First world problem after inheritance.

Singlespeeder

Exodi said:

I'm glad you updated the thread with this as we regularly see people overpaying 1.X% mortgages, despite 5.X% savings options being available.

One other thing to consider, putting £220k in savings accounts will make you liable to pay tax on the interest.

So even if you were able find a few homes for it paying 5% (£11k) in interest, you'd be paying tax on the vast majority of it. If you were a basic rate tax payer, you'd be paying £2k in tax on the interest. If you were a higher rate tax payer, you'd be paying £4.2k in tax on the interest.

Worth a read: https://www.gov.uk/apply-tax-free-interest-on-savings

It's convenient that you're thinking about retiring soon, as most people (myself included) would suggest putting it in your pension as the best option.

Adding to an ISA throughout is sensible also. I think paying off the mortgage in 2026 isn't necessarily the worst idea either.

Singlespeeder said:
I can't really see us going on a spending spree, it's not our way, we're not good at spending money.

To be honest, one of the biggest challenges faced from retirees is that they spend their whole life being savers that they can't transition to being spenders. I wouldn't vilify spending money in your mind.

I suspect in June '26 the mortgage rate available will be  a fair bit higher that 1.75% even though it'd be a £50k mortgage on a £300k house.
We only pay £3.22 a day interest on the mortgage, a little over a £1000 a year. 
If we had the £60k required to pay it off in a 4% account we'd get £2400. 
Personally I'd rather have no mortgage and save the £700pcm  (£8400pa) we're paying now.
I'm a basic rate tax payer, though not far from the threshold.
I haven't been in the LGPS for 100's of years, only 6 at best so it's never going to be a massively lucrative pension.
I'm struggling to understand AVC's but will continue looking. 

MEM62

Singlespeeder said:

dunstonh said:

First thing would be to put £20k in a 24-25 ISA, and then probably transfer £20k annually into an ISA.
Second would be to clear the mortgage -currently £66k.

Why would putting money into the ISA be the first thing?   In the pecking order of tax efficiencies, the pension tax wrapper beats the ISA tax wrapper for the vast majority of people.

I'm high risk averse.

As are most people.    Most are in the cautious to moderate range when it comes to risk.

At the moment, you seem to be focusing on deposit options only which can actually be quite high risk if this money is planned for the longer term.  You have cut out investment risk but increased inflation risk and shortfall risk.

If you are going to spend all that money in the next few years, then cash is sensible.  But if it is going to be held for longer, then 100% cash is higher risk than you appear to realise.

I'll look into 'pension tax wrapper' as I'm not sure what that is.

Maybe you do, you told us that you already have one.  

Singlespeeder said:

gravel_2 said:

What rate is your mortgage on and will you suffer early repayment penalty if you pay it off now? How old are you and how much have you got in your pension? Do you work? What do you want the money to be spent on/saved for?

I have another £100k in a private pension 

 

mebu60

Exodi said:

Singlespeeder said:

I can't really see us going on a spending spree, it's not our way, we're not good at spending money.

To be honest, one of the biggest challenges faced from retirees is that they spend their whole life being savers that they can't transition to being spenders. I wouldn't vilify spending money in your mind.

Isn't it just! Spurred on by a previous thread on the topic I finally splurged a bit. We had a full-on tourist week in Rome in June in a 4* city centre hotel with skip-the-line tickets for the main attractions. Excellent trip. I'm retired, partner planning to reduce to 3 days a week next year so hopefully I'll loosen the purse strings for some long weekends away while we're still fit and able to do so. 

Albermarle

I'm high risk averse

As are most people. However when you understand a bit more about personal finance you begin to realise that the word 'risk' can mean different things and not always the obvious ones.

The main obvious issue is cash savings vs investing. To most people the latter of course looks more risky. However in the long term if you compare the return from investing to savings, you will see the latter will outpace inflation ,and the former will normally not/only just keep up.

So it is actually more risky not to invest and keep 100% in cash. The main caveat being that in this case investing means a mainstream diversified fund, and not a bet on Tesla or Bitcoin.

Remember that your private pension and any AVC's will be invested, so worthwhile at some point having a look at the detail. Especially as some of the good advice above is to add more to one or both, due to the tax advantages. 

Bigwheels1111

Just on your mortgage rate vs saving rates I would not pay it off.

50k with NSI, do you win lots ?.

No one likes to pay tax on interest.

But if your a lower rate tax payer, 80% of the interest is not to bad is it.

Prob more than NSI would have paid out tax tree, unless you were lucky.

