How best to use a big increase in income?

[Stick Legs]

I am about to embark on a new job which will give me a net increase of around £2600/month.

This is a great thing to happen, and I am planning on using it wisely, as, at 47, if I am not silly I can meaningfully bring forward my retirement date.

Up until now I have just borrowed to buy things like cars and a house I can't afford with cash. Minimised the amount of borrowing, bought the biggest house I can afford and pay maximum employee contributions into my company pension, with a vague idea that this will all just run along swimmingly to 65 at which point I will probably own a house and have some retirement income to keep me in the manner to which I have become accustomed.
(Note, wife is NHS and has her DB Pension as well).

Now I am off to work the Middle East with no Company Pension and a much bigger income.
I'll still live in the UK and they are flying me back and forth.

Step 1 is to pay off all unsecured / expensive borrowing, car loans and the like.
Step 2 is to over pay as much as I can on the mortgage.
Step 3 is, once those things are out of the way, to put my money into something like a FTSE250 tracker fund and just add a couple of grand a month and let it grow.

Is this just stupidly over simplistic? Am I missing a trick?

Not looking for 'financial advice' but more suggestions of things I'm not really aware of.

[fat80b]

Stick Legs said:

I am about to embark on a new job which will give me a net increase of around £2600/month.

This is a great thing to happen, and I am planning on using it wisely, as, at 47, if I am not silly I can meaningfully bring forward my retirement date.

Up until now I have just borrowed to buy things like cars and a house I can't afford with cash. Minimised the amount of borrowing, bought the biggest house I can afford and pay maximum employee contributions into my company pension, with a vague idea that this will all just run along swimmingly to 65 at which point I will probably own a house and have some retirement income to keep me in the manner to which I have become accustomed.
(Note, wife is NHS and has her DB Pension as well).

Now I am off to work the Middle East with no Company Pension and a much bigger income.
I'll still live in the UK and they are flying me back and forth.

Step 1 is to pay off all unsecured / expensive borrowing, car loans and the like.
Step 2 is to over pay as much as I can on the mortgage.
Step 3 is, once those things are out of the way, to put my money into something like a FTSE250 tracker fund and just add a couple of grand a month and let it grow.

Is this just stupidly over simplistic? Am I missing a trick?

Not looking for 'financial advice' but more suggestions of things I'm not really aware of.

What's the tax situation? - Are you paying tax in the UK at all. If you are, then pension contribs still make most sense.

Even if not, I'd be wanting to understand if I could make use of previous years income/tax etc to squirrel more of it into pension wrappers with the government top up as this will be a big win before any investment growth is calculated.

If not possible, then ISAs etc are probably preferable to mortgage overpayments imho.

[ferret50]

Make sure you keep up your NIC contributions so that your State pension is not reduced.

[Stick Legs]

That's exactly the kind of info I'm after. Thank you.

No UK Tax under Seafarers FED.

[Stick Legs]

ferret50 said:

Make sure you keep up your NIC contributions so that your State pension is not reduced.

As much as I believe that there will be no state pension for me due to means testing, yes I would keep it up to date.

[pete_esp]

Congrats on the new job. I would suggest, don't be too sensible YOLO. Put a chunk off it towards fun stuff and try to avoid lifestyle inflation. Probably save the rest so you don't need to wait to access your pension and can retire when it suits you.

[Mark V GTD]

Stick Legs said:

As much as I believe that there will be no state pension for me due to means testing, yes I would keep it up to date.

What’s that all about? Sounds scary (shocked face)

[LordGrover]

Stick Legs said:

As much as I believe that there will be no state pension for me due to means testing, yes I would keep it up to date.

Even if means testing becomes a thing, paying into a pension is a very tax efficient way to save.

[Stick Legs]

LordGrover said:

Stick Legs said:

As much as I believe that there will be no state pension for me due to means testing, yes I would keep it up to date.

Even if means testing becomes a thing, paying into a pension is a very tax efficient way to save.

Mark V GTD said:

What’s that all about? Sounds scary (shocked face)

Addressing both of these:

There are no plans to stop the state pension but I am making my financial planning on it being means tested.

Pension’s are tax efficient but you also lose control of your money.

With no tax relief available as not PAYE or paid in the UK, and no employer contribution I doubt they are worth it.

[996Type]

I’d always pay into pension / then pay down highest interest loans / then max annual amount into an ISA / then maybe stocks & shares in that position.

If there’s no tax relief applicable, skip the first step but do set up a SIPP if you don’t have one to get the ball rolling and pay into that as a habit in case your off shoring days eventually draw to a close.

