AVC, Savings/ISA or overpay mortgage

UniqeNewYork

Hi. I'm a 42 year old single parent with an 11 and 14 year old. Due to being very stressed at only having a miniscule amount of savings to my name I've recently taken the decision to move in long term with with my parents (4 bed house so room for all of us) in order to rent out my house and be in a position to save, focusing on eventually being able to help my 2 children buy their first property (no way of knowing but I'm working off them being mid 20's so I've got 11 years of saving for the eldest and 14 years for the youngest) but also putting some money away to help me in retirement.

Just for the landlord haters out there (who 99% of the time are justified), I'm renting my house out below market rate to a local family I know who are trying to save to buy their 1st home, I know renting below market rate isn't the most sensible financial decision for myself but morally just can't charge what others are.

I'm currently renting a 4 bed house for £750pcm, I've converted part of the house into a 1 bed flat and that rented out for £500pcm and my take home pay is £2,600pcm.

I was confident interest rates would only go up so took out a 10 year fix mortgage in June 2020 at 2.59% and have £115.355 left to pay. Monthly payments are £494.42. My bank are aware I'm renting my property.

My questions are:

1) what would be the best savings account to put away £1k a month for my kids? They have a small amount in a Junior ISA each but I don't want to use that as they'd have access at 18 and I'd prefer them to have the savings later in life when they'd use it in a more sensible way (and more years for it to build up)

2) what would be the best way of using the other £1k to help myself in retirement? AVC, ISA or overpay mortgage. I have access to a Prudential AVC through work and I don't envisage ever selling my house so that income will be a constant.

I'm really struggling to decide, too many options and very hard to know which is best. Any advice gladly taken. Thanks.

cloud_dog

Are you or might you be a higher rate tax payer?

Does your employer pay you under a Salary Sacrifice arrangement?

Have you used up your ISA allowance for this FY?

eskbanker

UniqeNewYork said:

Hi. I'm a 42 year old single parent with an 11 and 14 year old. Due to being very stressed at only having a miniscule amount of savings to my name I've recently taken the decision to move in long term with with my parents (4 bed house so room for all of us) in order to rent out my house and be in a position to save, focusing on eventually being able to help my 2 children buy their first property (no way of knowing but I'm working off them being mid 20's so I've got 11 years of saving for the eldest and 14 years for the youngest) but also putting some money away to help me in retirement.

It all sounds very noble and altruistic to make major sacrifices to help your kids (and another family) but I'd have thought that there was an argument that you should prioritise your own financial situation before theirs - choosing to live long term with your parents just so that they don't have to seems a bit odd?  Your choice obviously but it just seems worth stepping back and thinking more about the broader picture, and especially what the end game looks like.

You mention AVCs but how much have you accumulated in pensions thus far?

jimjames

In terms of savings and building an emergency fund which it sounds like you don't currently have, an easy access ISA with Chip at over 5% interest is one of the best rates available. No point overpaying mortgage if that's 2.59% when you can get almost double that rate on savings.

UniqeNewYork

cloud_dog said:

Are you or might you be a higher rate tax payer?

Does your employer pay you under a Salary Sacrifice arrangement?

Have you used up your ISA allowance for this FY?

Hi.

Yes I am a higher rate tax payer. I earn £42k from my job and an additional £15,840 from renting out my house and flat.

I don't currently use alary sacrifice arrangement but as per intial post, I am considering an AVC as one of my options.

I haven't used any of my ISA allowance this FY.
 

UniqeNewYork

eskbanker said:

UniqeNewYork said:

Hi. I'm a 42 year old single parent with an 11 and 14 year old. Due to being very stressed at only having a miniscule amount of savings to my name I've recently taken the decision to move in long term with with my parents (4 bed house so room for all of us) in order to rent out my house and be in a position to save, focusing on eventually being able to help my 2 children buy their first property (no way of knowing but I'm working off them being mid 20's so I've got 11 years of saving for the eldest and 14 years for the youngest) but also putting some money away to help me in retirement.

It all sounds very noble and altruistic to make major sacrifices to help your kids (and another family) but I'd have thought that there was an argument that you should prioritise your own financial situation before theirs - choosing to live long term with your parents just so that they don't have to seems a bit odd?  Your choice obviously but it just seems worth stepping back and thinking more about the broader picture, and especially what the end game looks like.

You mention AVCs but how much have you accumulated in pensions thus far?

I don't understand the comment you made in bold?

penners324

You're in the public sector?

It's usually the only place that offers AVCs

dunstonh

I don't currently use alary sacrifice arrangement but as per intial post, I am considering an AVC as one of my options.

AVCs are a largely obsolete product nowadays.  Only the public sector tends to offer them, although some private sector DB pensions have them.  However, when the requirement to offer an AVC was abolished in 2006, many schemes ceased to update their AVC and they remain on terms from that era.  Whereas the retail individual scheme marketplace continued to get cheaper and better.

Even the public sector AVCs are not always great. Many of those schemes have better hybrid pension options available, which can be more attractive when you look at them on a £ cost to £ benefit basis.