Help Understanding Best Way To

foxhat2

hello all,

Im hoping you kind people will help me. Fairly new to getting a grip of finances and need assurance that we are on the right track.

We are buying a home next year so saving every penny towards deposit at the minute. However once we have our home we plan to pay off mortgage as soon as and realise we will be restricted to paying off 10% at most.
What I would like to know is would we be better off once we have our mortgage putting our future savings for any overpayments into an AVC to get tax relief and then use the 25% tax fee withdrawal to overpay the mortgage....rather than sticking any savings into a low interest easy access account?

This seems like the best way to go but as I said I am fairly new to finance and pensions and am unaware of any pitfalls / restrictions etc..

Some background info our situation ....

OH works full time and is contributing to workplace DC pension, we also are in receipt of an DB pension from previous career.
We are over 55yrs so can access any DC pensions.

Would it be better for us to save into an AVC with the intension of using this money for mortgage overpayments considering our situation?

Sorry if the answer seems obvious but its not to me

Any help and opinions would be gratefully received, thanks in advance

crv1963

Depends on you income and tax situation but you could cycle some through a SIPP? That way the 25% tax free is available to over pay the mortgage. Every £100 into a pension becomes £125.

foxhat2

Hey, thanks for your reply!

we are lower rate tax payers if that helps.

I am unsure of all the differences between AVC and SIPP, I have googled and as far as I can see I would need to make sure that the AVC allows tax free withdrawals?

sorry for my ignorance, I am trying to do my own research but need clarification of why you suggested a SIPP if you would be kind enough to help me understand

thanks again

crv1963

An AVC is linked to a pension. A SIPP is a stand alone product that can be accessed easily since you are over 55. I think you'll need to give a bit more detail for any meaningful answers from those more able to advise than me.

For example how much income do you need in retirement, what provision have you already got in place? What will your tax position be in retirement? If you have everything in your husbands name you'd waste your tax allowance. You need to look at it as a whole/ joint venture to maximise savings and minimise tax paid in retirement.

It may be (if your earnings allow it) be worth putting any money for overpayments into a cash SIPP, get the boost from the tax man, then take the 25% tax free lump sum out. Use the TFLS to pay off the 10% you're allowed to overpay on the mortgage.

Then depending on your attitude to risk put the remaining 75% into equities and leave it to hopefully grow until you need it as a pension. Then repeat.

It may be that overpaying the mortgage isn't a good idea. It may be that it is. It all depends on your individual circumstances. Who gets the DB? Is it in payment?

foxhat2

Thanks for explaining the differences.
The DB pension is currently in payment and belongs to husband.
This DB pension along with our SP ( both will be maximum ) when paid will give us an income of approx 28K . Husband intends to work until SP age. I am full time carer until who knows when but would go back to employment ASAP. I have gifted husband married tax allowance .
I won’t reach retirement until five years after husband.
The currant DC pension is small and is forecast to be worth 50k at minute.

We have started a S&S ISA and only pay £100 a month into this as we know it is a long term investment ... we just see this as a little saving for in the future we realise it’s not going to change our lifestyle at this amount. more a bit of fun.

We will be able to put away into pension or savings an extra 500-1000 a month once we have our mortgage in place

That was our plan to pay into pension and take the 25% TFLS to overpay the mortgage .

foxhat2

Thanks to crv1963 ... I just looked at SIPP options and am I right in thinking that if I opened a SIPP as a non earner I would be able to pay in and get tax relief to which the tax man will add £720?
Will Carers allowance affect this amount? Or the fact that my husband has part of my allowance ?

It’s so confusing to me and husband has no knowledge and very little time to help me with it all!

crv1963

foxhat2 wrote: »

Thanks to crv1963 ... I just looked at SIPP options and am I right in thinking that if I opened a SIPP as a non earner I would be able to pay in and get tax relief to which the tax man will add £720?
Will Carers allowance affect this amount? Or the fact that my husband has part of my allowance ?

It’s so confusing to me and husband has no knowledge and very little time to help me with it all!

You can put £2880 in as a none earner I believe. Check for exit fees if you want to take it all out a few months later. You may want to have a read through a few threads on here someone explains it all.

You can do it up to your 75 birthday. Better than any interest rate you'll get if you plan to use it soonish.

foxhat2

Will have a search through some threads, thanks again for your help

Dazed_and_confused

Having applied for Marriage Allowance will only (potentially) be an issue when you take the pension income.

It isn't relevant when it comes to how much you can contribute.

And I'm pretty sure that although Carer's Allowance is taxable income it doesn't allow you to increase your contributions above the basic £2,880 (which attracts the £720 tax relief so £3,600 gross contribution).