Please don't stick 85k in the account, yes the 85k is protected. But the interest would not be.

80k max in any account.

jimjames

Singlespeeder said:

kempiejon said:

But what to do with the rest?. I'd be at about £220k.

I think making an early retirement plan if that is really what you want could be excellent use. You're risk adverse, ISAs and pensions progressing nicely and will be mortgage free by 60. Top up the pension and use some money.

What is money for? Now is the time to think about setting it free and buying experiences, things and although I shudder, time with your loved ones. You absolutely cannot buy any time.

Unless you love work why not look at how you might have more fun if you did a bit less of it?

I'm currently in good health so can hope for another 20-30 years. 

If that's your aim then it's the opposite of risk averse to keep all your money in cash. Investing via a pension or ISA will mean that your money should keep pace with inflation and be there for you over the next 30 years.

Singlespeeder

Bigwheels1111 said:

Just on your mortgage rate vs saving rates I would not pay it off.

50k with NSI, do you win lots ?.

No one likes to pay tax on interest.

But if your a lower rate tax payer, 80% of the interest is not to bad is it.

Prob more than NSI would have paid out tax tree, unless you were lucky.

Please don't stick 85k in the account, yes the 85k is protected. But the interest would not be.

80k max in any account.

The £50k in PB's have yielded just under £7000 in the last rolling 12 months... there's also the excitement of the reveal.
I accept I'll have to pay some tax, I'm ok with that.

I have a Pension from a former company with about £80k in that pot . I've had the 25% drawdown on that.
So if I had a SIPP and paid in the maximum £60k a year for 3 years , presumably this'd produce maybe 4%, £7200.
What's the Tax relief ? 

jimjames

Singlespeeder said:

Bigwheels1111 said:

Just on your mortgage rate vs saving rates I would not pay it off.

50k with NSI, do you win lots ?.

No one likes to pay tax on interest.

But if your a lower rate tax payer, 80% of the interest is not to bad is it.

Prob more than NSI would have paid out tax tree, unless you were lucky.

Please don't stick 85k in the account, yes the 85k is protected. But the interest would not be.

80k max in any account.

I have a Pension from a former company with about £80k in that pot . I've had the 25% drawdown on that.
So if I had a SIPP and paid in the maximum £60k a year for 3 years , presumably this'd produce maybe 4%, £7200.
What's the Tax relief ? 

If you've already started drawing from the pension then you may be very limited as to what you can pay into a SIPP so definitely worth checking the status. If it is limited then you're down to £10k which includes the pension you're already paying into via work. The £60k is only applicable if you've earnt £60k or more this year. It will cost some money but with the situation you've outlined you might benefit from seeing an IFA to look into the options for your specific circumstances and aims.

kempiejon

jimjames said:If you've already started drawing from the pension then you may be very limited as to what you can pay into a SIPP so definitely worth checking the status. If it is limited then you're down to £10k which includes the pension you're already paying into via work. The £60k is only applicable if you've earnt £60k or more this year.

I think OP will be OK. Yes any employee is limited to the max of their relevant earning less any amount contributed by current pension but the £10k max is only triggered by a Money Purchase Annual Allowance however @Singlespeeder perhaps has only taken the 25%

The MPAA won’t normally be triggered if:  

• you take a tax-free cash lump sum and buy a lifetime annuity that provides a guaranteed income for life that either stays level or increases 
• you take a tax-free cash lump sum and put your pension pot into flexi-access drawdown but don’t take any income from it. 

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

Albermarle

Singlespeeder said:

Bigwheels1111 said:

Just on your mortgage rate vs saving rates I would not pay it off.

50k with NSI, do you win lots ?.

No one likes to pay tax on interest.

But if your a lower rate tax payer, 80% of the interest is not to bad is it.

Prob more than NSI would have paid out tax tree, unless you were lucky.

Please don't stick 85k in the account, yes the 85k is protected. But the interest would not be.

80k max in any account.

The £50k in PB's have yielded just under £7000 in the last rolling 12 months... there's also the excitement of the reveal.
I accept I'll have to pay some tax, I'm ok with that.

I have a Pension from a former company with about £80k in that pot . I've had the 25% drawdown on that.
So if I had a SIPP and paid in the maximum £60k a year for 3 years , presumably this'd produce maybe 4%, £7200.
What's the Tax relief ? 

How much tax relief you can get is related to your earnings, and I do not think you have mentioned your salary level . Unless you are a high(ish) earner the £60k pa limit of pension contributions may not come into it.