Pension and investment

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My DC has one more year at school and will likely go to uni locally so there will be no associated accommodation costs etc as will remain living at home. However I'll no longer be liable for c. £15 k in school fees and DC will start a part time job.

I'd like to start investing/saving more aggressively for retirement.

I am single and have been since DC was a baby, so my pension isn't as great as it should be had I not paid private fees from reception or paid for everything myseld

I currently have £200k in my work pension, £60K savings, and 1 investment property that pays for itself.

I currently add 16% into my pension (only recently).

Would it be better to add as much as possible into my pension, pay down the mortgage which I still have c. £200k outstanding, invest in more property?

I have about 20 years left of work but would like to scale back from full time in the next 10 years.

How much do you owe on your mortgage, at what rate (and if fixed when does it end) and is it on your residential property or the other one.

I certainly wouldn't advise investing in more property- apart from the fact you already own 2 & so overweight in that area they are not tax efficient and very illiquid.

In my view (as a financial.adviser) I'd look at a stocks & shares ISA. Either a lump sum, or monthly, or both. Max out your ISA every year (20k) and in 10 years time you'll have £250k plus. Probably more like £300k. All tax free.

Remember, you can only take 25% out from your pension rac free so in retirement you'll have the Stare Pension (taxable) private pension (taxable) & rental income (taxable). If you sell the rental property you'll pay CGT, which Labour are looking at increasing.

ISA first.

I view a mortgage as being a debt. So I paid mine off about a decade ago. I then got made redundant, and was thankful that I had paid my mortgage off as that was one less monthly bill to find.

When mortgage rates are low, such as <2% it has made sense to invest rather than pay off the mortgage. Now rates are higher, to me it makes less sense. An investment might over the long term beat the mortgage rate, but think about it this way...

If you had £100k of cash on your kitchen table... would you:
A. Invest that on the stock market.
B. Pay off debt.
Or put it another way... would you borrow £100k using a mortgage to invest in the stock market?

Pension (assuming it is a Defined Contribution scheme) is invested in the stock market. Defined Benefit schemes are different, as for some of those there is no money actually in it as your contributions pay the pensions of the pensioners.

You are doing 16% to pension which is great. You could do more, it may be tax beneficial to do more, but you have mortgage, so I would be overpaying the mortgage to the maximum amount your lender allows (which may be 10% of year starting balance - check terms).

Investment property... is that paid for, or does that also have a mortgage?
If it has a very small mortgage, I would be inclined to pay that off. Otherwise I would focus on your main residence mortgage first, as you want the security of knowing that you own what is under your feet.

£60k savings... what is that for? Categorise it.
6 months of expenses as an Emergency Fund. Maybe you feel you want more (I have more than 6 months as my work is very variable at the moment. However I know being overly heavy in cash is not great as inflation eats into it).
Some of it may be for a large upcoming expense (car, new roof, kitchen refit) in the next couple of years.
Anything else, invest using Stocks & Shares ISA (so growth is tax free).

Lots of people giving you a definite answer (including a financial adviser allegedly) without asking what income tax bracket you are in, whether you have an IHT liability, what kind of pension you have, mortgage rate, any other borrowing, income expectations for retirement, potential for inheritance.
Nobody should be able to tell you what is best without knowing these things.

So currently you are about 47 with mortgage debt about equal to pension pot in a defined contribution scheme?
What rate tax do you pay? I'd assume higher.

So I'd pay into pension as much as possible to reduce tax liability. Plan on taking out the max 25% tax free in 10 years to clear the mortgage.

Who is paying the university fees?

I'm on £125K, excluding bonus c. £20k. (this has only been for the last 18 months in a new role) DC pension. No IHT. Investment property is held in a limited company. Fixed rate on residential mortgage of 2% ends in 18 months time.

There's no other debt. Current outgoings are high as DC does a couple of 'hobbies' at a high level and travels o/s/ training costs etc..

Then no point paying off any of your mortgage at the moment. Even a Cash ISA will give more than 2% over the next 18 years.

So I stand by my advice (and thank you @LemonTurdCart I'm aware I havent done a full fact find to "know my client" 🙄) - just trying to help the OP with some basic advice.

ISA first, then into your pension. ISA is more flexible & you might need the money sooner than age 57 (minimum age you'll be able to access your pension) to help DC with house deposit.

But of course, this does not constitute financial advice - just what I would do.

@Biggaybear why would you suggest paying into an ISA rather than into a pension? The OP has some savings already and has a marginal income tax rate of 45 to 60%. I can't image an ISA getting anywhere near clawing back thay tax hit.

But yes, pension is locked away.

Personally, in those circumstances I’d be salary sacrificing into pension to bring income just under £100k, after that saving into Cash ISAs to give the option of reducing the mortgage when the term ends, or switching to an offset, depending on what is happening with rates at the time.

If possible after that, I’d also be paying into a LISA for DC each year as soon as they turn 18.

Are you in Scotland? I am presuming you will get free Uni tuition?

Salary sacrifice into a pension to bring down tax liability.

I disagree with Biagaybear and would structure your long term savings mainly as pension because of the tax implications.
your marginal tax rate on 100-125k is 60% because of the loss of personal allowance. Everything over that is taxed at 45%.

Given you already have some savings, I’d focus on putting everything over £100k of earnings into pension. If you can’t afford to do so, you’d be better off to pay in in alternate years, maximing cash one year (and putting any spare into an isa), and maximising pension savings the next, to take you under £100k, and so on. Paying into a pension and leaving your earnings around £120k after pension every year is the least tax advantageous as you’ll keep being charged 60% on that top 20k of earnings.

I’d then split your savings between instant access and decent rate and share ISA - you could for example put £20k into an ISA and keep £40k more accessible.

ive assumed in the above that you are currently around 47-48 ish and don’t want to retire much before 57/58. If you want to retire earlier you’ll need to build up savings to use before you can take your dc pension, but you could do that when you have fewer child related costs in future years