Tony Patterson is at a crossroads.
At 32, the newly qualified primary schoolteacher has "itchy feet" and is considering selling his £500,000 two-bedroom flat in Shadwell, east London, and working abroad when his mortgage expires in August.
Mr Patterson does not know how long he will be away for - it could be two years or 10 - but he wants to think long-term about his financial future.
He wants "security" when he's 60 and does not want his desire to travel to get in the way of a "decent pension". He says his current teacher's pension is "tiny" at £1,000. He continues to contribute £203 a month towards it.
Mr Patterson earns £28,000 a year and has £5,000 in cash savings. His only investment is his property, which he bought nine years ago as part of the Government's Help to Buy scheme.
At 32, the newly qualified primary schoolteacher has "itchy feet" and is considering selling his £500,000 two-bedroom flat in Shadwell, east London, and working abroad when his mortgage expires in August.
Mr Patterson does not know how long he will be away for - it could be two years or 10 - but he wants to think long-term about his financial future.
He wants "security" when he's 60 and does not want his desire to travel to get in the way of a "decent pension". He says his current teacher's pension is "tiny" at £1,000. He continues to contribute £203 a month towards it.
Mr Patterson earns £28,000 a year and has £5,000 in cash savings. His only investment is his property, which he bought nine years ago as part of the Government's Help to Buy scheme.
He bought a 35pc share at 23
while he was working in insurance. When his salary increased five years
ago he bought the remaining 65pc. In total the flat cost him £265,000,
and his mortgage has £240,000 outstanding.
If he sells his property he believes he will have around £250,000 to invest. Ideally this will be income yielding to supplement his salary when he finds teaching work in Europe or Asia.
When Mr Patterson eventually returns to the UK he wants to have enough saved for a "decent deposit", of 30pc to 40pc, to buy another London property.
So he wants his investment to grow in line with property prices. He also wants to ensure he does not hamper his future retirement.
If he sells his property he believes he will have around £250,000 to invest. Ideally this will be income yielding to supplement his salary when he finds teaching work in Europe or Asia.
When Mr Patterson eventually returns to the UK he wants to have enough saved for a "decent deposit", of 30pc to 40pc, to buy another London property.
So he wants his investment to grow in line with property prices. He also wants to ensure he does not hamper his future retirement.
Mr Patterson has considered
letting out his property for £1,800 a month, as he did when he taught in
Japan for 18 months, although he said the experience was quite
stressful.
He is also unsure if a lender would consider him for a buy-to-let mortgage if he is travelling.
He would ideally like to be saving for the long term towards his pension, own a London property and build some capital while topping up his income.
These are conflicting priorities and he certainly cannot achieve all of them at once.
If his key priority is pension income, he needs to make the most of his opportunity to contribute more now while he is earning in the UK. Mr Patterson's current pension is extremely small and will in no way support him when he retires.
Once he stops earning in the UK his annual allowance for tax-relievable contributions will reduce from his current salary of £28,000 gross to £3,600, which will make retiring at 60 very challenging.
He is also unsure if a lender would consider him for a buy-to-let mortgage if he is travelling.
Hayley North, chartered financial planner at Rose & North, said:
Mr Patterson needs first of all to determine his priorities.He would ideally like to be saving for the long term towards his pension, own a London property and build some capital while topping up his income.
These are conflicting priorities and he certainly cannot achieve all of them at once.
If his key priority is pension income, he needs to make the most of his opportunity to contribute more now while he is earning in the UK. Mr Patterson's current pension is extremely small and will in no way support him when he retires.
Once he stops earning in the UK his annual allowance for tax-relievable contributions will reduce from his current salary of £28,000 gross to £3,600, which will make retiring at 60 very challenging.
If we assume a mid-range attitude
to investment risk is taken and a 4.8pc annual growth rate on pension
investments, net of charges, then over 28 years, if Mr Patterson invests
the minimum £3,600 into a pension each year, he might end up with
£217,706 before inflation.
