ISA or pension?

[Amboseli]

We'll have a £10k lump sum in a few months. Should we put it into a stocks and shares ISA or as an additional lump sum pension contribution?

It would go into DH's pension, he's a higher rate taxpayer. His total pension contribution every year including employers contribution is approx £15k, he's 53.

Thank you!

I'd put it in the pension, given the circumstances.

Thanks this is what I thought too but I'm no financial expert.

ISA.

With £15k a year going into pension that should already be a sizeable pot if he started early. If he is going to go on working he may end up maximising his pension to the Lifetime Allowance (for example). Pensions get a great initial boost from the Govt. through tax relief but are taxable on drawdown. ISAs are not. So you need to weight more towards ISAs now to get the best of both worlds and have a cushion against income tax on retirement living.

@Audit really? Do you know what sort of fund to invest in? I'm not confident about picking individual shares.

It's such a complicated minefield.

We think by the time he retires in about 10 years he'll have about £450,000 in his pension pot.

We'll also have investment income of around £24k pa and our state pension.

Have you got your own pension?

@FrownedUpon yes I've got a number of different pensions but they don't amount to much tbh, maybe £5000 pa.

Sorry for sounding rude but how have you managed to get to an investment income of £24k a year !!!!!! whilst claiming not to understand how investments work or what to do with a relatively (in this scenario) small amount of money?!

@FrownedUpon it was inherited, the investments were made by my parents and I haven't touched them.

@FusionChefGeoff sorry that was my reply to you.

[quote Amboseli]@Audit really? Do you know what sort of fund to invest in? I'm not confident about picking individual shares.

It's such a complicated minefield.

We think by the time he retires in about 10 years he'll have about £450,000 in his pension pot.

We'll also have investment income of around £24k pa and our state pension.[/quote]
An equity global tracker fund or something like Fundsmith.

Ah I see that makes sense. In that case can you just add the 10k to those investments??

My DH does all our stuff and he's basically just learnt by listening to a money podcast every now and then. So he knows how to view performance and the sort of things to consider when investing. His bank has a really easy online investment platform where you can research the funds available and filter based on what you need.

@Audit thank you, will look into that.

@FusionChefGeoff tbh I'm not sure I can do that. The investments are in individual shares and I wouldn't know which one to choose. I find it all scary tbh. I'm very risk averse.

I have tried to research funds in the past but there are so many I get overwhelmed and give up. Plus there's so much jargon, I just don't have the time or energy to plough through it all.

I really need to get a handle on it though as it makes sense to put our money into ISAs rather than the pension. I always thought pension was best because of the tax benefit but hadn't really thought about what happens when you withdraw the money.

I would put it in a pension as you can take 25% tax free - the rest given the level of investments you are likely to have to repay in tax later on. Though it won't be a huge tax benefit.

If you do a SSISA I would go with funds and one with low fees - I use Vanguard which has low fees and they have retirement funds based on when you want to retire or a variety of other funds and you can see their performance over last 5 years. It can be volatile but over the longer term should be a good investment. You can log on and see the value of it each day and also can get money out fairly quickly if needed. If you are uncertain you could start with a smaller amount and add to it. Their lifestrategy funds are good, mine is in the 100% equity but you can have the ones with less in equities for lower risk.

@Silkiescatz this is so confusing! I wish there was a definitive answer.

The DCs actually have junior ISAs with vanguard again on the advice of my parents. They've done pretty well.

I can't ask my parents for advice anymore sadly. But I will look into vanguard for ourselves.

Thank you everyone for all your advice and suggestions.

So you need to weight more towards ISAs now to get the best of both worlds and have a cushion against income tax on retirement living

The maths here is flawed.

Pensions win every time until you get to the LTA which at 450k isn't an issue.

Why not put it into your pension?

Makes sense to spread the risk rather putting it all into your husband's pension. Means that it won't be affect his lifetime allowance but also that youà have better provision.

@JesusMaryAndJosephAndTheWeeDon, I thought it would be better to put into DH's pension as he's a higher rate taxpayer. The inherited investment is in my name and is equivalent to a pension as I get an annual income from it.

But now maybe putting it into an ISA might be better. I'm terrible at making decisions. Both options have pros and cons. If we put the £10k into his pension from what I understand he'll get a gov top up of £4000. I could be wrong on that though.

It depends. I am assuming that this £10k isn’t some kind of work related bonus, in which case, when it’s paid in to a pension, the pension scheme will claim basic rate tax relief, at 20%, and to get the extra 20%, your OH would need to claim it on his tax return.

[quote Amboseli]@FrownedUpon it was inherited, the investments were made by my parents and I haven't touched them.[/quote]
Given your investments must be in the 600k - 700k range, then it would be sensible to speak to an IFA, get them reviewed, and pay the IFA for the review. Then depending on what the review says, you can decide what to do. The sum could easily double in 10 years, so needs careful thought and planning to ensure you meet your long term goals

@Residentnumber1 I agree we do need to see an IFA. At the moment though we're using the income to pay school fees and don't want to make any changes to the investments until DC leaves school in 2024 at which point we will review everything.

I've been doing some research and I think I've decided to invest the money into a stocks and shares ISA. I've been looking into investment funds and am going to try and choose 2 and put £5k into each one, which is easier said than done as there seem to be hundreds if not thousands of different funds to choose from.

if you're not sure, then invest in a diversified low cost tracker fund, something by HSBC or Vanguard, or other providers. Depending on your time scale, if its at least 10 years, then go for something with a high proportion in equities

@Residentnumber1, do you mean something like a FTSE 250 tracker?

It depends, its a bit like asking how long is a piece of string!! You don't want to invest in something if you already have investments in that area, as you then possibly end up having too much invested in one area.

I think in your position, I would probably invest in something like one of the Vanguard Lifestrategy funds, 60% one, or 80% if you are feeling more adventurous and have a longer term timeframe. Alternatively HSBC do similar, i have money in the Global fund and also the Strategy fund

www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-global-strategy-balanced-portfolio-c-accumulation

www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-world-index-class-c-accumulation

I also have money in the Vanguard Lifestrategy 60% fund

@Residentnumber1

Our timescale is 10 years so we don't mind being slightly adventurous.

I've seen the HSBC funds and think we will definitely put some money in them. They seem to have a good track record and are low cost.

My research also threw up L&G Global Technology Index which I'm also interested in because I definitely want to invest in technology.

I'm also thinking of putting some money into a S&P 500 tracker.

We're probably going to have about £50k to invest over the next few months and I'd like to have a range of different funds.

I also came across some investment trusts which have done amazingly well over the past 5 years, such as Baillie Gifford American. But ITs seem quite risky, maybe when I know what I'm doing a bit more I might consider one.