Small Windfall and what to do?

Windofchange

Hi all,

I have recently received an insurance (RTA) payout to the tune of £7,000. I am thankfully recovered from my injuries and there are no lasting effects on work, hobbies etc. I am trying to make the best decision for the here and now as to what to do with this money. I'm 48 and have a good career with current gross salary circa £90k. I have a private pension held with Standard Life which is currently valued at £80k, a public sector pension pot (CARE) with a cash equivalent value of just under £400k, an ISA with just under £14k currently in it and £3k of emergency funds in a savings account. For the debt side I have £330k remaining on the mortgage (split 50/50 between my partner and I), £4k of credit cards on 0% until August this year, £7.5k left on a car loan and £6.5k on a motorcycle loan. Both these loans have just under (Car) and just over (motorbike) two years left to run on them. We remortgage April 2027 from our current 1.7% 5 year to ?? %. Options I have considered so far:

1. Clear credit card debt fully leaving £3k which I would put into my ISA.
2. Partially clear credit card debt (2.5k) and leave the rest to run out in June (I pay £300 a month to it). Use the remaining £4.5k to partially clear the car loan leaving that to run out in October time this year. (Monthly payment on this is £333 a month).
3. As per option 2 but put the £4.5k into my ISA.
4. Overpay the mortgage either with the entire £7k or with a part sum with the rest distributed to one of the above.

I think what makes me think is that I am not in any sort of financial distress. I am going to be getting a good pay rise this summer, and I am currently able to save £200 a month into my emergency fund and £200 into the ISA, pay all the usual bills, and still have some left over end of month. Options 2 and 3 enable me to retain more of the lump sum to put into the ISA, but this is against the option of clearing the credit card debt fully and having another £300 a month in my pocket which I could then put towards overpaying the mortgage or car loan or whatever. Any thoughts gratefully received.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6652747/small-windfall-and-what-to-do

Why are you putting money into an ISA over a pension?

Not sure why you are referencing a "pot" or the CETV for your public sector pension 🤔

SacredStephan

" …£7.5k left on a car loan and £6.5k on a motorcycle loan."

What are the interest rates on these? Any early payment penalty?

Brie

How confident are you that you will clear the CC by August so you don't go on to a stupidly high rate when the offer is finished? I wouldn't be paying it off earlier than necessary as it's 0% currently.

The car or motorcycle loans are likely to be on higher interest than you mortgage so you might want to dump the lot on one of those - as long as there's no early repayment penalty. Without knowing the interest rates I'd be paying off the motorcycle and then putting the excess on the CC. Then paying the amount you normally pay on the motorcycle each month on the car as well. Once they are both paid off you can overpay on the mortgage.

Glad the injuries weren't life changing.

Windofchange

https://forums.moneysavingexpert.com/discussion/comment/81859966#Comment_81859966

So, this is all part of the education / discussion I guess I am seeking. Sorry, this is a bit long.

My thinking is that I have three elements to my future self:

1. Long term retirement savings and investments
2. A pot of money for any big life changes that may happen in the medium term (or short)
3. Emergency fund for the here and now which also doubles up as a bit of fun money - holidays etc.

I am trying to strike a balance between being prudent and ensuring future me (should I get to old age) is comfortable and wanting for nothing versus not putting every penny into retirement funds. The use of the word pot is because each year I build a 'pot' of money at 1/54th of my salary. The CARE scheme is different to an investment one in that the performance of the stock market has no bearing on my final pension. For the next 19 years assuming I retire at state pension age I will accumulate at least £1700 a year pots in todays money each year to add to what I already have in there. My earnings and therefore pot sizes will likely increase, and they are adjusted each year for inflation etc, but I am leaving this out of here for now. It also means to my thinking that the whole time in the market thing doesn't apply as I don't need to invest now to compound as what I earn in the last year of my working life will buy a pot of money which isn't related to needing to be invested. If I stay where I am my pot will add £1700 a year to my retirement funds this year, and it will add £1700 a year in 19 years time. Obviously this gets adjusted for inflation etc but hopefully you get the gist? Mentioning the cash equivalent value is to I suppose give a bit more information in terms of why I might not be overly bothered about adding the 7k to this sum.

