Borrowing to increase contributions

Thrugelmir

Bemma wrote: »

As an example taking option 1.
At age 53+, get a 24 month 0% purchases credit card. Use for living expenses of say £1000/mth. This frees up £1000 of net salary, which can be sacrificed and results in £1570 (in my case) into pension. So in 24 months £37,680 in pension, with a debt of £24,000. Take out £24,000 from pension and clear debt, result: £13,680 in pension for zero cost. Actually, it would be a little different than that as at least minimum payments must be made against the debt.

I'd suggest that you first try and obtain a 0% credit card with a £24k limit and a no monthly repayment requirement. Somewhat of a fundamental flaw in your thinking. In addition you'll need to find one that offers 0% for the full period, not just an introductory term.

As for option 2. How many months are you proposing to take a £24k unsecured loan over? As the monthly repayments could be sizable even at "low cost" rate of interest. Though unlikely to be as low you imagine.

Bemma

I'm theorizing currently, the practicalities of getting that much on a 0% card are probably better taken over to the Stoozing board, but I currently have a card with £21k available balance and I have a 0% transfer option on it. It does have a fee attached (3% if I recall). Take a look on the Stoozing board and you will find people with £30k+ stoozed. So not totally out of the question. Also, I mentioned (twice) that minimum payments would need to be maintained.
Using the minimum payment (1% minimum), the debt would be down to about £19k with £5k of payments over two years. So £19k available for Salary sacrifice, £29k in pension pot, so only a benefit of about £10k.

There are practical issues as you mention… maybe £24k is too much, that was chosen an example as a nice round number! That much would take me over my £40k allowance with my existing contributions anyway (yes I could use previous years allowance, but that's down another rabbit hole).

So I don't see a fundamental flaw. As mentioned, I'm theorising. The practicalities might not allow it, but not out of the question. Current best buy cards on this site advertise 26 months at 0%! A few years ago I had a 0% spend card with a limit of £12k, I currently have a £21k available for 0% balance transfer.
Yes, the credit card market is changing too, but I who knows what would be available.

hugheskevi

I've used 0%, fee free credit card offers to accelerate my financial plans for the last decade.

Initially this was to contribute more to a pension to benefit from higher rate tax relief, later to ensure both partner and I could make full ISA contributions, and soon it will hopefully be to pay off mortgage.

For the last decade I've had about £50,000 to £80,000 across my wife and I outstanding on 0% credit cards. I keep an amount in liquid savings such that I could always repay cards at end of offer period assuming I cannot obtain more credit. That effectively enables me to use future salary for immediate financial objectives, and as more 0% offers are secured that frees up further funds to put toward financial objectives.

Main barriers are being able to do it fee-free (I have a legacy 0% fee money transfer card), and ensuring you can repay borrowed funds if you cannot secure future borrowing.

It has been very worthwhile, one of the few financial games I'm still playing.

MallyGirl

AlanP wrote: »

I, and I suspect others, are doing it almost by accident.

We have an offset mortgage and make a monthly repayment that is less than we would if we weren't contributing to AVC pots that run alongside our DBs.

Are both over 55 so in theory could access anytime we wanted to, although mindful of DB actuarial reduction.

We aren't maximising it though as we will still pay the mortgage off from take home income over next couple of years.

I'd be reluctant to stooze in the way you suggest, even though I can see the mathematical benefit, preferring to mix and match as we go through our financial journey.

Similar here. Offset mortgage that should still be paid off by retirement age but it has gone up a bit recently due to a big ramp up in our DC pension contributions after my LBM.
OH may hit LTA so it makes sense to maximise contributions now and let them compound even if he has to wind it down towards the end. We are also contributing to ISAs now as the £20k limit might be too limiting later once he can't efficiently put much more in the pension.
I do stooze too but not in the way I used to - the rate differentials just aren't there any more.

Thrugelmir

Bemma wrote: »

I'm theorizing currently, the practicalities of getting that much on a 0% card are probably better taken over to the Stoozing board, but I currently have a card with £21k available balance and I have a 0% transfer option on it. It does have a fee attached (3% if I recall). Take a look on the Stoozing board and you will find people with £30k+ stoozed.

A balance transfer is one off event. As you are only spending a £1k a month. How will you utilise the £21k facility. The 3% immediately takes a cut of your gain. What's the monthly repayment on the outstanding balance?

New regulations were introduced in early 2018 following a review of the credit card market by the FCA. Hence my comment regarding obtaining a new card with a high balance limit now.

Bemma

MallyGirl wrote: »

I do stooze too but not in the way I used to - the rate differentials just aren't there any more.

I have an offset mortgage too and will deplete my saving on the run in to 55. I also previously have stoozed, nothing serious almost just to try it, but as you say the rates don't stack up anymore.
... but if I get a 57% uplift by increasing my salary sacrifice, by living on 0% card. That's a rate worth having.

[Deleted User]

]Sorry, this seems to have go off on a tangent from what I meant! Bad choice of words from me probably, 'borrowing' to invest easily raises a red flag! I should maybe just call it 'stoozing into DC pension'.
I'm NOT talking about leveraging and gearing investments in stocks and shares etc. Way beyond my knowledge, experience and comfort zone. I think MaxiRobriguez gets it! Borrow cheaply at or near 55+ years old for living expenses so that increased salary can be sacrificed into pension to get an uplift from tax/NI/HICBC savings.

Surely all the money you put into your DC pension goes into stocks and bonds. You need to be clear that whichever way you slice it, “borrowing to invest” or “leveraging” is exactly what you are planning to do.

The value of your DC pension could go down as well as up. If you get into debt to boost your pension fund, you are magnifying the effects of the stockmarket on your net worth, so a bear market could be more painful.

Bemma

Thrugelmir wrote: »

A balance transfer is one off event. As you are only spending a £1k a month. How will you utilise the £21k facility. The 3% immediately takes a cut of your gain. What's the monthly repayment on the outstanding balance?

New regulations were introduced in early 2018 following a review of the credit card market by the FCA. Hence my comment regarding obtaining a new card with a high balance limit now.

A BT is not ideal and I mentioned above that is probably a variant I would not use... But take the £21k in one transfer so £630 fee. 1% per month minimum payment. After 24 months, balance is £16500ish with £4500ish payments. So around £16k available for sal sac. Profit £9k, for my purposes.
But like I said, I'm probably not interested in this, I mentioned it to stimulate a conversation about this kind of thing.

MaxiRobriguez

Fundamentally I don't see anything wrong with it. The big considerations are:
1) How close you are to the ceiling limit within the pension (for most people, this won't be an issue)
2) If you've already accounted for the 25% TFLS to be spent elsewhere. In which case, paying off your stoozing is going to come with tax implication that you were trying to avoid in the first place.

And it's only appropriate within a specific timeframe whereby the costs are not unknown. It is too risky are extending mortgage to do it but aren't retiring for ten years and any fixed rate ends well before those ten years.

It needs certainty, but if you have that, I can't think of a reason it couldn't be done.

Bemma

Deleted_User wrote: »

Surely all the money you put into your DC pension goes into stocks and bonds. You need to be clear that whichever way you slice it, “borrowing to invest” or “leveraging” is exactly what you are planning to do.

The value of your DC pension could go down as well as up. If you get into debt to boost your pension fund, you are magnifying the effects of the stockmarket on your net worth, so a bear market could be more painful.

My DC pot is invested in what ever I choose it to be invested in! So in this case I would choose cash. No leveraging against stocks and bonds. I would be at the mercy of inflation with this cash... but I'm talking about 1 or 2 years, so don't see that an issue.