Save, invest or pension?

Learningtheropes87

Hi all,
I've read a lot over the past few months and thanks to everyone's posts and questions I have began moving money out of a low interest cash Isa and into other investments. I am still new to all of this so I apologise if anything I suggest is totally wrong. I'm now in a position where I don't know whether I should save more cash, invest more cash or consider a Sipp. My situation is as follows

I'm 33, no kids, living with partner. Currently I earn £50,000 a year. I pay into the NHS pension (12% contribution from my salary).
Hopefully get married in a year or two and have a couple of kids.

I have £50k in premium bonds
£39k in Vanguard Ls80 S&S Isa. This year allowance used up
£15k easy access in Marcus 0.5% savings as an emergency fund

I have a rental property providing £650p/m rent (after mortgage and management fees - left with £120 p/m)

I have a residential mortgage at 1.99% with 4 years left (190k left). We aim to get this down to 60% LTV before the end of the fix to get a better deal.

Using some of the money in the bonds and S&S, In the next 5-10 years, we plan to move into a bigger house if the right one is available otherwise I'll keep the money invested.

As my NHS pension only allows penalty free withdrawal at state pension age, I'm thinking of investing a smaller amount into a Sipp which will allow me to access it earlier and bridge the gap should I be fortunate enough to be able to retire early
Or I could overpay the mortage?
Or if there is anything else I have missed that would be a relatively low risk investment.

Im leaning towards a SIPP so my questions really are
A) Is a SIPP a relatively sound option with the added tax relief?
Considering I have a s&s isa with Vanguard, is it risky to open a SIPP with the same provider or should I use another compantly
C) is there another option before I consider a SIPP

Thanks all and any advice is much appreciated

jimjames

If you have £65k in cash I can't see why you'd need more cash unless you have plans for it in the short term.

There should be no reason not to have ISA & pension with Vanguard. I have both of mine with them.

csgohan4

as you will be in two different types of pension, DB and DC, I wonder will there be a limit you can contribute to your Sipp before the NHS pension also gives you tax charges by way of Annual allowance? 

Or are they keep separate and you can contribute to both without consequences, even if you contribute to the max?

Edit: My IFA has mentioned sadly that SIPP contribution are added to the NHS Growth when considering the AA Growth for the year.

Considering that NHS pension statements are issued long after the relevant tax year, it will be difficult to contribute to a SIPP without breaching AA growth reliably if you are close or in the future.  

MX5huggy

Random thoughts.

 You don’t mention your partners finances, this may be deliberate which is fine but have they used up their ISA, PB limits maybe they have access to Salary Sacrifice pension scheme, which might be better than you using a SIPP.

Don’t dismiss taking the NHS early while obviously there’s a penalty you get paid for the earlier years and you have to live past 80 probably to break even. That’s not to say don’t save to fill the gap but just bear it in mind.

the BTL, what’s you exit strategy? As house prices grow Capital Gains Tax looms into view 28% if the gain takes you in to income tax higher rate band. I’m thinking of selling mine on next void  (not willing to disrupt happy tenants lives) to realise the gain take my CGT medicine and put the profit in a SIPP so I get most of the tax on the gain back. 

Don’t have kids they cost a fortune 

Good plan to get the LTV down.

You can run a General Investment Account without incurring tax up to around £150k so if you want to invest but not lock away in a pension yet you can. 

Learningtheropes87

Thank you all. I replied yesterday but it didn't seem to post.

jimjames said:

If you have £65k in cash I can't see why you'd need more cash unless you have plans for it in the short term.

There should be no reason not to have ISA & pension with Vanguard. I have both of mine with them.

Thank you Jim. I too now feel that I have enough cash and saving more would be my last choice.

csgohan4 said:

as you will be in two different types of pension, DB and DC, I wonder will there be a limit you can contribute to your Sipp before the NHS pension also gives you tax charges by way of Annual allowance? 

Or are they keep separate and you can contribute to both without consequences, even if you contribute to the max?

Edit: My IFA has mentioned sadly that SIPP contribution are added to the NHS Growth when considering the AA Growth for the year.

Considering that NHS pension statements are issued long after the relevant tax year, it will be difficult to contribute to a SIPP without breaching AA growth reliably if you are close or in the future.  

Thank you for this - this is a great a point and one that I hadn't even considered. It may mean that I have to reconsider a Sipp. I'll wait until the next statement comes out in August and have a look at the figures. Really don't want to be hit with the additional tax. MX5huggy said:

Random thoughts.

 You don’t mention your partners finances, this may be deliberate which is fine but have they used up their ISA, PB limits maybe they have access to Salary Sacrifice pension scheme, which might be better than you using a SIPP.

Don’t dismiss taking the NHS early while obviously there’s a penalty you get paid for the earlier years and you have to live past 80 probably to break even. That’s not to say don’t save to fill the gap but just bear it in mind.

the BTL, what’s you exit strategy? As house prices grow Capital Gains Tax looms into view 28% if the gain takes you in to income tax higher rate band. I’m thinking of selling mine on next void  (not willing to disrupt happy tenants lives) to realise the gain take my CGT medicine and put the profit in a SIPP so I get most of the tax on the gain back. 

