Mortgage/Pension/Invest

[IceCake]

Hello, I wondered if someone could offer me some advice.

I am going to get some professional guidance but would like to research a bit first.

I work part time due to caring responsibilities. We live off my husbands wages so my money is to be saved for later in life.

However I can’t work out which option is best.

1. Should we save the money for 15 years or so and then clear the mortgage?
2. Open a private pension?
3. Invest in stocks and shares? An ISA?

Or a combination. If so, what %
Thank you.

Check to see if your mortgage has any prepayment penalties and what they are. You'd save a fortune in mortgage interest by paying some additional principal every month. There's no need to wait until you have the full balance saved.

I'd put a third of what you have available into each option. That will let you have some liquid assets in the ISA if you need them. Check out Vanguard for the ISA. They have very low fees and expenses and excellent customer service. They're an American company that pioneered low-cost investing for ordinary people, and I've been with them for over 30 years. They're now one of the largest asset manager companies in the world.

Vanguard Personal Investor UK

Personally, I would prioritise thing in this order:

1. Do you have any debts (apart from mortgage, like credit card debt and loans?) Work on clearing those first
2. Do you have any savings? Make sure you have an emergency fund of £1-2k
3. Maximise your pension
4. Build up a rainy day fund of 3-6 months worth of income
5. Overpay mortgage
6. Other savings goals (uni fund for kids, nicer car/house, lifetime holiday, retirement nest egg, etc)

I'd say from point 3 onwards you can work on any of these goals simultaneously. However, I'd put more money towards a higher priority goal.

For example:
Lets assume you don't have debt andhave £2k for emergencies already saved up, and have 1k a month to play with.

You could:
put £800 towards pension, and £200 for rainy fund.
Or £600 towards pension, £300 rainy fund, £100 towards mortgage.
Or whatever other combination.

Unless your mortgage rate is over 4%, I'd throw some money at that then as a priority (check if there's a limit to how much you can overpay)

I would consider your mortgage rate before overpaying. If it's still 2% then you are better off saving at the moment, then using that to overpay when the rate is up if you want to.

But personally I would disregard the mortgage for now, get a small rainy day fund together if you haven't already then start building a pension pot. You get 25% tax free when you withdraw the pension so you can use that to pay the mortgage if needed.

The first £12.5k of your income is tax free so there is no benefit to putting that into a pension however. Also if you're talking as "we" and not "me" and if you husband is a higher earner it may make more sense for him to increase his pension contributions (he may get 40% tax relief vs your 20%) - always good to have your own pot just in case anything happens though.

Thank you for your replies.

I have made notes and going to do some more research based on what you have all said.

With regards to a private pension, my initial worry is that if anything bad were to happen to me then that money has been wasted or would it go to my husband or children?

At least if it was sat in the bank then they’d be able to access it.

Private pension doesn't get wasted, it will go to whoever you name in your will (or your husband/children if you don't have one)

In a DC pension pot, the money forms part of your estate and would pass IHT free to your family. It wouldn't be lost.

Only if when you get to retirement you use it to purchase an annuity is it lost on death. An annuity is purchased from an insurance company, eg you buy £5k per year (for as long as you live) for £100k of pension pot. That's one reason most people choose drawdown instead these days (eg dipping into it through retirement), because you keep control of your money and the pot still exists to be passed on.

UK Personal Finance Flowchart - https://ukpersonal.finance/flowchart/ - may give you a structure to follow.

Stocks & Shares ISA I would say is for long term goals.

Pension is for retirement.
Paying off the mortgage is something to do before retirement.

You have three competing tasks.
Pension beats ISA, so if you intend to work until retirement age, then I would be putting more towards pension, then to ISA. However you may not want to work until retirement age, so you may tip the balance more towards ISA initially, even if mathematically that is not the optimum thing to do.

Mortgage if at a low interest rate, on a repayment mortgage will pay itself off over time. Interest rate though may not be fixed long term, so mortgage payments may go up. This could be another argument for ISA being useful, as that money is accessible and thus could be used towards the higher mortgage payments. Whereas money in a Pension is locked up. Paying off the mortgage, I like the idea... and I did pay mine off. Paying a chunk off each year, without penalty, can help to reduce the mortgage term. Check your mortgage details for how much can be repaid, typically on a fixed rate mortgage it is max of 10% of the outstanding balance.

Pension vs ISA:

Video about Financial Balance:

There is no right answer. Doing some to all is likely sensible and you decide how to much you do to each. I would lean more to ISA initially as that money is accessible, but I would also build up a pension, and I would pay off chunks of the mortgage.

This calculator allows you to see how much you can save by overpaying your mortgage. https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/