So why putting money into an ISA vs pension? Assuming that nothing changes in terms of the state pension and my health etc, I will have the £12k state pension, my main CARE pension at around £55k per annum based on all my accumulated pots to date and then the next 19 years, and then whatever my standard life pension fund is worth in 19 years time - using 5% growth from here it gives just over £200k. Having a very quick look around this would buy in the region of a £14k per annum annuity. This gives a retirement income at age 67 in todays money of around £80k per year unless I have got something fundamentally wrong, and I might have done? This is why I do not feel the need to pay anything extra into my pension savings as future me will have no mortgage to pay, so taking off a bit for council tax and utilities I feel that gives me more than enough having fun money. I have no children and won't have so no considerations there. I will also inherit half of a SE England house at some point in the next decade or so but I leave that out as I find it crass to consider. The other half if we are still together will be in a similar position as we work in the same field.

And this leads onto the ISA - I am a realist. If we split up I may need a substantial sum of money to get me through that period - moving out and renting whilst we sell the home, paying for solicitors if things get nasty etc. I don't want to and I'm not planning to, but I want to have a plan B. If I don't use the ISA money it will just accumulate and I can buy an annuity with it when the time comes, or I can just spend it through drawdown - pay for some once in a lifetime experiences perhaps. And then the emergency fund is the real short term here and now stuff. This could be more and I am building it £200 a month at present. Worst comes to worst I would just take from the ISA which alongside the emergency fund will sustain me for a year in terms of the essentials.

Windofchange

They are around 6% - I think the car is 6.2 and the motorbike 6.6%. I looked at the settlement figure for the car loan and settling today would save £320ish in interest. Both have no early repayment or over-payment fees.

Windofchange

https://forums.moneysavingexpert.com/discussion/comment/81859991#Comment_81859991

Very is the answer. Your suggestions are along the lines of what I am thinking about the credit card. I had another thought which was pausing the £200 a month I pay into the emergency fund and adding that to my repayments which would clear the credit card in 8 months, or a month after the 0% deal ends. I then wouldn't use any of the lump sum for this and could use it to clear the car or motorbike loan or invest it into the ISA.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81860239#Comment_81860239

The point about your Care pension, is that there is no pot as it is a Defined Benefits scheme.

The cash equivalent value is really just a theoretical figure and it can vary a lot from one year to the next, as it is related to gilt yields. However this variation does not actually affect the pension you are building up. It is best not to think of Defined Benefit pensions in terms of their theoretical cash value, but only in terms of what your likely annual pension income will be when you retire.

Windofchange

https://forums.moneysavingexpert.com/discussion/comment/81860474#Comment_81860474

Understood. The pot then as it were will be in the region of 55k at age 67. This of course is dependent upon me working till then, but I can’t see me not working till well into my 60’s as things currently stand - I enjoy what I do!

jimjames

https://forums.moneysavingexpert.com/discussion/comment/81860257#Comment_81860257

Why pay off 0% card when you can have that money in a savings account earning 4.5%? Then pay off the card at the point where it no longer is at 0%. I would (and I do) pay the minimum to my 0% credit cards, £300 sounds like you're overpaying the min payment so worth dropping that too if you want to earn maximum interest. Equally if you have loans at 6% plus then paying them off would save more money than you get in interest at 4.5%

Windofchange

https://forums.moneysavingexpert.com/discussion/comment/81861532#Comment_81861532

Good thoughts and I am overpaying on the CC yes - it’s about £100 a month I think the minimum payment. I suppose I can’t get excited about 4% interest on £3000. It’s about £130 or so a year. If it were going anywhere it’d go in the stocks and shares isa as although I totally understand the risk vs reward argument, your investments may go down etc etc, I’m some 20% up for 2025. Savings of course grow over time, but I’m at heart a risk taker so wouldn’t consider savings accounts for anything other than my emergency fund. I could certainly move that to a higher paying account so I’ll take a look.

Giving more thought to it all I am edging towards not touching the 0% card amount. I’ll pay that from Feb at £500 a month by diverting my £200 a month payment from emergency fund savings for a short while. If I don’t need to in a given month I will pay it back to the savings fund. This means I am month to month no worse off and the balance will clear in 8 months which will be 1 month after the 0% period expires - a month of interest on £500 will be negligible and I’ll suck it up. I’m going to put half the £7k onto the car loan which will cut it in half and save some interest and then that will clear by Xmas. The remaining £3.5k I’m going to put into the ISA. I think this achieves the best spread of outcomes and means towards the end of the year alongside my pay increase over the summer I will have a large monthly increase in earnings to further bolster the ISA. The temptation is there to just clear the credit card as mentally I want to be free of that debt but I’m going to try and take a longer term view.