Head spinning pickle

Fridgefreezercupboard

Hello and thanks for reading my long post.

In a nutshell, got long and short term aims with £42k. 

Have only ever had bank savings accounts but have realised recently that there is abit too much lying about.  I am especially going back and forth with up to half of it £21k…. invest in S&S ISA or SIPP, put more in workplace pension, overpay mortgage.

I know that question gets asked a lot, the thing that is making me question the decision is being 50 and not understanding the difference between S&S ISA and SIPP sufficiently well, as both would be accessible post age 55. I get the taxed on way in and taxed on way out difference but I bet there is a calculation or £value that makes one or other a no brainer but I don’t know it.

The rest I figure needs to be held in some form of easy access savings account (emergency and house maintenance). Hence my post in savings and investments but do say if I should be somewhere else.

Background (you don’t need to read this bit)

I understand budgeting and like spreadsheets so have always allocated my monthly wage to various columns (bills/food, holidays, discretionary/me, house improvement, luxury/rainy day, adventure holidays/5yrs), all my working life.  I have generally always saved to purchase what I want/need apart from my house! It is a good habit to have if you are buying something in the short-term.

But over the past few years due to not doing work on house when intended and Covid19, the spreadsheet pots have grown to over £42k, which is spread across N’wide flexdirect (out of deal), Santander 123 (bills account and once decent interest for saving) and N’wide Triple access saver (whilst I decide what to do).  The sum will naturally continue to increase across my spreadsheet pots with my monthly salary.  

I’ve realised I have probably been daft saving for these month long trips in regular bank savings accounts over 5 years rather than investing but, here I am.  The time to plant the tree is now, as they say.

Situation, goals

Likely to go on a month long trip sometime (should have been this year but most likely to be 2023/24 now)

Biggest monthly outgoing is my mortgage (£840/mth). It will run ‘til I’m 61 unless I make overpayments. Current interest rate 1.9%. Remortgage next summer, likely to be same rate or lower. LTV is now 39%.  I am disinclined to throw all the £21k at the mortgage as I think it could earn more than 1.9% over the same time period of time and I have monthly spare cash that I could overpay with.

Haven’t thought about when I will stop working but it is unlikely to be before 60.  Although it might look different. Maybe go part-time with some other more fulfilling but less income work, even freelance, at some point.  Current retirement income forecast looks low so would like to boost retirement funds in some way. Just not sure it needs to be via workplace pension.  It’s DC with L&G, Smart. Any contributions have a charge of 2%.  Wrapped my head around passive investing over Christmas break and think I am right in saying I could invest in alternative funds within an S&S ISA or SIPP for cheaper.  

Biggest concern, if I invest in SIPP and take 25% at some stage, I think it will impact other pension savings (that might be for another thread), hence leaning towards S&SISA then I run back and forth and think split everything 3 ways, then 2 ways and even 4 ways.  I am not clued up enough to see the difference.

Options I am considering – would welcome views or other scenarios I am missing

>Split £10k emergency fund. 33% easy access, 33% regular saver, 33% investment (S&SISA) I always thought this had to be very easy access but now think some of it can go elsewhere. Is there another place that others use?

>leave house maintenance pot in N’wide Triple access saver.

>£14k unallocated –  invest at least 50% but not sure whether this should be in the emergency fund S&S ISA or SIPP. A mortgage overpayment always sounds sensible but not sure it’s best use for the other 50% if I am trying to save for retirement.

>£7k adventure pot, COVID19 and house maintenance means a month long trip may or may not occur until 2024. 3yr fxd deposit?

Or

Work it harder by investing it; S&SISA or SIPP (because of 2% workplace pension charge and options of other funds))

Because there is this….

>£700/mth unallocated (whilst working f/t). I have no further planned house maintenance than what I have already saved for, nor any other adventure in mind. Depending what I do with adventure pot, this could be used to pay into S&S ISA, SIPP or mortgage.

Or

used to save for next adventure begin putting buy the year before booking.

My head spins, I hope yours isn't! 

Thanks for looking and any thoughts you have.

FFC

Albermarle

Pension you get tax relief when you contribute but pay some tax on the way out and the earliest you can take it is 55,. The tax benefit is 6.25% as a minimum 
ISA there is no tax issue  at all but you can take the money out when you want . Although for investment purposes it should not be a short term investment.
https://www.moneysavingexpert.com/savings/discount-pensions/
https://www.moneysavingexpert.com/savings/stocks-shares-isas/

AlanP_2

Current retirement income forecast looks low so would like to boost retirement funds in some way. Just not sure it needs to be via workplace pension.  It’s DC with L&G, Smart. Any contributions have a charge of 2%.

A 2% charge for an L&G workplace pension scheme sounds high, are you sure about that?

You use the word "smart", do you mean it is a Salary Sacrifice scheme where you save the NI as well as the tax?

Fridgefreezercupboard

@Albermarle thank you for the links. Still jumping about! Maybe split 50/50

Fridgefreezercupboard

@AlanP_2 thanks for commenting. Yes I was surprised myself at 2% charge. I looked at the statement recently (we have only just moved our pension scheme there) and after every contribution there's a minus of 1.8% with charge written against it. Hence not sure whether to put more in there or start a SIPP

Fridgefreezercupboard

It is a SMART pension scheme, yes, salary sacrifice and save NI too. I think I am curious as to what I could do investing in other funds like Vanguard ones. 

grumiofoundation

If this is the pension scheme then looks like charging structure is changing (although doesn’t look like was 2% before?).

https://www.smartpension.co.uk/member-charges

AlanP_2

Are you a Basic Rate or Higher Rate taxpayer, and if HR how much of yor salary is taxed at that rate?

If BR then the NI saving from using the work scheme is 12% and if HR then it is 2%, so either way it covers the L&G fee.

I have a pension with Standard Life, the majority of the fund choices are not from Standard Life but from the likes of Vanguard, iShares, Fidelity, Schroder etc. etc.  What fund choices do you have with that L&G scheme?

On the charges, it's worthwhile monitoring the number of units held in your account and seeing if the number increases across the month when you haven't made a conbtribution. With the SL pension a rebate is added via free additional units every month, your employer may have negotiated something similar.

Fridgefreezercupboard

@AlanP_2 I am a BR taxpayer after workplace pension contribution is taken (8%). You're right I shouldn't fret really about that 2% charge, as you say, I save elsewhere.
Just makes me think the return has to at least grow by 5% to cover inflation and the charge just to break even - am I right in saying that?

I haven't investigated what fund options I have within L&G on the platform itself, will take a look. The literature doesn't suggest there are many options. What I do know is I can only invest in one fund at a time and not split/diversify. Currently in a L&G target year fund. 
Also thanks for the monitoring units tip, will check. 

Fridgefreezercupboard

I think I misled you @grumiofoundation when I said Smart I meant salary sacrifice type scheme. 

DiggerUK

....."Biggest monthly outgoing is my mortgage (£840/mth). It will run ‘til I’m 61 unless I make overpayments. Current interest rate 1.9%. Remortgage next summer, likely to be same rate or lower. LTV is now 39%."......

£840 a month. LTV 39%. Paying till 61. Remortgage on the way.
I repeat that information to make you focus. Most of this £42k you currently find yourself with seems to be a surprise bonus which you can put towards the mortgage, or retirement funds. The mortgage involves no risk, the SIPP and the S&S ISA do.

We, like you, have had holidays cancelled and will have to wait until they resume. Unlike you these are some of our bucket list items. Unlike you we had also cleared the mortgage years ahead of retirement.
Your mortgage isn't gonna disappear, so you should guess what our advice would be..._