This would not yield more than about £8,700 in annual income, assuming a 4pc annuity rate.
The pension he has built up as teacher is currently very small and if he does not plan to work in the United Kingdom for a while, there are no guarantees that he will continue to grow this.
To save for the future, sacrifices do have to be made when you are earning money in earlier years.
In this case, a long period abroad not earning very much and with limited pension contributions could cost him dearly in the long run.
This would not yield more than about £8,700 in annual income, assuming a 4pc annuity rate.
The pension he has built up as teacher is currently very small and if he does not plan to work in the United Kingdom for a while, there are no guarantees that he will continue to grow this.
To save for the future, sacrifices do have to be made when you are earning money in earlier years.
In this case, a long period abroad not earning very much and with limited pension contributions could cost him dearly in the long run.
However, it seems that another of Mr Patterson's priorities is to own a property in London.
The only way to guarantee this is to keep his current property. This might be difficult if he can't find a suitable lender, even though the numbers stack up.
A standard residential mortgage would typically have a ''consent to let'' option, permitting the property to be let for a short period for, say, a year of travelling.
If Mr Patterson wants to go travelling for any extended period, it is likely that he would need to sell the property or remortgage.
Buy-to-let mortgage rules have become much stricter in recent months.
A typical lender will now insist that the rental income Mr Patterson receives is equal to at least 145pc of any mortgage payment at a rate of 5.5pc.
This would mean he would need rental income of £1,595 per month as a minimum to make this work. As he expects to be able to obtain £1,800 this might work.
Conservatively, and not taking account of the actual interest rate he might pay, which could be lower than 5.5pc, Mr Patterson might then have net monthly income of around £700 before any costs, such as letting agent fees, which would both cover his excess income requirements and allow him to save towards a pension, for example.
If Mr Patterson's priority is to travel, then he might have to sacrifice saving while he is away and make up for lost time later on.
His short-term goal is income and his medium-term goal is capital. His ability to achieve these goals is a decision between either renting out his current property or selling and investing the proceeds.
The situation regarding Mr Patterson's pension savings is much clearer.
While he may still have an income in the UK from his buy-to-let or other investments, these do not constitute "relevant UK earnings" and he thus will not receive any tax relief on this income.
Mr Patterson's pension is alarmingly small and he is extremely unprepared for potential retirement at age 60.
If he does decide to sell his property, it would be prudent for him to make a large one-off pension contribution with some of the proceeds.
The idea would be to make a pension contribution that matches his gross income for that financial year.
For example, if he sells in April 2017 and his gross earnings for the financial year are £28,000, he can make pension contributions of £22,400.
The only way to guarantee this is to keep his current property. This might be difficult if he can't find a suitable lender, even though the numbers stack up.
A standard residential mortgage would typically have a ''consent to let'' option, permitting the property to be let for a short period for, say, a year of travelling.
If Mr Patterson wants to go travelling for any extended period, it is likely that he would need to sell the property or remortgage.
Buy-to-let mortgage rules have become much stricter in recent months.
A typical lender will now insist that the rental income Mr Patterson receives is equal to at least 145pc of any mortgage payment at a rate of 5.5pc.
This would mean he would need rental income of £1,595 per month as a minimum to make this work. As he expects to be able to obtain £1,800 this might work.
Conservatively, and not taking account of the actual interest rate he might pay, which could be lower than 5.5pc, Mr Patterson might then have net monthly income of around £700 before any costs, such as letting agent fees, which would both cover his excess income requirements and allow him to save towards a pension, for example.
If Mr Patterson's priority is to travel, then he might have to sacrifice saving while he is away and make up for lost time later on.
Sebastian Hurst, chartered financial planner at Plutus Wealth, said:
Like all people, Mr Patterson wants ample income to live a comfortable life, sufficient capital to fund his short and medium-term goals and a large nest egg to retire on.His short-term goal is income and his medium-term goal is capital. His ability to achieve these goals is a decision between either renting out his current property or selling and investing the proceeds.
The situation regarding Mr Patterson's pension savings is much clearer.
