Pay Rise Options

TheBiggestBadger

Good Afternoon,
I have recently received a modest pay rise, which will result in my monthly pay being increased by approximately £130 net. Our current family budget is well catered for by my pre-raise pay, so want to do something with this extra cash before it gets swallowed up by day to day spending. I think I realistically have 5 options, but keen to see if there is anything else I could do with it?
Option 1 – Increase my Company Pension Contributions
My employer operates a salary sacrifice pension of which I contribute 2% and they pay 6% (no matching). My calculations indicate that I could raise my contributions to 6% and still have a small monthly increase in my salary (circa £14). No immediate benefit, but would effectively treble my yearly pension savings
Option 2 – Increase SIPP payments
I currently pay £50/month into a SIPP, I could increase this to £180/month. Similar to option 1, but would then require yearly tax returns to claim the relief, however could potentially gain better returns
Option 3 – Overpay Mortgage
We already overpay our mortgage by £325/month, so could easily raise this to £455
Option 4 – Pay money into my S&S LISA
I opened an LISA with £100, just to have it as an option, not subsequently paid anything else into it, but the 25% bonus offered by the Government is a big incentive, negative is it locks it up until I am 60
Option 5 – Pay money into my S&S ISA
Want to generate some form of passive income to allow for reduction of work hours in 5-10 years time.
About me. 42 year old, higher rate (Scottish system) tax payer
Thanks in advance for any advice

wjr4

Do you have an emergency fund?
How much of your mortgage is left, what is the interest rate and what is the term? What is the Loan to Value?

I'd personally put more into the pension, up to the limit you can claim higher rate tax relief.

TheBiggestBadger

Hi wjr4,
Emergency fund is healthy. We have about £130k left on our mortgage at 1.89% with 20 years left to run. LTV is about 50%.

MallyGirl

TheBiggestBadger wrote: »

Option 1 – Increase my Company Pension Contributions
My employer operates a salary sacrifice pension of which I contribute 2% and they pay 6% (no matching). My calculations indicate that I could raise my contributions to 6% and still have a small monthly increase in my salary (circa £14). No immediate benefit, but would effectively treble my yearly pension savings
Option 2 – Increase SIPP payments
I currently pay £50/month into a SIPP, I could increase this to £180/month. Similar to option 1, but would then require yearly tax returns to claim the relief, however could potentially gain better returns

Why will the SIPP returns be better- are your company pension investment options very different?

Wobblydeb

From what you've written, you must be only just into the higher rate tax band. If contributing to either the company pension or SIPP takes you out of that band, then I would go with the pension route.

Unless you've been contributing for a long time, or previously at a much higher rate I would hazard a guess that your pension savings are fairly low at the moment. If that's the case adding more would make sense as otherwise you'll struggle at 68, never mind semi-retiring in 5-10 years time.

NoMore

Also reclaiming Higher Tax relief in a SIPP (basic tax relief is automatic) does not necessarily require a tax return. I just inform them of my intended contributions and my expected income and they adjust my tax code for the year to return the tax relief to me via PAYE.