Strategy for the next 8 - 12 months

Yorkie1

Thinking out loud about how best to juggle maturing savings over the next few months, compared to short-term aims.

My mortgage is down to about £2K after years of overpaying, and for the sense of achievement I'd like to fully redeem in the next month or few. It's at 3.99%. (Monthly repayment about £30). I have filled my ISA this year and have full PBs.

I have the following savings maturing over the next 12 months (figures approximate):

• Mid-Sept: Chetwood bank 1 year fix 4.5% £21K
• End-Nov: Club Lloyds monthly reg saver 6.25% £5K
• End Dec: Nationwide 18M fix 5% £10K
• End Jul: Halifax monthly reg saver 8% £3K

My short-term aims, apart from the mortgage, are currently:

• Put £12K into a fixed rate cash ISA in the next FY (this is a definite), and
• Put £8K into a S&S ISA in the next FY - but see below for further thoughts

I have a S&S ISA with MyWealth, current value at £140K.

Pensions: in addition to standard pension contributions (CS Alpha), I make EPA -2 contributions to take Alpha 2 years earlier than state pension age, and put £1500 pm into CS AVCs. That AVC pot is currently at about £49K value. These overall contributions mean I am still a BR tax payer.

If I retire in 5 years' time at 60, I am likely to need to fund the gap between taking CS Classic at that point, and CS Alpha at about 65. I will have the money to do this, including whatever lump sum I receive on retirement, but strategy again …

So, turning back to the immediate issues:

My Chetwood fix matures shortly, and my plan A had been to take out about £2-3K from it for the mortgage, and perhaps to fix the remaining balance for 6 months (currently would be at 4.4% with them though I realise I could go elsewhere), then to use that maturing cash for the Cash ISA and any left over for the S&S ISA.

However, alternatively, having now looked at the rates, under plan B I could roll over all of the Chetwood fix for another year at currently 4.83% (again other providers are available). And put the Lloyds / Nationwide into easy access for a few months on later maturity (I have a Cahoot EA account at 4.52% currently) and then fund the cash ISA with them and any excess into the S&S ISA.

The Hx reg saver could also go into the S&S ISA later next year on maturity.

Looking at the % interest maths for the cash aspect, I think I am convincing myself that plan B is better than plan A.

But thinking more widely, is funding the S&S ISA the best option for the excess from the savings when they mature?

There will also be some excess monthly cash available: a) I won't be able to take out another Club Lloyds £400 pm @ 6 .25% regular saver, because I have the Hx reg saver at £250 @ 8 %, so that is £400 pm more available. I am neutral about further regular savers; and b) I've been using about £500 - £700 pm in mortgage overpayments, which will of course now stop.

I could raise my CS AVCs contributions for example. Although that might mean I have to do lots of juggling to ensure that my overall payments into my Club Lloyds account remain over £2K pm to avoid the monthly fee, as my received salary would drop.

Or plough that money into S&S ISA drip feed. Or both.

If you're still with me, I'd be grateful for any comments. I realise that there is not a single best approach 😊

mebu60

'However, alternatively, having now looked at the rates, under plan B I could roll over all of the Chetwood fix for another year at currently 4.83% . . . .'

Or into the Chetwood 18m fix at 4.9%. Just to add another unhelpful variable.

Yorkie1

'However, alternatively, having now looked at the rates, under plan B I could roll over all of the Chetwood fix for another year at currently 4.83% . . . .'

Or into the Chetwood 18m fix at 4.9%. Just to add another unhelpful variable.

But an interesting one …

So that would mean, looking further into the future and the following tax year:

• End Aug 27 NW 15m fix 5% £10K
• Mid Sept 27 Chetwood 2y fix 4.4% £22K (this is open now)
• EITHER: Mid Sept 27 Chetwood 1y fix 4.83% (new option 1)
• OR Mid Feb 28 Chetwood 18m fix 4.9% £23K (new option 2)

Either would work for tax year 2028-29.

