Never too young to start a pension?

mina626

I'm 27 and do not work for a company which has a pension scheme. I've only just recently been in a financial position strong enough to be able to start a regular savings scheme, and now I'm getting worried, since apparently if I don't start putting money away for a pension NOW I'll be up the creek by retirement age! I know nothing about private pension schemes, or where to start... any advice would be great

jamesd

Investing money for retirement is good. Are you a higher rate tax payer? Do you expect to be one in retirement?

If the answer to both questions is no, it's pretty likely that a stocks and shares ISA is the best place for you to be doing long-term investing. If either answer is yes, it may still be best.

The ISA income is tax free and doesn't count against the tax age allowance limit, unlike pension income, so it's helpful in saving tax in retirement. There's also no compulsory annuity purchase and the freedom to take the money out whenever it's needed, including before the normal retirement ages.

There is some benefit to arranging income from a pension up to about 8000-9000 in today's money, the tax free and possibly lower rate tax band. To find your investing target to achieve this, ask for a State Pension Forecast. The difference between that and 8000-9000 is your investing target for money in a pension. The rest is probably better in an ISA.

If in any doubt, go with a stocks and shares ISA since you can move ISA money to a pension later but not the other way around.

Regardless of which you choose, remember that he most important part is the investments within the tax wrapper. Pay great attention to selecting a suitable mix of investments for your risk tolerance. Higher risk tolerance = higher likely returns but more variation in value during a year and over a few years. You should be looking for one fund per 50 or so of regular investments up to about 10-15 total, possibly more if a high risk-return investor. Each should be in a different part of the world and/or market sector, with the quantity in each adjusted to match your risk profile. Search for "asset allocation" and read more.

mina626

That's some sound advice, thank you very much. I was aware that an ISA was an option, but for some reason it didn't seem an obvious route to choose... I will definitely be looking into it in more detail now