What Should I Do?

mnt99york

Storcko14 said:

First thing - don't be too tough on yourself.  You've presumably had a good time living the high life and that can't be taken away.  Some scrimp and live what many would consider to be a parsimonious life with a plan to do 'fun stuff' (usually travel) in retirement and life (or ingrained habits) gets in the way.  

Regarding the increase pension or save for deposit debate.  There's a lot we don't know about your financial circs but if you pay higher rate tax today you could see if increasing your pension contribution would avoid that.  Also check you're getting the best matching deal from your employer.  

Oh I'm not at all. I enjoyed my travelling, but recognise that it's long over due time I started preparing unless I want to be faced with a situation where I can never retire.

I'm not a higher rate taxpayer, far from it.

Purplelady65

If I was in your situation I would prioritise buying a house over a pension. As you say if you don’t buy a house then when you retire the extra you’ve saved into a pension will be needed to pay for your rent. A lot of big lenders only require a 5% deposit now so if you’re able to save £600 a month hopefully it won’t take too long to save up a deposit depending on the cost of the property. 

j2009

If your employer matches any extra contribution you make to your pension you should probably start taking advantage of that, but I wouldn't contribute more if they don't.

I would absolutely focus on buying a house hence not paying into a pension above matched contributions. It's great you would have lodgers this will help you a lot.

As a 20% tax payer the tax advantage of paying into a pension is negligible because it will be taxed when you draw down. Remember the state pension equals the tax free allowance (more or less) so whether you take the money now and pay 20% or take it via a pension in 20 years, you'll pay 20% (based on current taxation). I would take the money now and invest in ISAs using the same sorts of funds used by pensions and you'll get the same growth; you're just paying tax now rather than deferring it so you're no worse off in the long term. However, this approach requires discipline because the money isn't locked away but you need money and flexibility to buy your house.

Once you have your house depending on the tax treatment eg you find yourself a higher rate tax payer you can pay into your pension very aggressively, depleting what remains of your ISAs. In fact you might even decide once you have your house to do that as a 20% tax payer, so you pay in, get the tax back, invest until you can access it, take 25% tax free when 10 years less than state pension age  (currently) and extract the remainder of the money over time up to the threshold where you'd start to pay higher rate tax (you can do that while you work provided you're old enough). This means you pay an average of 15% tax instead of 20%.

The 25% tax free can either pay down some of your mortgage or be invested (depending on your risk appetite).

I should say this approach is slightly complicated and requires care, it assumes you will work until at least state pension age, but if you execute it diligently it will maximise your money.

Storcko14

mnt99york said:

Storcko14 said:

First thing - don't be too tough on yourself.  You've presumably had a good time living the high life and that can't be taken away.  Some scrimp and live what many would consider to be a parsimonious life with a plan to do 'fun stuff' (usually travel) in retirement and life (or ingrained habits) gets in the way.  

Regarding the increase pension or save for deposit debate.  There's a lot we don't know about your financial circs but if you pay higher rate tax today you could see if increasing your pension contribution would avoid that.  Also check you're getting the best matching deal from your employer.  

Oh I'm not at all. I enjoyed my travelling, but recognise that it's long over due time I started preparing unless I want to be faced with a situation where I can never retire.

I'm not a higher rate taxpayer, far from it.

In which case, as others have said, ensure you have the maximum pension contribution matching then prioritise the house purchase which in the UK is very tax efficient.  If you're looking at a 5 year timeframe for saving the deposit I would be cautious about what you invest in in the S&S ISA given current equity valuations and that we are overdue a correction.

wjr4

Have you got an emergency fund? 

WitsEnd101

On the assumption that it is either a house or a pension, then buying a flat and funding a personal pension might be a good compromise. This obviously depends upon your finances and of course the home location (York v Lancashire/ Cumbria).

33scott

It's also worth looking into exactly how your workplace pension is being invested. For me, I found that the default life styling fund was not the best option and picked a better mix of funds i.e. passive and global.

mnt99york

Storcko14 said:

mnt99york said:

Storcko14 said:

First thing - don't be too tough on yourself.  You've presumably had a good time living the high life and that can't be taken away.  Some scrimp and live what many would consider to be a parsimonious life with a plan to do 'fun stuff' (usually travel) in retirement and life (or ingrained habits) gets in the way.  

Regarding the increase pension or save for deposit debate.  There's a lot we don't know about your financial circs but if you pay higher rate tax today you could see if increasing your pension contribution would avoid that.  Also check you're getting the best matching deal from your employer.  

Oh I'm not at all. I enjoyed my travelling, but recognise that it's long over due time I started preparing unless I want to be faced with a situation where I can never retire.

I'm not a higher rate taxpayer, far from it.

In which case, as others have said, ensure you have the maximum pension contribution matching then prioritise the house purchase which in the UK is very tax efficient.  If you're looking at a 5 year timeframe for saving the deposit I would be cautious about what you invest in in the S&S ISA given current equity valuations and that we are overdue a correction.

I've been putting half into my normal savings account (3.5% interest) which is instant access and is doubling as an emergency fund, and half into a stocks & shares ISA, spread between 5 different funds of varying risk levels within that ISA.

mnt99york

wjr4 said:

Have you got an emergency fund? 

I'm paying half each month into a savings account which is instant access, and this can double as an emergency fund.

Albermarle

I'm not a higher rate taxpayer, far from it

Have you considered looking at different/better paying employment ?
You might consider some kind of retraining, nightschool etc.. Would that be a possibility ?