DT2001

I don’t know about your CS pensions and AVCs - do you have to take them at the same time? I was wondering if you used a SIPP with MMF or Ultra short bonds (e.g. ERNS) you might be able to retire say a 6 months/year earlier without incurring any actuarial reduction on your CS pensions and utilise your personal allowance on withdrawals. I wasn’t sure if you were paying tax on any interest earned which started that line of thinking. Hopefully it’s not a red herring as obviously unsure of your full circumstances

Yorkie1

Thanks. The AVCs can be taken separately at any time, luckily. They are with L&G, invested in lifestyle 2035-2040 funds, which I think derisk towards my NRA (normal retirement date) of 2037. But I could choose to vary that investment strategy.

Yes I do pay tax on interest (I have the first £1K at 0% rate as my pension contributions bring me back into BR tax band).

masonic

On the RS, the Lloyds 6.25% £400 RS is NLA, but you are free to hold a Lloyds, Halifax and BoS 8% £250 RS alongside each other (there is no longer any need for the Club Lloyds for the new RS - the basic RS is the same rate and contribution limit now). This makes things rather easy as you can operate them all from the same app/online login.

Looking more broadly, you are a BR taxpayer who has clearly been busting the PSA, meaning interest is being taxed and will be taxed at 22% from next April. It is not clear what is the total level of taxable savings you hold, but if this is more than about £20k after the 2027/8 ISA allowance is used, then there is an argument for increasing pension contributions and living off some of that excess cash, presuming that doesn't leave you short of cash overall.

You've not discussed what your S&S ISA is invested in, but you can invest another £8k in cash-like investments if you didn't want that money put at risk.

The more interesting topic is the bridge and what you have in mind for that. This is still a medium term holding period, and so if there is some vague plan to use money from cash and S&S ISAs, and pension, this is probably the right time to start thinking about how much money needs to be put aside and into what investments to deliver for this.

Yorkie1

Thanks masonic. That's useful to know that I could take out a Lloyds 8% RS alongside the Hx one (assuming still available) when the current one ends.

Once I've used next year's ISA allowances I will probably have about £60K taxable cash. Obviously the longer-term plan is to shelter more of it in ISAs over the following years.

The S&S ISA is currently a managed one, in their 'moderate' risk portfolio. I'm happy with that level of risk, given my cash holdings, I think. But I could look at a separate ISA with lower-risk products alongside it.

As for the bridge, my Classic pension will take up all of the 0% personal allowance. I reckon I'll need about £10K, would like up to £15K, per year at current prices. My pension lump sum should cover 2 - 3 years.

I then would have a choice between cash, cash ISA, AVCs and S&S ISA for the remaining 3 years, before the second part of my CS pension kicks in and covers expenditure. Obviously I would pay income tax on most of any AVC withdrawals, whereas none from savings or ISAs.The plan when I started the AVCs was partly to use them as the bridge, and partly to get back into the BR tax band. But plans can always be changed.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82119455#Comment_82119455

Oops, yes, corrected.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82119435#Comment_82119435

You have the choice of absorbing that taxable cash into an ISA over the coming years, or AVC fund sooner. Of those choices boosting the AVCs is going to be more tax efficient as you'll get tax relief on the way in and 25% of your total pension benefits back out tax free (this can mean most if not all of the AVCs), whereas for the ISA you'll have already paid BR tax on all of the contributions. Unless you think you'll hit the cap on £268k tax free cash (i.e. >£1,073,100 total pension benefits), pension works better than ISA and also reduces the amount of time it would take to get your remaining £60k sheltered.

I think you've made the mistake of believing you've paid no income tax on your savings and ISA capital and this is distorting your thinking. In effect, pension contributions are worth £1062.50 per £1,000 net income paid in, while ISA contributions are only worth £1000 per £1000 net income paid in, and growth/income within either wrapper is treated the same.

StewedApple

https://forums.moneysavingexpert.com/discussion/6681432/strategy-for-the-next-8-12-months

If you're planning on paying-off the outstanding balance on your mortgage, the biggest single thing you can do to protect your financial position is to sign-up to the Land Registry's property alert service (if you haven't done so already)

https://propertyalert.landregistry.gov.uk/

This will notify you if anyone attempts to put a charge on your property - e.g. a fraudster attempting to take out a mortgage, or a lender inadvertently attempting to put a charge on the wrong property. You can then challenge the legitimacy of the charge.

Yorkie1

https://forums.moneysavingexpert.com/discussion/comment/82119617#Comment_82119617

Thank you and yes - I did this a couple of weeks ago, having seen a prompt from a poster here (it may even have been you 😊)