Should I invest or put in pension?

james_williamson_6544

In my situation below:

Base Salary - 60-70k range (only source of income). Promoted last Monday with heavy pay-raise.
Outstanding Mortgage on a small / modest house - 65k
Workplace Pension - 51k
Financial Dependents - 1 Spouse + 2 Children
Other debt and loans - cleared off at end of January
Age - 35 in April
Life Insurance - only from the company I work for (death in service benefit)

Can someone please share thoughts on what should I do with any monthly spare cash / savings?

• Increase contribution of workplace pension
• Start a partner SIPP
• Start a Junior ISA
• Overpay mortgage : This is so that if something were to happen to only source of income, then safety of roof on head
• Start stock and share ISA
• Keep some money in bank for home emergencies

Thrugelmir

Emergency savings should be the first step.  6-12 months. 

james_williamson_6544

Thrugelmir said:

Emergency savings should be the first step.  6-12 months. 

Yes, I sensed that after going through some of the posts and would do a regular saver and build emergency nest. I now have a fair idea of my monthly expenditure.
Any tips and advice on where should I focus next?

Alexland

james_williamson_6544 said:
Any tips and advice on where should I focus next?

After emergency money consider paying enough into your pension to avoid higher rate tax for your spouse to claim child benefit. I assume she has registered anyway to earn entitlement to state pension?
Also consider critical illness and personal accident insurance especially if you can get cheap group rates from your employer.

Thrugelmir

james_williamson_6544 said:

Thrugelmir said:

Emergency savings should be the first step.  6-12 months. 

Yes, I sensed that after going through some of the posts and would do a regular saver and build emergency nest. I now have a fair idea of my monthly expenditure.
Any tips and advice on where should I focus next?

Any plans to move house in the next 5 years ? 

dunstonh

Should I invest or put in pension?

That is a bit like asking if you should buy petrol or a car.

A pension is a tax wrapper that contains investments.   So, you are investing if you put it in a pension.

How much extra are you talking about?  Enough to reinstate child benefit if you paid it into the pension?

james_williamson_6544

I assume she has registered anyway to earn entitlement to state pension?

Both me and my wife registered for child benefit (no payment, just NI credits) recently in December - one for each child. So we won't get full 52 weeks in 2020/21 tax year but will get it from 2021/22 tax year onwards. 

Any plans to move house in the next 5 years ?  

We are constantly looking for options as current place is a small 3 bedroom house and we have a strong yearning for a slightly more spacious 4 bedroom house. We bought this place as we were certain we will live here for minimum 3 years before need for upgrade. We took the risk that if property prices were to go up, we might be in net advantage as compared to renting and then buying a bigger place. According to Nationwide fix term deal switch application, my house price has gone up total 8.5% in the last 3.5 years, i.e roughly 2.5% annual growth.

Should I invest or put in pension?

Sorry, I meant should I take money from salary and put this into spouse SIPP /  S&S ISA / Junior ISA, or is it worth doing salary sacrifice and put money in my own workplace pension. The extra money put into workplace pension may just put our net salary under 50k

Also consider critical illness and personal accident insurance especially if you can get cheap group rates from your employer. 

This is a good point, I will check this what is available. I keep saying this and then putting it off - which is dumb.

Alexland

james_williamson_6544 said:

Both me and my wife registered for child benefit (no payment, just NI credits) recently in December - one for each child. So we won't get full 52 weeks in 2020/21 tax year but will get it from 2021/22 tax year onwards.

If you are working at that salary you will be paying enough NI via payroll to get the full year anyway so there isn't much point in you being registered but it's good she is registered and it may not be important that she doesn't get the current tax year (or worth topping it up) if she gets enough full years by state pension age although it's a bit complicated because of transitional rules. It's worth looking at her NI record and SP forecast online.

james_williamson_6544 said:

Sorry, I meant should I take money from salary and put this into spouse SIPP /  S&S ISA / Junior ISA, or is it worth doing salary sacrifice and put money in my own workplace pension. The extra money put into workplace pension may just put our net salary under 50k

If you can afford to salary sacrifice enough to avoid taking higher rate income (including any car allowance, bonus, taxable benefits, etc) using your pension then you would save higher rate tax, national insurance and get a couple of grand a year in tax free child benefit. Do the maths on how good that would be for you but this is probably your best retirement investment option.

As a non earner your spouse can add £2880 (that you could give her) each tax year into a pension for a 25% uplift and if she only ends up with a small pension then she may be able to carefully draw it all tax free using her personal allowance each year in retirement (front loaded as the state pension will eventually use much of her personal allowance).

Also if you are both under 40 you can each add £4000 each tax year (until age 50) into S&S Lifetime ISAs for a further 25% government bonus of up to £1k with no tax on withdrawal from age 60.

So basically there are lots of government incentives for you to invest towards retirement so it's a balance between making the most of these opportunities while also having enough money to meet your pre-retirement needs such as the bigger house, etc.

In terms of overpaying the mortgage it might be worth it if it gets you to a better LTV ratio to get access to better interest rates on the rest of the debt but once you get down to around 60% LTV then you would expect to be on the best rates and any further money would do better invested in S&S over the long term but then it depends on how much debt you feel comfortable carrying.

james_williamson_6544

Thanks for all the helpful advice. I plan to use this thread to record monthly status and hopefully use that to motivate myself in doing better.

Status on 2-Mar-2021

Outstanding Mortgage on a small / modest house - 65k at 1.94%
Workplace Pension - 50k
Financial Dependents - 1 Spouse + 2 Children
Other debt and loans - nil
Age of both adults - 35 in April
Life Insurance - only from the company I work for (death in service benefit)
(non-earning) partner SIPP - 2k
Emergency fund - 2 months in bank at 0.5%

Plan:
- Increase contribution in workplace pension scheme
- Use full 2020/21 allowance for partner SIPP
- Increase savings for emergency fund
- Life Insurance for both me and partner as current life insurance is only for me and linked to being employed