Balancing savings v mortgage

Imelda

Hello
we are in the process of moving house. For the past few years we have maximised our pension and ISA savings, saving at least £60k per year.  However, we have kids and they go to private school, jobs and income have changed and I suppose priorities have too.  We are moving to a bigger house to hopefully give us a better quality of life as our current (mortgage free) house is just to small for us all, especially as we have both been told we will be working from home for the foreseeable future (we were already in the process of moving pre lockdown). 

However, I am finding the switch from saving to spending quite difficult. I need to work out a plan of how to split our savings in the future. 
I appreciate that we are in a fortunate position. We are both early 40's.
We are going to have an offset mortgage, mainly because the house needs some work but we won't be doing that for another 18 months or so and also because we didn't want to use up all our cash savings.

anyway- our position will be as follows:
Mortgage will be £200,000 @ 1.78% fixed for 5 years over 20 year term (approx £1,300 payment per month - this is a small overpayment, worked out on a 15yr term)
income - £9k per month plus bonuses/ dividends of a varying amount (could be £0, could be £100k, will be the former this year)
pensions & ISAs £1 million (£700k DC pensions £300k S&S ISAs).
other savings (most of this is tied up in fixed term accounts all at better rates net than the mortgage, once the terms are up, unless rates have gone up they will be offset against the mortgage/ used for the building work/ put in pensions or ISAs)£190,000

Emergency fund: £50,000 in premium
bonds

After outgoings we will have about £3k/ month to save, my husband's pension is deducted at source (Sal sac, the most he can due to the taper) and so it is just my pension (which I usually contribute £1k/ month to plus top up at the end of the tax year if we have some money spare - I am a basic rate tax payer and earn £15-£20k/ year part time), my LISA (husband was too old!) and our S&S ISAs.
My husband wants to pay the mortgage off as soon as possible and use our cash savings to do the work to the house (approx £100k worth including rent for 3 months for us to move out when the worst of it is done) but I think we should still put money into pensions and S&S ISA's and pay the mortgage off more slowly - in our last house we concentrated on paying the mortgage off to the detriment of my pension and our ISAs. My plan would be something along the lines of: 

my pension £1k
my LISA £333.33
Husband's ISA £1666.66 

However, I would still be tempted to use any spare cash/ money from our cash pot to use my ISA allowance too and not be too hasty in paying off the mortgage. If things pick up after what is a pretty disastrous year bonuses/ dividends from my husband's company should be back up to pre Covid levels (he got £70k last year) plus, once my youngest goes to school full time I plan to increase my earning too (I will never be a higher rate taxpayer though).

Our aim is £2 million in pensions and ISAs to allow us to retire in 15 years' time - aiming to have at least £50,000 net in today's money as annual income.

The house will be our forever home but we could downsize in retirement if necessary, I suppose, but I don't want to bank on that as we both still visit our childhood homes with our children!

sorry, this is so long! Basically it is the age old question of whether to overpay mortgage or save for retirement.

Albermarle

I think when you get to this level of wealth , you would benefit from paying for an IFA, rather than asking for advice from random strangers on an internet forum . Especially as you get older and the wealth really builds up , it can get complicated with LTA on pensions, inheritance tax etc 

Imelda

Albermarle said:

I think when you get to this level of wealth , you would benefit from paying for an IFA, rather than asking for advice from random strangers on an internet forum . Especially as you get older and the wealth really builds up , it can get complicated with LTA on pensions, inheritance tax etc 

Yes, you are right. The issue is my husband. He works in the financial industry (he is an accountant) but ridiculously risk averse and refuses to engage an IFA because he believes he knows best (he doesn't and is lazy where his own money is concerned - I deal with the finances).
His pension is £550,000 (he converted it to cash before the crash earlier in the year for which he pats himself on the back but then he has no strategy for getting back into the market. I just continued dripping money in and do not seem to have suffered too much).
The taper relief means for the past couple of years he has been limited to a £10k limit on contributions anyway, his employer pays them - he would not get the equivalent in cash salary if he rejected the pension and so it seems silly not to accept them.

so, next question - could I see an IFA on my own or would that be pointless?

[Deleted User]

The money saving option would be to put the kids into state schools, bright kids will do well in any school. My DD went to state school/college she passed her degree with the highest % in the UK and now has a senior position with a major American bank here in the UK.
That would save you how much?

RetSol

Hello @Imelda.  Potentially, I have some feedback on your post but I am not sure how open you are to feedback on your general approach to your situation, as opposed to feedback on your specific questions.  As for your specific questions, I am in agreement with @Albermarle.  @venison has raised one aspect of your post which I feel is worth your consideration.  I would like to raise other aspects, if you would like to hear them.  Let me know! 

barnstar2077

venison said:

The money saving option would be to put the kids into state schools, bright kids will do well in any school. My DD went to state school/college she passed her degree with the highest % in the UK and now has a senior position with a major American bank here in the UK.
That would save you how much?

