Please suggest as completely confused paying off mortgage OR to invest?

mazibee

Eco_Miser said:

When the stock markets drop again, affecting your pensions, (and ISA if you open one) will you resort to masterful inactivity, knowing that these things happen, or will you sell/switch to low risk funds?

Given your action in applying for an unneeded mortgage holiday, I fear it will be the second.

If you are going to go for investments, I suggest you read the archives at Monevator

@Eco_Miser   Thanks for your reply.

I will check the website you have mentioned.

What I understood is you mean to say that I should switch to low risk funds in the pension instead ofthe high risk funds?

Also I plan to put the money back which I have not paid during the mortgage holiday (3 x £1254) as this money is sitting in my current account.

AnotherJoe

I think you should not have applied for a mortgage holiday "in case things go wrong" unless you thought they were just about to because now you'll have more to pay - that mortgage interest gets rolled up.

Your pension amounts are derisory, and whilst i appreciate you might want to keep something aside for a rainy day rather than lock it away, you've got £40k sat there doing nothing, so thats a big enough rainy day fund and you could easily be putting extra in your pension. At the very least you should be putting enough in to get the maximum employer conrobution as otherwise thats throwing free money away.

Add on top you have a mortgage that wont be paid off until you are 70 so in shoes i'd start overpaying mortgage and adding more to pension and forget the ISA idea.

Eco_Miser

What I was suggesting is that you should think very carefully about what your reaction to a big drop in valuation will be (high risk drops much more than low risk) and choose your investments accordingly. If you do choose high risk, be prepared to sit out a paper loss for several years, as selling low will crystallise that loss.

I'm basing my comment in part on your reaction to being offered a mortgage holiday.

mazibee

Extremely thanful @AnotherJoe

Now I realize that the mortgage payment holiday was mistake on my part and I plan to pay that soon as the amount is my current account.

Please can you explain a bit as I am unable to understand that bit

 At the very least you should be putting enough in to get the maximum employer conrobution as otherwise thats throwing free money away.

I am on salary sacrifice scheme and on £3.5K per month  I am paying 5% and employers is contributing 3% ,Tax  relief  ie 1.25% is also being added in the pot.
How can I get the maximum employer contribution as they are already contributing 3% which I think they are contributing for all the other employees also.?

Albermarle

I am on salary sacrifice scheme and on £3.5K per month  I am paying 5% and employers is contributing 3% ,Tax  relief  ie 1.25% is also being added in the pot

Are you sure you are in a salary sacrifice arrangement ? With this arrangement no extra tax relief is paid as you do not pay the tax in the first place. If tax relief is being added separately to your pension then you are not in a salary sacrifice arrangement.

How can I get the maximum employer contribution as they are already contributing 3% which I think they are contributing for all the other employees also.?

Some employers will pay more if you pay more . It sounds like in your case though you are getting maximum employer contribution, but still nothing stopping you increasing your 5% or higher .

AnotherJoe

mazibee said:

Extremely thanful @AnotherJoe

Now I realize that the mortgage payment holiday was mistake on my part and I plan to pay that soon as the amount is my current account.

Please can you explain a bit as I am unable to understand that bit

 At the very least you should be putting enough in to get the maximum employer conrobution as otherwise thats throwing free money away.

I am on salary sacrifice scheme and on £3.5K per month  I am paying 5% and employers is contributing 3% ,Tax  relief  ie 1.25% is also being added in the pot.
How can I get the maximum employer contribution as they are already contributing 3% which I think they are contributing for all the other employees also.?

What Albermarle said, eg you might have an employer who matches you up to say 5% and then nothing above that, eg you pay 3% they pay 3%, you pay 4 they pay 4, you pay 5 they pay 5, you pay 6 they still pay 5. SO in that case if you were paying only 3% you'd be missing out.But in your case it seems your employer is doing the mimimum 3%.