I’d max yours and your wife’s ISA allowances every year to allow for the tax free interest.

Not sure if your wife could set up a SIPP and you could claim the tax back there if you gave her the money to put into it?

[wyson]

https://www.autotrader.co.uk/car-details/202505122...

Add a 3rd car to your collection? The XL1 will definitely do more than 50mpg. Might appreciate as well, as its so rare.

Its only got a 10litre fuel tank so can stop at the motorway services without worrying you will pay way over the odds.

Edited by wyson on Monday 19th May 17:22

[trevalvole]

Stick Legs said:

Step 3 is, once those things are out of the way, to put my money into something like a FTSE250 tracker fund and just add a couple of grand a month and let it grow.

Any particular reason why you'd go for a FTSE250 tracker? If you'd like a bit more diversification, both in terms of countries and asset types, but want to keep a UK bias, then something like a Vanguard LifeStrategy fund may suit, perhaps in the 80% equity flavour.

[Stick Legs]

trevalvole said:

Stick Legs said:

Step 3 is, once those things are out of the way, to put my money into something like a FTSE250 tracker fund and just add a couple of grand a month and let it grow.

Any particular reason why you'd go for a FTSE250 tracker? If you'd like a bit more diversification, both in terms of countries and asset types, but want to keep a UK bias, then something like a Vanguard LifeStrategy fund may suit, perhaps in the 80% equity flavour.

Pulled a fund out of thin air, never done anything like this before so the above is helpful.

[Stick Legs]

wyson said:

https://www.autotrader.co.uk/car-details/202505122...

Add a 3rd car to your collection? The XL1 will definitely do more than 50mpg. Might appreciate as well, as its so rare.

Its only got a 10litre fuel tank so can stop at the motorway services without worrying you will pay way over the odds.

Edited by wyson on Monday 19th May 17:22

[Stick Legs]

996Type said:

I’d always pay into pension / then pay down highest interest loans / then max annual amount into an ISA / then maybe stocks & shares in that position.

If there’s no tax relief applicable, skip the first step but do set up a SIPP if you don’t have one to get the ball rolling and pay into that as a habit in case your off shoring days eventually draw to a close.

I’d max yours and your wife’s ISA allowances every year to allow for the tax free interest.

Not sure if your wife could set up a SIPP and you could claim the tax back there if you gave her the money to put into it?

That's useful.

[dingg]

You'll still qualify for 20% tax relief on pension payments, what's the job and rotation?

[Stick Legs]

Thanks everyone, going to go away and think about this a bit harder.

What I can see from the above advice is 1) I have very little knowledge on this subject 2) It's probably worth getting someone who has the know how to look at it for me.

Cheers.

[mikeiow]

I’m confused about you working in the Middle East with no Company Pension.
Are they not obliged to contribute to a pension, or are you totally outside the UK tax system that lets them not do that?
In which case, are you defo able to keep up NI payments?

Sounds like a mix of get perhaps half of the increase stashed into a pension (if you can!), & enjoy the rest….or pop some of that into an ISA (again, if you’re allowed to - I have zero knowledge of what is and isn’t allowed working abroad, as you can tell!).
Good luck!

[Stick Legs]

mikeiow said:

I’m confused about you working in the Middle East with no Company Pension.
Are they not obliged to contribute to a pension, or are you totally outside the UK tax system that lets them not do that?
In which case, are you defo able to keep up NI payments?

Sounds like a mix of get perhaps half of the increase stashed into a pension (if you can!), & enjoy the rest….or pop some of that into an ISA (again, if you’re allowed to - I have zero knowledge of what is and isn’t allowed working abroad, as you can tell!).
Good luck!

I'll be on a ship, so no income tax, working for a Dutch company, being paid gross. So provided I stay out for 185+ days, and am on a vessel working (which as Captain I will be) then that's how I'm completely outside the taxation system,

https://www.gov.uk/guidance/seafarers-earnings-ded...

I've been tax free before, but then it just got spent. Now I'm older & wiser and looking to make it count.

[ooid]

Stick Legs said:

Step 1 is to pay off all unsecured / expensive borrowing, car loans and the like.
Step 2 is to over pay as much as I can on the mortgage.
Step 3 is, once those things are out of the way, to put my money into something like a FTSE250 tracker fund and just add a couple of grand a month and let it grow.

Step 1, probably yes. Step 2 not sure, and including Step 3 have a look at this below.



Looks like you have no solid pension so depending on where you live, I would also consider 2nd property (Buy to Let) - if you are capable of running and managing it.