The secondary school that I went to was beyond a joke, so I think that it would depend very much on which state school you were near.  

Imelda

We both went to state schools too. I have no issue with them. We live in London and the school my son was allocated was miles away and not well regarded and so we opted for private. I am completely open to moving his school and he is on waiting lists. Another reason why we are moving. However, for the time being they are going to private school (my youngest is starting next week) and that is factored into our finances.
Not everything is a financial decision.

Imelda

RetSol said:

Hello @Imelda.  Potentially, I have some feedback on your post but I am not sure how open you are to feedback on your general approach to your situation, as opposed to feedback on your specific questions.  As for your specific questions, I am in agreement with @Albermarle.  @venison has raised one aspect of your post which I feel is worth your consideration.  I would like to raise other aspects, if you would like to hear them.  Let me know! 

I am intrigued, so yes - I am always open to ideas. 

Albermarle

Imelda said:

Albermarle said:

I think when you get to this level of wealth , you would benefit from paying for an IFA, rather than asking for advice from random strangers on an internet forum . Especially as you get older and the wealth really builds up , it can get complicated with LTA on pensions, inheritance tax etc 

Yes, you are right. The issue is my husband. He works in the financial industry (he is an accountant) but ridiculously risk averse and refuses to engage an IFA because he believes he knows best (he doesn't and is lazy where his own money is concerned - I deal with the finances).
His pension is £550,000 (he converted it to cash before the crash earlier in the year for which he pats himself on the back but then he has no strategy for getting back into the market. I just continued dripping money in and do not seem to have suffered too much).
The taper relief means for the past couple of years he has been limited to a £10k limit on contributions anyway, his employer pays them - he would not get the equivalent in cash salary if he rejected the pension and so it seems silly not to accept them.

so, next question - could I see an IFA on my own or would that be pointless?

We see other threads on this forum that make it clear being in the finance industry, or being an accountant is not necessarily a good qualification  when it comes to personal finance. You need to become well informed yourself or employ a professional, especially at your level of wealth . Cost would be a few grand upfront and then 0.5% a year and you should avoid wealth management companies with glossy brochures and high fees or advisors tied to a bank or similar . Would not really make sense just for you to engage an IFA but often one partner does take the lead on these issues . Maybe you could get him grudgingly to agree, even if it is only to make sure you do not get hit by unnecessarily  high tax bills in future .
Converting his pension to cash was a  bad strategy, especially as within a pension it is probably earning zero per cent. . Most pensions invested at the usual typical medium risk level are above where they were on Jan 1st . Those with 100% equity ( higher risk ) might still be a few per cent behind, more if they were mainly invested in UK ( where the stock market recovery has been more sluggish ) 

Imelda

He is very cagey where his pension and ISAs are concerned - he doesn't let me see the statements and when we update the money spreadsheet he will only allow me to input the figure of sum invested and not any growth (which there should have been) which leads me to believe that the money may remain uninvested - his argument is that any gain is currently false and will be wiped out soon. 

The only reason I know about his pension being in cash is because I saw the letter from Standard Life and he told me how clever he had been <eye roll>.
you are right, he is the worst with money. He doesn't spend lots or anything like that but he takes no risks. If it weren't for me he would have it all sitting in 0.1% accounts.
I can't force him into anything. He is the main earner and so I don't want to get on his case about it but equally, if affects me too.  
Our house move has only really taken on momentum since it affects his daily life (he is working from home and he is finding it very difficult due to lack of space) before that he refused to get a mortgage at all.
It is very frustrating.

barnstar2077

Imelda said:

He is very cagey where his pension and ISAs are concerned - he doesn't let me see the statements and when we update the money spreadsheet he will only allow me to input the figure of sum invested and not any growth (which there should have been) which leads me to believe that the money may remain uninvested - his argument is that any gain is currently false and will be wiped out soon. 

The only reason I know about his pension being in cash is because I saw the letter from Standard Life and he told me how clever he had been <eye roll>.
you are right, he is the worst with money. He doesn't spend lots or anything like that but he takes no risks. If it weren't for me he would have it all sitting in 0.1% accounts.
I can't force him into anything. He is the main earner and so I don't want to get on his case about it but equally, if affects me too.  
Our house move has only really taken on momentum since it affects his daily life (he is working from home and he is finding it very difficult due to lack of space) before that he refused to get a mortgage at all.
It is very frustrating.

For a non risk taker, it sounds like he is taking a massive risk by leaving his pension in cash!