DireEmblem

My view would be to:

1. Work out what your current 6 month emergency fund size would need to be, and ring fence that in an easy access FSCS account.
2. If you have a salary sacrifice option at work, increase contributions to that, and consider using part of your savings to cover the shortfall if needs be.  You should get 25% extra added by the government through tax relief to your pension pot, and have a greater sum to have invested for the next 15-20 years.  It might help encourage you to help save for the future. by trying to retain your savings balance on a lower income, whereas in effect you will be saving more.
3. You generally get the best mortgage rates, with a 40% or greater deposit.  Have a look at the mortgage calculators, and see how much interest you could potentially save if you were to start overpaying, and how quickly you can get there.

It might also be worth considering working backwards:

•  At what age would you like to retire
• How much funds/income would you need to retire comfortably
• At retirement - will you have your mortgage paid off, or will you need to use the 25% tax free withdrawal on your pension?

Then you can work on your financial plan to meet your long term goals.

[Deleted User]

Drastically increase pension contributions e.g. additional voluntary contributions (AVC) and go with medium or ideally high risk options as you still have 20 years to ride out ups and downs of the stock market. You really need to increase your pension total fund and you do this by increasing the amount you invest, and by choosing worthwhile options e.g. not low risk options. Think along the lines of global, passive, tracker etc.

If you have anything spare after contributing the maximum to your pension every year then either put that towards 6 months of essential bills (mortgage / council tax / food, but not Netflix, not Prime etc). Once you have this amount which I imagine might be 10 - 15k then I'd personally consider investing the rest into a stocks and shares ISA i.e. open a brokerage account e.g. vanguard investor and again invest into a global, passive, tracker. This is the key with the stock market, think global as you don't want to be reliant on one country / continent. Think passive as by and large it's been shown any benefit active investors bring gets stripped away by charges, and the vast majority don't make positive inroads over passive, yet still charge for it. Finally think tracker as you're not selective picking funds / companies etc. you're just looking to track the markets, and consequently can expect an average return of say 7%.

Overpaying the mortgage is a false positive, you might feel better but I don't think it's the smartest use of your money. In 10 or so years you could remortgage with your S&S ISA money and drastically increase your LTV.

Your real focus should be your work place pensions though.

Sailtheworld

Current mortgage (which is hardly small) runs until you are 70, takes up a big chunk of current expenditure, you've been furloughed and you took a payment holiday. You should invest for the future by all means but don't neglect the potential near term risk that's staring you right in the face.

Having your cash tucked away in an ISA where it most likely you'll get better long terms gains is all well and good but bad things that happen tend to be related. You'll be cheesed off if you lose your job at the same time as a stock market crash.

Investing is probably going to give you the long gain but don't forget this is a savings and investments board. That's going to affect what you hear. If you go on a barber's forum and ask if you need a haircut you might guess the advice.

MaxiRobriguez

Sailtheworld said:

Current mortgage (which is hardly small) runs until you are 70, takes up a big chunk of current expenditure, you've been furloughed and you took a payment holiday. You should invest for the future by all means but don't neglect the potential near term risk that's staring you right in the face.

Having your cash tucked away in an ISA where it most likely you'll get better long terms gains is all well and good but bad things that happen tend to be related. You'll be cheesed off if you lose your job at the same time as a stock market crash.

Investing is probably going to give you the long gain but don't forget this is a savings and investments board. That's going to affect what you hear. If you go on a barber's forum and ask if you need a haircut you might guess the advice.

Agree with this.

Your pension pot does need work, and fast, but it appears you have a very real risk of redundancy based on what you've said, so you'll probably want more than the typical six months salary held back for emergencies given this crisis is not going to be over in six months which may limit alternative employment.

The other posts are right in that you need to up your pension, but you do need short term protection as well. Personally if it was me I'd be looking to keep £25k of the £40k liquid which should ride you out for a year if you're careful. Use the £15k to inject into longer term investments.