Tilting towards isas as a hrt payer

Fatbritabroad

Unusual situation to be in and definitely comes under the definition of 'nice problem to have' but I've belatedly realised that I've perhaps been tilting my savings too much towards pensions
situation is I'm 39 and earn 94k. due to a couple of large retention bonuses at work over the last couple of years my pension now sits at 220k. I contribute about 1500 a month to my pension currently including sal sac tax relief and employer contributions
I have been building isas on the side and have about 105k in these and keep about 15k cash float. Mortgage is 275000 and about 55% ltv. I save about 400 to 1000 a month in my isas and various work share save schemes.

Realise I'm in a fortunate position but with a child that's just been born in December I've realised I'm perhaps over tilted towards PENSIONS and having serious liquidity might be advantageous. at 5% growth my pension will hit or be getting close to the lta at 56 (appreciating this will increase or could change by then.

I also have a goal to be financially independent (though not necessarily stop work completely) ASAP more for security than anything

My reasoning is I could bring my contributions down from 13% to say 5% and build liquid wealth quicker and can always make up the pension contributions out of isa dividends later. this will also give me liquidity with any support my child needs. But I'm torn between making hay while the sun shines re the pension and feeling this is letting the tax tail wag the investment dog, meaning I should ignore the tax hit and build up some serious capital outside of pensions which as I say I can then funnel into pensions later or use the yield to pay off mortgage quicker. I could of course run a bigger mortgage for a bit and release more capital that way

Just after other people's thoughts really. I've always seen the tax hit as a bad thing but I'm thinking now might be a good time to ignore this for the sake of liquidity now I've done the hard work pension wise

rawhammered

Don’t understand what you’re spending all your income on to be saving so little a % each month. If I was you I’d be putting £40k a year into pension.

Anonymous101

Your position is almost identical to mine, age, earnings, investments, children all very very similar.


My approach at the moment is to pay close to the £40k limit into the pension. On top of that I'm able to save £500-£1000 into a S&S ISA. My strategy is to continue at this level for the next 5 years or so until I reach the point where, in theory the pension could be left to grow until I reach a predicted access age of 58. By that point it'll have grown to be sufficient to sustain our lifestyle. At the 5 year point I'll reduce the pension contributions down to the minimum required to receive my full employer match only and increase the S&S ISA saving.


My long term plan is tick the pension box off as quickly as possible whilst I'm able to maximise the 40% tax relief. I may not earn so much in the future or the tax relief situation could change. Once the pension theoretically filled then the requirement to earn so much isn't there any more for me and this then opens up the choice of working less.... or not at all once the ISA investments reach sufficient levels.


By the sounds of it you've already put yourself in a strong position with emergency fund and ISA investments so I don't see why you would need to choose the less efficient investment vehicle (ISA) over a better one (pension).

Fatbritabroad

rawhammered wrote: »

Don’t understand what you’re spending all your income on to be saving so little a % each month. If I was you I’d be putting £40k a year into pension.

I often wonder this myself lol. . There was a silly car lease in there till December but now purchased a second hand car outright. I did also enjoy travel but this will likely to be curtailed a bit with my newborn

Fatbritabroad

Anonymous101 wrote: »

Your position is almost identical to mine, age, earnings, investments, children all very very similar.


My approach at the moment is to pay close to the £40k limit into the pension. On top of that I'm able to save £500-£1000 into a S&S ISA. My strategy is to continue at this level for the next 5 years or so until I reach the point where, in theory the pension could be left to grow until I reach a predicted access age of 58. By that point it'll have grown to be sufficient to sustain our lifestyle. At the 5 year point I'll reduce the pension contributions down to the minimum required to receive my full employer match only and increase the S&S ISA saving.


My long term plan is tick the pension box off as quickly as possible whilst I'm able to maximise the 40% tax relief. I may not earn so much in the future or the tax relief situation could change. Once the pension theoretically filled then the requirement to earn so much isn't there any more for me and this then opens up the choice of working less.... or not at all once the ISA investments reach sufficient levels.


By the sounds of it you've already put yourself in a strong position with emergency fund and ISA investments so I don't see why you would need to choose the less efficient investment vehicle (ISA) over a better one (pension).

That's great yes that's my make hay while the sun shines comment . I'd like my mortgage gone too really but for now I think investing is the way to go. I've fixed my mortgage for ten years at 2.59 %
I also got divorced 5 years ago so that set me back a little as I had to hammer the mortgage to get this back to a level I was comfortable with on my own

Anonymous101

Fatbritabroad wrote: »

That's great yes that's my make hay while the sun shines comment . I'd like my mortgage gone too really but for now I think investing is the way to go. I've fixed my mortgage for ten years at 2.59 %
I also got divorced 5 years ago so that set me back a little as I had to hammer the mortgage to get this back to a level I was comfortable with on my own

That's it. I just thought that whilst the relief is on the table then make the most of it. Once you reach the pensions tipping point it opens up a lot more possibilities. As effectively you're able to take a £40k pay cut and still maintain the same standard of living. Therefore you could work part time or choose to take a small risk and start a business etc If that wasn't to go so well £50k jobs are a lot easier to find that £90k jobs so you've mitigated a lot of risk by ticking the pension off. Plus you'd only need to work for 10 years at most before you could access the pension monies.


