The end of the financial year is fast approaching and decisions on savings and investments will be on a lot of people’s minds.
Adverts are popping up all across the internet for savings accounts, ISA’s and the new LISA’s and stocks and shares accounts. There is plenty of encouragement to get money into your accounts before the tax-free allowance is reset for another year.
What decisions have I made for the upcoming tax year and why?
ISA: Individual Savings Account
An ISA is a tax-free form of saving or investing up to a predetermined yearly limit.
2016-2017 Limit: £15240
2017-2018 Limit: £20000
Decisions had to be made and I’ve decided not to race to add any extra money in before the end of year. The limit is high enough that with my extra mortgage contributions I would be struggling to fill this pot as well anyway. There is also the flexibility of my wife setting up an ISA in her name to gain access to another £20000 of available tax free saving.
LISA: Lifetime Individual Savings Account
A new saving and investment vessel designed by the government to help with saving for a first home or additional saving for retirement.
Only available between ages 18 and 40
25% bonus up to £1000 per year. The bonuses stop at 50.
The money can’t be withdrawn until the age of 60 or to buy your first home.
Tax free withdrawal from 60.
Can be saved as cash or invested in stocks or bonds.
I will be opening up a LISA as soon as they become available however many of the finance companies still have not announced what sort of LISA they will be offering.
Either way the LISA will be opened in my wife’s name to allow me to maintain my £20000 ISA limit.
You can read more about the LISA here
As part of my contract with work we get a series of “flexible” benefits. These range from pension, to childcare vouchers and life insurance to cancer screening.
You can even add additional weeks of holiday for the year or sell a weeks holiday back to the company.
Each benefit can be selected for a deduction from your wages. Some benefits like the pension contribution also show the amount contributed by my employee.
What decisions did I make and why?
Well firstly life insurance is supplied by the company free of charge whilst still under their employment. My wife would get 4 times my salary at the time of my death. This would cover the cost of the house and leave her with some additional money for any funeral.
You can pay a little money in yourself monthly to top this up to 5x salary but this isn’t necessary in my situation.
It dawned on me that I have been paying 20% of my salary into my pension scheme over the last 12 months. For somebody as pedantic about financial information as me to not remember that seems crazy, but it’s true.
The good part of this is we absolutely didn’t miss the money throughout the year. Based on this I will be maintaining the same decisions as last year. Taking into account I’m saving 50% of my salary after deductions salary my savings rate is even better than I first believed. How I have managed to overlook that I’m not sure.
I did consider halving my contribution to 10% and then saving the extra money into my ISA. This would seem a more sensible option for me with retirement a lot closer than the actual age which I can claim my pension.
However I like the idea of having little pockets of money becoming available as I continue to age. Also the tax benefits of putting money into the pension out way the ease of access. These tax benefits continue to grow as my salary increased recently.
Pot 1: Stocks and shares ISA
Pot 2: (Age 57) Private pension
Pot 3: (Age 60) LISA
Pot 4: (Age 67) Government funded pension
The benefits I didn’t choose.
There were a multitude of benefits offered for varying price levels. I haven’t listed all of them below for brevity. Here are just some I decided not to take and a reason why.
Cancer Screening: I pay my national insurance through my salary to have access to the national health service. I resent paying for things twice!
Additional Holiday: I get an additional two(maybe 3) weeks of holiday this year due to long service.
Childcare Vouchers: No children and no plans for them!
Gadget Insurance: Again I have home and contents insurance. Also most of my gadgets (Phone, laptop, Ipad) are actually provided by work!
Travel Insurance: I already have a yearly policy for the wife and myself. Also I am considering asking work to provide me travel insurance as I am away so much for work.
What are your thoughts on the upcoming LISA and the decisions I made about the flexible benefits. Let me know in the comments below.