Pension / ISA / BTL Options

RickyCC1978

Hi all

I’m looking for a little advice and opinion as to what to do. A lengthy house move has just concluded and I now need to look at my investments and future. I’m 43 next week and currently have a very small Scottish Widows pension. I have £20k sat in premium bonds as I wanted to have it easily accessible for the new house purchase. I’ve also got another £30,000 which I’ve just received as an inheritance. So £50k to invest somewhere. I also have a BTL property which was a fix up project a couple of years ago. That’s being kept to top up the retirement pot as well.

I suppose the key question is whether I should top up my Scottish Widows pension pot (I’m a 40% tax payer) or whether I should opt for an ISA using a managed fund like Vanguard.

What would people do in a similar situation? 

Money_Mad

In your position I would be looking to invest in my pension. Can’t say no to 40% tax relief.

justme111

Ricky
You can top up your existing pension pot or invest with vanguard into another pension pot that you open now - any major investment provider (and possibly a minor ones too) offers pension wrapper.
Whether you do it in ISA or pension is a decision you would make depending on multiple factors - there are like hundreds of threads on here discussing it.
I would say your circumstances would have to be quite particular for a pension not to be the better option as you do not seem to have much in it. If you pay into it the amount that takes you off the higher tax rate at least your investment gets an immediate 40% growth. Keeping in mind when investing people often roughly expect growth of 4 %/year pension beats ISA tenfold. ( I know many assumptions apply and depends on details but just for seeing the bigger picture it is helpful for the numbers to be put like that).

Albermarle

£100 invested in a pension costs £60 
Assuming it is taxed on the way out at basic rate and you get the 25% tax free , then £100 becomes £85 .
So you are £25 ahead of an ISA investment before you even start 

dunstonh

I’m 43 next week and currently have a very small Scottish Widows pension. I have £20k sat in premium bonds as I wanted to have it easily accessible for the new house purchase. I’ve also got another £30,000 which I’ve just received as an inheritance. So £50k to invest somewhere.

So, its fair to say that you are pretty far behind on your retirement planning.  This £30k inheritance helps you a little.  It still leaves you behind but not as much.  You need to take it more seriously than you have to date.

I suppose the key question is whether I should top up my Scottish Widows pension pot (I’m a 40% tax payer) or whether I should opt for an ISA using a managed fund like Vanguard.

Its probable that your Scottish Widows pension is a bit dated now and can be improved upon elsewhere.     Vanguard may be a viable option but provider/fund type is micromanaging when the big issue is the lack of funding.

You are  a higher rate taxpayer.  That makes pension a no brainer for retirement planning.  Tax relief from HMRC gives you 40% of you.  So, every £100 of pension contribution costs  just £60.  That is £40 of free money overnight.

Are you self employed or employed?  You dont mention an auto-enrolment scheme with the employer.

DireEmblem

Does your employer allow you to contribute more to your pension?  If so, you could use part of your 30k to offset a reduction in your income.

You might be able to get the tax and double National Insurance savings paid into your pension(Company and employee NI depending on your companies pension scheme).

Lets say you drip the full 30k into your pension through a salary sacrifice type scheme.  You should get the extra 40% tax back, and lets say for arguments sake an extra 10% saving on your own NI contributions, and potentially the same from your employer as well.

The numbers aren't exactly right, I've rounded the NI to 10% for both employee/employer.

RickyCC1978

Lots of helpful comments so thank you. To answer a couple of the questions. I’m employed and have a matched 5% pension contribution. I’m allowed to pay in more but my employee will only match it to 5%. I’ve always viewed the BTL as a key part of my pension pot as the repayment mortgage on it is due to end when I’m 58. We currently have about £70k equity in that property as it was a little development project a few years ago. 

I guess I’m pretty much settled on the pension option being the best route but to be honest I had only really considered additional payments into my workplace SW pension and hadn’t thought about setting up another one. That may well be an option for me to look into.