What's the full term on your mortgage? 2.59% is reasonable and well below what you'd expect to earn in investment returns over that period. I see little point in overpaying whilst interest rates are so low.

Fatbritabroad

That's a very good point yes 50k is the average for my job position.
Is about 29 years I pay about 1100 a month. With the newborn I've just undertook a large house renovation so I'm cashflow ing some of it hence why I've not been able to save more and while being foot loose I've enjoyed some of it so will be a few months till I understand our new budget so I wanted that liquidity. Plus childcarw costs on the horizon

AnotherJoe

Fatbritabroad wrote: »

My reasoning is I could bring my contributions down from 13% to say 5% and build liquid wealth quicker and can always make up the pension contributions out of isa dividends later. this will also give me liquidity with any support my child needs. But I'm torn between making hay while the sun shines re the pension and feeling this is letting the tax tail wag the investment dog, meaning I should ignore the tax hit and build up some serious capital outside of pensions which as I say I can then funnel into pensions later

March 2025
@fatbritabroad "right I've got lots of extra money in my ISA, even though for every £100 I earned I only could put in £40, now it's time to build the pension up again.
@chancellorofexchequer "in my new budget, it's time to fix the unfair advantage the 40% taxpayers have so with immediate effect, the maximum pension contribution rate will be gated at 30% tax relief and salary sacrifice not allowed"
@fatbritabroad (realises he just lost a hundred £k in his pension"

Or in other words, as you said, make hay whilst sun shines. Continue as you are review in 5 years time.

Anonymous101

Fatbritabroad wrote: »

That's a very good point yes 50k is the average for my job position.
Is about 29 years I pay about 1100 a month. With the newborn I've just undertook a large house renovation so I'm cashflow ing some of it hence why I've not been able to save more and while being foot loose I've enjoyed some of it so will be a few months till I understand our new budget so I wanted that liquidity. Plus childcarw costs on the horizon

Yes absolutely understand. We have the same concerns.


£50-60k is easily achievable in my line of work, I know I'm outperforming that at the moment but that might not always be the case.


Priority for me is pension contributions, I've got ISA investments in case of a dire emergency I can access those and if further ISA investments have to take a step back for a few years then so be it. In 5 years I'll be done with over contributing to the pension. In a way I like the fact its locked away until I'm 57-58 as its a huge security blanket and I don't have to make any real choice what to do with it.


We have a little less time left on the mortgage, 20 years or so on ours. I've no plans to pay that debt off early. Whilst interest rates are blow 4% or so I'm not concerned. I'll let time erode the debt and continue to invest rather than pay it off. I did even have the thought of continuing to pay into the pension and remortgaging the house as I approach retirement if there's still room under whatever the LTA is at that point... that's a few years away though so leave that one on the table for later.

Fatbritabroad

AnotherJoe wrote: »

March 2025
@fatbritabroad "right I've got lots of extra money in my ISA, even though for every £100 I earned I only could put in £40, now it's time to build the pension up again.
@chancellorofexchequer "in my new budget, it's time to fix the unfair advantage the 40% taxpayers have so with immediate effect, the maximum pension contribution rate will be gated at 30% tax relief and salary sacrifice not allowed"
@fatbritabroad (realises he just lost a hundred £k in his pension"

Or in other words, as you said, make hay whilst sun shines. Continue as you are review in 5 years time.

Starts to wonder if he should increase his pension contributions 🤣🤣:rotfl:

HCIMbtw

The thing I would be looking at is projected pension pot based on your contributions and the age you would like to be considering retirement because it feels to me like the tax implications of hitting the lifetime allowance, and the taxable rate at which you draw out of the pension could be important factors here

Ideally you want to balance it so you are maximising the tax benefit of all savings avenues to the end of your working years, in this regard it may be worth speaking with an IFA so they can run your numbers, project and advise

I'm contributing about 15% salary to pension a month (about 560) and 900 a month to an S&S ISA at the moment.. have a cash reserve tucked away in premium bonds, so weighted the other way compared to yourself as I simply don't want all my savings locked away in a pension wrapper.. I'm aware this isn't the best way to save for retirement, but im not convinced my ISA savings are just for retirement, hence wanting the availability to access!

Personally don't bother with the work share save schemes, even with a 20% discount upfront I am not convinced they are beneficial in my market compared to investing the money separately