New user - help with financial health

hellojohn8doe7

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harshitguptaiitr

There are some good & a few things to work on in your case:

Good:
- 40% income tax band at age of 33
- No car loan
- 6.5 months' savings

Things to work on:
- 25k at age of 33 is really low. Is your employer putting maximum they do? Can you increase your own contributions?
- No income from partner & no pension saving of partner

Questions:
- Mortgage being 1.5x your gross salary is not a good indicator but LTV is. Do you know your LTV?
- Do you have Life Insurance and critical illness cover?
- Do you have overpayment facility on your mortgage?
- Does you bank account offer any regular saver account?
- Do you have a will?
- Can you open a SIPP for your partner?

Alexland

Paying 40pc tax is undesirable - are you able to increase your pension contributions enough to get down to basic rate and be eligible for full child benefit?

Did your partner register for child benefit anyway so they would get the NI credits towards their state pension?

hellojohn8doe7

Is your employer putting maximum they do? Can you increase your own contributions?

Employer putting max - Yes. I will check if I can increase my own contributions.

Do you know your LTV?

It will be 60% at end of Sep

Do you have Life Insurance and critical illness cover?

No

Do you have overpayment facility on your mortgage?

Yes. Not used at the moment.

Does you bank account offer any regular saver account?

Yes. I will look into opening one.

Do you have a will?

No.

Can you open a SIPP for your partner?

Sorry i don't know what is this.

Did your partner register for child benefit anyway so they would get the NI credits towards their state pension?

I registered under my name for 2nd child. Getting NI credits and not money. However since my income itself gives me a qualifying year, the NI credits are not doing anything. We cannot register in partner name as they are from outside UK/EU/EEA and not eligible for public funds.

Sea_Shell

Have a look at the best savings rates for your "cash in hand", as you can do much better than 0.2% and still have instant access.

Alexland

hellojohn8doe7 wrote: »

Employer putting max - Yes. I will check if I can increase my own contributions.

It is highly likely that your employer will allow you to increase your contributions and this is often the most efficient way to do it (rather than using a personal pension such as a SIPP) as the employer may operate Salary Sacrifice (to save a bit of NI) and if they use Net Pay arrangement then automatic relief of higher rate tax (to save you needing to claim the tax back). As your pension gets bigger then consider the scheme fund choice and charges and if you are allowed to partially transfer out lump sums into your own improved pension arrangement.

I have been keeping my income (including bonuses, taxable benefits, etc) low using additional pension contributions for a few tax years now in order to avoid higher rate tax and qualify for child benefit. You get used to it. If you have a very high income then beware of your allowance tapering.

As you are young with an affordable mortgage then I don't see much point overpaying unless you are looking to upgrade in the near future.

It is worth considering critical illness, personal accident and life insurance and mine are via employer group policies. You may also want redundancy protection depending on your future employment risks but I don't bother as I could earn enough to pay our low living costs doing just about anything.

Alex

hellojohn8doe7

It is highly likely that your employer will allow you to increase your contributions

checked and yes I can increase my contributions. Currently this is 9% me and 6% employer. However is it better to increase my contribution or start a private pension account (which has been referred as SIPP) for my partner? I understand I am saving a big chunk of tax now but I will have to pay when I withdraw this on retirement. On other hand, if I start SIPP for my partner we get 25% government relief on initial 2880 and probably little tax at withdrawal on retirement. I am not sure and will appreciate any advice.

As you are young with an affordable mortgage then I don't see much point overpaying unless you are looking to upgrade in the near future.

I bought the first house because I thought I was wasting money in rent. I want to upgrade in late 2021 or early 2022. I think I have lost the stamp duty benefit of first time buyer and I think I will have to pay higher stamp duty when I sell & purchase 2-2.5 years from now. I should have been careful here. I believe overpaying mortgage (which I haven't used yet) will effectively save me 1.94% in interest rate as against 0.2% that I am getting in saving account

You may also want redundancy protection depending on your future employment risks

This I feel is my biggest financial risk that I need to address. I am not aware of any downsizing in my current job. This job is the only income source and we have with no other significant savings or investments to fall back on. Any tips on from where I can get redundancy protection or create alternate income source (other than partner getting job)? I am not sure how usual it is for households to have income stream from their jobs only and what backup plans are in place in case of loss of employment.

Albermarle

understand I am saving a big chunk of tax now but I will have to pay when I withdraw this on retirement.

Unless you are a relatively wealthy person in retirement , it is most likely you will not be a higher rate taxpayer ( only a small proportion of people are ) . So you gain 40% tax relief on your contributions .
When you take the money you get 25% tax free and pay tax at 20% on the rest ( so 15% effectively)
For every thousand pounds you add , you effectively get £275 free from the government. The only downside is that it not accessible until you are older.
I would not bother just yet with a SIPP for your partner. Hopefully she will get a job soon and nowadays nearly all jobs have to have some kind of pension arrangement anyway,

Through previous misfortunes and bad decisions, I don't have enough pension pot or savings. I want our life to get on track...

Personally I think you are in a better position than you think . Probably better than the average so do not get too anxious and if you follow some of the above advice then should be even less to worry about !

Alexland

Cash is useful in emergencies and although rates are low you should be able to get savings accounts that blend to a similar rate as your mortgage (promotional regular savers go up to 5%) so there is still not much point overpaying your mortgage compared to accumulating cash.

As above avoiding circa 40% tax, 2% NI and getting 18% child benefit (on the income between £50k and £60k) is well worth it even if you have to pay the [FONT=&quot]equivalent [/FONT]of around 15% tax when drawing it in retirement.

If you want to make retirement provision for your partner and if they are under 40 and a UK resident for tax purposes then a Lifetime ISA might be better than a SIPP. It offers the same 25% government contribution as a Relief At Source pension but with a LISA there is no risk of paying income tax on withdrawal. Over a couple of decades a S&S LISA would be most suitable - have a look at Hargreaves Lansdown or AJ Bell YouInvest who both offer good S&S LISAs.

Maybe post a new thread on the insurance forum to discuss redundancy protection?

Alex

atush

We cannot register in partner name as they are from outside UK/EU/EEA and not eligible for public funds.

Are you sure about this? I am from outside the Uk/Eu/EEu and i was an non working spouse qualified for CB (and Nics). i claimed them until my youngest was 16 (since reduced to age 12).

There are loads of jobs around, why cant she find one? is language a problem? She should attend the Job center and get help/training. Is she being too picky? I worked in a care home when i was at university. So really there is work to find somewhere.

hellojohn8doe7

Thanks for the helpful information. I will look at:
> higher interest paying bank accounts
> increase contribution in my pension account.
> LISA for partner

I want to upgrade my house in late 2021 or early 2022. I think I have lost the stamp duty benefit of first time buyer and I think I will have to pay higher stamp duty when I sell & purchase 2-2.5 years from now. I should have been careful here.

Can someone please help what my strategy should b if I want to move to a bigger house in 2-2.5 years from now?