Best place to put our money?

[Onaloop]

My husband and I are moving back to the UK from abroad. We are both in our late 30s and have a six month old baby. My husband has a new job paid £33000 a year. His company will pay 11% into his pension and he'll pay 7%. I don't have a job but am looking. I hope to get something part time (my background is admin and Im not a super high earner) wth parents helping with childcare (they have offered a few mornings a week). I have a very small pension from a previous job (about £7000). We haven't been paying NI contributions since leaving four years ago.

We have about £8500 savings. My husband recently received £20,000 inheritance. Our mortgage is about £600 per month, 1.8% fixed until the end of 2023. Husband is pretty handy so we don't usually pay for repairs unless it's the boiler or plumbing. not sure about bills yet but am a bit scared ! No credit cards or loans.

We are worried about rising costs, as well as wanting to give our baby a financially secure future. Just wondering what the most important/best thing to do with our money would be (the inheritance and any spare money we both earn)? Try to pay off more mortgage? Update our NI payments? Put the money in an ISA? Or put some in our pensions?

I've always been pretty terrible with money but having the baby and seeing prices rise have made me feel a bit unsecure and given me a push to sort things out!

Does your mortgage have an offset facility? If so, 1.8% is better than most savings and ISA's. It's a good way to maintain liquidity and reduce the interest on your mortgage. Although you'll need discipline to not touch the savings.

If not it's worth switching when your fixed term ends.

Not sure about pensions, sorry.

@Lunar27 I don't think so unfortunately, I'll have to check but I don't remember anyone mentioning it. We are with Skipton. I looked into them though and they seem like a great idea!

Don’t pay the missing NI contributions now - you can buy missing years just before you become eligible for state pension.

In the meantime, you have no idea how the rules may change, or (sorry to be morbid) whether you will even make state pension age.

You can pay 2880 net (3600 gross) per year into a personal pension even when not working, so it may be worth doing that for the next tax year.

BertiesShoes Sat 02-Apr-22 19:35:01
Don’t pay the missing NI contributions now - you can buy missing years just before you become eligible for state pension.

NOT NECESSARILLY !......you can buy 'missing years' going back ONLY 6 years. So, if you are missing N.I. years, might be best to do it now, then its done and you can forget about it.

But, bear in mind, you need 35 years NI contributions for a full State pension....go on the Gov.uk. website, put in your NI number, and check how many contribution years you currently have. Ideally you don't want to pay for more than 35 years (no brownie points for doing that), so if it looks like you are on course for 35 years by the time you qualify for the State pension (that will be 67 !), you might want to leave it.

State pension age will be at least 68 for the Op, possibly higher.

I didn’t realise the 6 year rule, we have a couple of family members who have recently bought extra years in the weeks before they got state pension - despite working up to state pension age. I am not sure why they would need to buy the extra years, but they definitely did as we discussed how beneficial it is!

I still wouldn’t buy the extra years now in Ops case, she and her DH will have ~30yrs from now to SPA, and - with earlier qualifying years - likely to have enough years whether it be 35 or slightly more.

Inflation is way over interest rates so I wouldn’t offset or overpay debt personally.

My savings are in stocks and shares through my isa and across growth and dividends have yielded 20% over the last year, but they don’t do so every year… you can add up to 20k a year and any dividends or profits on sales are tax free.

I have a final salary pension scheme likely to hit lifetime allowance problems so I don’t have extra pensions savings.

@Asdf12345

Inflation is way over interest rates so I wouldn’t offset or overpay debt personally.

My savings are in stocks and shares through my isa and across growth and dividends have yielded 20% over the last year, but they don’t do so every year… you can add up to 20k a year and any dividends or profits on sales are tax free.

I have a final salary pension scheme likely to hit lifetime allowance problems so I don’t have extra pensions savings.

Can you lose money on a stocks and shares ISA?

20% is great but depends on your attitude to risk. I think that's an important point for the OP when raising a young family.

I think it's unlikely to lose all your money on an ISA but is not for me personally, hence investing in property.

You quoted 20% but what's the overall return over the time?

You absolutely can lose money on a stocks and shares isa.

Over the last ten years I have averaged about 7% return but not taking low risk choices. At times my investments have been considerably below what I put in.

I keep three months outgoings in a cash savings account however this effectively costs me money to do as it loses value against inflation.

Putting long term savings in the bank and getting 7% below inflation is committing to lose wealth. How much of it is the OP effectively happy to burn for security?

Property for me is too illiquid and the taxation too high. I have known over the last ten years or so that in approximately three years I will need access to somewhere between 25-75% of my savings depending on conditions at the time to fund my next career step, so liquidity is more important to me than security.

If you will claim Child Benefit, your NI payments will be covered until the child is 12.

Have you budgeted cost of living OP? £33k is a low salary for a family of 3

Make sure you claim child benefit in your name as that then earns you NI credits automatically.

@Asdf12345.

Thanks. 7% is pretty good in the current climate.

You're right about property and as a freelancer I too need an element of liquidity but fortunately have savings for this and I can kind of forget about the house. This is why I tend to offset and take the hit on interest rates but think it just about evens out overall.

I wouldn't lock money away in mortgage or otherwise. Kids are expensive. Costs are rising. You don't know your own earnings. You might need the cash as a buffer

@BertiesShoes

Don’t pay the missing NI contributions now - you can buy missing years just before you become eligible for state pension.

In the meantime, you have no idea how the rules may change, or (sorry to be morbid) whether you will even make state pension age.

You can pay 2880 net (3600 gross) per year into a personal pension even when not working, so it may be worth doing that for the next tax year.

That’s wrong - you can only buy back up to a few years, I think it’s 4 years.

OP, check with the NI department with regards to missing contributions. If you’ve been working abroad there’s a different system.

You can check your NI contributions so far on gov.uk
You need 35 years for a full pension.
If you think you will have enough years between what you already have and the years that you plan to work in the future then I wouldn't advise to buy any years right now.
If you do want to buy extra years at any point you can only buy for gaps in the previous 6 year period.

I can currently top up 2006-2007. So the 6 year rule must've changed. I don't need to as I can't see me not getting to the full contribution, as I'm 45 with 27 years of full contributions (inc the year we're about to end).

Which years can I pay Class 3
contributions for?
If you are covered by the new State Pension system you
can top up your National Insurance record for years
from 2006/07 onwards. You need to do this by 5 April
2023. After this date, missing years have to be topped
up within six years.

www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/topping-up-your-state-pension-guide.pdf

Yes, you are correct, but only for some people, and only until April 2023 - when it reverts back to the six year rule. Mind bogglingly complicated;