is likely to offer the higher return in the long run.

Yes that's what I thought. The rate is 1.69% fixed until Feb 2020. The reason I thought that it was a good idea to top up my pension is that every time I pay in £100, the government pays in £25. My understanding is that I can get take out up to 25% of my accumulated fund at the age of 55 tax-free. I probably won't want to, but nice to know that option is there.

dunstonh wrote: »

You don't mention your tax status. So, its difficult to say what would actually be best.

I am a higher rate taxpayer (40%) but my partner is basic rate (20%).

dunstonh wrote: »

You dont mention how long you have been in the DB scheme. So difficult to guess whether it is sufficient or not.

I've been paying into the scheme for 12 years. I got a few pension projections - if I work to age 67 my employer pension would be £44k pa.

dunstonh

I prefer a passive strategy but don't know anything about multi-asset pensions

Multi-asset is a fund. Not a pension. This section is full of threads on multi-asset funds. It is the dominant topic.

Yes that's what I thought. The rate is 1.69% fixed until Feb 2020. The reason I thought that it was a good idea to top up my pension is that every time I pay in £100, the government pays in £25. My understanding is that I can get take out up to 25% of my accumulated fund at the age of 55 tax-free. I probably won't want to, but nice to know that option is there.

That is incorrect. You are a higher rate taxpayer. So, you get 40% relief. not 20% relief. (subject to there being enough 40% band to match your contributions). So, £100 paid into the pension would only cost you £60.

I am a higher rate taxpayer (40%) but my partner is basic rate (20%).

Pension is the dominant stand out here due to higher rate relief in terms of the financially best option.

brianfall

dunstonh wrote: »

That is incorrect. You are a higher rate taxpayer. So, you get 40% relief. not 20% relief. (subject to there being enough 40% band to match your contributions). So, £100 paid into the pension would only cost you £60. Pension is the dominant stand out here due to higher rate relief in terms of the financially best option.

Thanks again. When I log into my Stakeholder Pension online it looks like I get £25 for every £100 I put in. This has been happening for years. If I tell them I am a higher rate taxpayer might I be due some back pay into my pension?

ColdIron

You will need to claim the additional rebate from HMRC either by phoning them or filing a self assessment, it won't be automatically added to your pension.

dunstonh

When I log into my Stakeholder Pension online it looks like I get £25 for every £100 I put in.

You get 20% relief at source. So, when you pay in £100, it only costs you £80. The extra 20% relief for higher rate taxpayers is reclaimed via your tax return by filling in the pension box on it. Most higher rate taxpayers get a tax return but if you do not, you just need to let HMRC know what your gross pension contributions are.

The way you are referring to pension tax relief is possibly why it is confusing to you. You are not getting £25 for every £100 paid in. I know an increasing number of internet sites refer to it that way but pensions are treated as a gross contribution where you get tax relief on that gross contribution. You are saying pay in £100 and get £25. Whereas technically (and in the eyes of HMRC) you are paying in £125 gross and getting an immediate tax relief of 20%, which is £25 in this case, which is referred to as a net contribution of £100. The further 20% relief (to bring it to 40%) is reclaimed via HMRC.

So, comparing the pension with ISA (a common topic in the pensions section)
£100 into the iSA is costing you £100.
£100 into the pension is costing you £60.

So, if any of that ISA money is there for retirement, then the pension is going to beat the ISA.

Albermarle

When you inform HMRC that you have been making pension contributions in the previous tax year , they will calculate the higher rate tax relief you are due back. They may pay this is a straight payment or increase your tax code for this year, so you pay less tax .
One point to be careful of is that they seem to normally assume that these pension payments will continue at the same level for following tax years , including the current tax year . This means that your tax code is again adjusted to take account of this . If you then stopped or reduced the pension payments then you would end up owing them tax at some point.

brianfall

Thanks for all the replies folks :-)