- 'Can I go travelling and buy a two-bed flat with £37,000?'
- 'Should we borrow to fund £30k renovations on our £1.65m home?'
While he may still have an income in the UK from his buy-to-let or other investments, these do not constitute "relevant UK earnings" and he thus will not receive any tax relief on this income.
Mr Patterson's pension is alarmingly small and he is extremely unprepared for potential retirement at age 60.
If he does decide to sell his property, it would be prudent for him to make a large one-off pension contribution with some of the proceeds.
The idea would be to make a pension contribution that matches his gross income for that financial year.
For example, if he sells in April 2017 and his gross earnings for the financial year are £28,000, he can make pension contributions of £22,400.
Mr Patterson should carefully weigh up the experiences he wants to have while abroad, and the length of time he will be overseas.
Property will be a limiting factor, as it may not generate a steady income, due to interest rates and other variables. But this may also provide financial discipline not to deplete his capital.
If Mr Patterson can secure a competitive fixed-rate mortgage and rent out his property, he should adopt this approach.
If, however, he is forced to move on to the lender's standard variable rate (SVR) he should sell the flat, invest the proceeds into a diversified portfolio of funds such as Standard Life My Folio Managed 3 and consider making large ad hoc pension contributions.
Mr Patterson will struggle to get a buy-to-let mortgage as most lenders require applicants to own at least one other property.
Moving abroad will complicate matters further.
He may want to consider keeping his current standard residential mortgage and apply for a "consent to let" from his current lender.
Lenders may keep the rate as it is, add an additional 1 percentage point to the current residential mortgage rate or charge the SVR for doing so.
Mr Patterson should look for a good quality letting agent, which will typically charge around 10pc to 15pc of the rent received.
On the lender's SVR, at a rate of say 4.5pc, Mr Patterson's net profit from the property will be around £7,470 a year.
On a more competitive fixed rate, of say 2.25pc, his net profit will be £12,532. Both scenarios offer sufficient income as he intends to work while away.
Culled from Telegraph
Obaseki appoints 15
Pension Fund Administrators
On February 2, 20174:29 amIn NewsComments
By Esther Omoye
GOVERNOR Godwin Obaseki of Edo State has appointed 15 Pension Fund
Administrators, PFAs, to undertake the enrolment of employees in the
state public service, in line with his budget speech where he promised
that the contributory pension scheme would commence in 2017.
The PFAs, according to a statement by Mr. John Mayaki, Interim Chief
Press Secretary to Governor Obaseki, are Trusftfund Pensions Plc, Aiico
Pension Managers Limited, ARM Pension Managers (PFA) Limited, Crusader
Sterling Pensions Limited, Fidelity Pension Managers Limited, First
Guarantee Pensions Limited and Future Unity Glanvils Pensions Limited.
Governor of Edo State, Mr Godwin Obaseki
Others are Leadway Pension PFA Limited, Legacy Pension Managers
Limited, Pensions Alliance Limited (PAL), Sigma Pensions Limited,
Stanbic IBTC Pension Managers Limited, Premium Pension Limited, OAK
Pensions and NLPC Pension Managers Limited.
According to the statement, in addition, an executive bill for the
amendment of the pension law had been proposed to the Edo State House of
Assembly.
Governor Obaseki said the scheme, aimed at addressing the challenges of
the old defined pension benefit would commence in January 2017.
Meanwhile, the governor also revealed that government would resolve
teething key issues identified in the payment of pensions and
gratuities, adding: “The issue of pension is one that we will deal with.
The government has made provision in the budget for the scheme, with
the contribution of 10 per cent by government and 8% per cent by
workers.”
The Governor however called on workers and other relevant stakeholders
to support government in the actualization and realization of the scheme
for the benefit of all.
Read more at: http://www.vanguardngr.com/2017/02/obaseki-appoints-15-pension-fund-administrators/
Read more at: http://www.vanguardngr.com/2017/02/obaseki-appoints-15-pension-fund-administrators/
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