Don’t have kids they cost a fortune 

Good plan to get the LTV down.

You can run a General Investment Account without incurring tax up to around £150k so if you want to invest but not lock away in a pension yet you can. 

Thank you for all of your thoughts. Sorry - my partner has used up her cash ISA allowance this year (not willing to invest). She has 2k in PBs. Last choice would be topping up the PBs with more cash.
When you put it like that, taking the NHS pension early doesn't seem as bad. Definitely something I will have to consider. 

Regards to the BTL, I have gone around in circles with this one. 28% is eye-watering.
I almost sold a couple years back but ended up keeping it. Its gained around 65k in the past 5 years. Debating whether to keep it and one day when the mortgage is paid off, I use the rental income to help bridge the gap if I do retire early too. But do I want the headache of the BTL at that point?

With regards to a general investment account, would investing in a LS 80 fund be a suitable choice? I've read that investing other funds along with a LS fund can dilute the proportions (some a novice investor like me anyway) 

Many thanks for all of your advice everybody

colsten

Learningtheropes87 said:

Sorry - my partner has used up her cash ISA allowance this year (not willing to invest). She has 2k in PBs. Last choice would be topping up the PBs with more cash.
 

What about her pension? Has she maxed her contribution potential?

We hear constant complaints about the pension gap and how unfair it is to women but not much about what women and their partners do about this unfairness.

Albermarle

JamesRobinson48 said:

You're in a great DB pension scheme, and I imagine you're currently a little below the income bracket for higher rate income tax.  Given the above, and supposing you expect to remain in NHS employment for the rest of your working life, I'd be a little wary of paying much into a SIPP at this stage. As you may know, there's a pensions Lifetime Allowance ( supposed to be frozen at ~£1.07m for the rest of this parliament) and the balance of any pension pot in excess of that amount may incur a penal tax charge.  Payments into a SIPP should get tax-relieved at 20% currently, but there's a chance you might find yourself paying a higher % tax rate once you ultimately draw that extra pension. I speak as one who paid far too much into pensions, and much later ended up incurring 55% tax on a pension lump sum. Had I properly learned the Lifetime Allowance rules in advance and run some realistic long-range projections, I would have been materially better off today.  Granted, at present that £1.07m amount might seem an enormously long way off for you.  Good luck.

OP could always contribute to a SIPP for a few years and then stop again if there was a distant prospect of LTA issues.

csgohan4

Albermarle said:

JamesRobinson48 said:

You're in a great DB pension scheme, and I imagine you're currently a little below the income bracket for higher rate income tax.  Given the above, and supposing you expect to remain in NHS employment for the rest of your working life, I'd be a little wary of paying much into a SIPP at this stage. As you may know, there's a pensions Lifetime Allowance ( supposed to be frozen at ~£1.07m for the rest of this parliament) and the balance of any pension pot in excess of that amount may incur a penal tax charge.  Payments into a SIPP should get tax-relieved at 20% currently, but there's a chance you might find yourself paying a higher % tax rate once you ultimately draw that extra pension. I speak as one who paid far too much into pensions, and much later ended up incurring 55% tax on a pension lump sum. Had I properly learned the Lifetime Allowance rules in advance and run some realistic long-range projections, I would have been materially better off today.  Granted, at present that £1.07m amount might seem an enormously long way off for you.  Good luck.

OP could always contribute to a SIPP for a few years and then stop again if there was a distant prospect of LTA issues.

LTA will be the least of their issues, the AA will affect the OP and the additional of the  SIPP will be added to the AA/tax  calculations of which OP may not know in advance given the NHS pension statements are not done in a timely manner. 

Makes things more complicated than they are

AlanP_2

It's not difficult to work out AA on a DB scheme such as the NHS one give or take a few pounds to be fair.

Look at last year's statement for the AA value, increase by % pay rise this tax year and you won't be far out.

Considering AA is not a limiting factor until the combined DB increase and SIPP contributions get up to the £40k a year mark and ss the OP is earning £50k and presumably needs to spend some of that each month I don't see the issue. 

eastmidsaver

do all 3 if you can.

steampowered

Personally I think it is madness to be keeping £50k in premium bonds.

The effective interest rate on premium bonds is 1%. You are paying 2% on the mortgage.

That's a 1% difference. 1% of £50k is £500. So, you will be £500 per year better off by overpaying the mortgage rather than keeping money in premium bonds.

Investing into a stocks & shares is going to be even better than that. The average return people tend to assume from the stock markets using conservative estimates might be 6% per year. That's 5% better than the interest you are getting on premium bonds. 5% of £50k is £2,500. So, you are likely to be £2,500 per year better off with a stocks & shares (at least) than you are with premium bonds. Ideally you would invest through an ISA but it is also possible to invest in a standard non-ISA account, as you have used up your allowance for this year.