Start a Pension or Long-term Savings?

sympatex

kidmugsy wrote: »

"until you're practically dead given the current governments retirement plans": which differ very little from the previous government's, so don't expect any new government to offer retirement for all at 55, funded by the tooth fairy.

You've taken that out of context - it wasnt meant to be a political dig, it was intended as a reference to the OP's option of travel. There is a chance he or she will never have the opportunity again. Because you died at your desk or were in someway prevented from travel at the ripe age of 85. .. but if you did survive you could check your pension and find the government has given it a hair cut to pay for something else. Perhaps a wind farm in scotland or wales for pointless job creation.

A pension doesn't seem like the most useful way of spending the money currently, given the OPs plans which are yet to be decided, i believe those plans influence the route they should look at more than what is a better produt pension or ISA (savings).

jem16

sympatex wrote: »

A pension doesn't seem like the most useful way of spending the money currently, given the OPs plans which are yet to be decided, i believe those plans influence the route they should look at more than what is a better produt pension or ISA (savings).

Unfortunately by the time some people decide, years have passed by and nothing has happened.

Meantime the OP may well be missing out on free contributions from his employer.

It's not really a one thing or another type of decision - it should be both.

tom-i

Thank you both for the insight - I will make enquiring about the work pension scheme a priority!

JoeCrystal

Well, to be frank, you should do both. In other words, you should start a pension. There is no beating around the bush about it.

Since you are twenty one years old, this bode very well for you since it means that it will cost you less per month to get similar fund compared to someone twice as your age. There are few pension calculators you can use to figure out what the fund value and incomes potentially may be. The value of contribution you should pay into really does depend on what kind of income you hoping to have by the time you retire.

jamesd

First you should really pick what income you want in retirement.

Get a state pension forecast to start. If you don't have that, assume £7,000 a year in income before tax from the state pensions.

Next go to a pension calculator like the one from Hargreaves Lansdown. Decide what income you need for a reasonably comfortable retirement in today's money, before tax and subtract the state pension amount. Then experiment with the pension calculator to find out how much it estimates you'll need to invest each month to reach that target. Pay in that much, increase it by inflation each year.

Review once a year. Review your investment choices at least once every six months if you're interested in trying to improve your pension by picking good investments.

It's not necessarily the case that you're best off investing within a pension. If there's any prospect of you getting higher rate tax relief later you may be better off using investments within a S&S ISA first. You could switch the money to a pension later and get the higher rate tax relief instead of basic rate now.

If your employer does any pension matching you should almost always pay in enough at work to get the full employer match. If you're already paying higher rate or top rate tax then you should consider exploiting that tax relief by paying in enough to get down to the next lower tax rate, provided the amount is sensible and within the contribution limit. It's quite common for higher rate tax payers to pay in all of their income that would have been taxed at higher rate.

Getting the money from any matching done by your employer is an easy first step. Then you can start to think about say S&S ISA for long term emergency fund or early retirement pot or both.

Ark_Welder

jamesd wrote: »

You could switch the money to a pension later and get the higher rate tax relief instead of basic rate now.

Assuming that relief at the higher rate is still available and it has not been restricted to basic rate

atush

I am going to suggest two things.

One, join your company pension. Invest as much as you need to (and more if you can afford it) to get the full employer's contribution. It is 'free' money.

Two, if you are already saving in an ISA, join an investment trust savings plan. Something like Alliance, Foreign and Colonial, Witan. you can put in 25-50 a month, and it will Drip Feed into the market and you will gain from Pound Cost Averaging so that you don't suffer from market volatility (as you buy more units when prices fall, when they recover your investment jumps up). The costs of this type of investment are very low, and you can make partial withdrawals so that you won't suffer from capital gains tax.

jamesd

Ark Welder, true. There's also the chance of a higher basic rate of tax in the future that could increase the basic rate tax relief. Or lower, but I doubt that will happen.

jimjames

Remember that the earlier you start the more time the money has to grow. There is some info around that shows that saving money between ages 20 and 30 then stoppping will add up to more than saving the same amount per month between 30 and 60.

So the earlier the better and starting at 21 has got to be a good idea!

tom-i

Wow, great in-depth information in here which has really helped. I have now got an appointment with the company financial advisor and we'll see what he suggests.

Again, thanks