Easiest long term saving

Tiny_Tiger

Long-term saving seems very complicated to me. I've always filled my mini cash ISA up (and move it whenever there is a better offer), but am now looking at pensions/ very long-term saving (I'm 26). I was in the company pension scheme with my previous employer but am yet to look into pensions since moving to (dare I say it?) train as an accountant 1.5 years ago. It's a small company and I get the impression the employer doesn't contribute to the pension pot if I did join their scheme.

As a person who can leave money alone, what are the advantages of personal pensions over, say, funds in an ISA? The flexibility of a fund or tracker ISA appeals to me. However, it looks incredibly complicated to get into.

So far as I can see pensions and ISA are both tax free wrappers, its just that the money is taxed going into an ISA (i.e. income tax prior to putting it in) and not thereafter, and a pension is taxed coming out (annuities and income tax), but not going in. Simplistic, I'm sure - so I look forward to thoughts.

The ideal world would find me putting a small amount of money every month (for discussions sake, lets assume no more than what can be put in a mini shares ISA).

Whilst I don't expect there to be a simple, "This is the best for you, matey" answer, a prod in the right direction and any thoughts on the best vehicles for long-term investment, would be appreciated.

(PS - Martin - Any article on share's ISA's would be much appreciated)

lizzyb1812

Tiny Tiger - at what stage are you in your training? Cos all this stuff will definitely be coming up soon. And if you stay with a smaller firm you will eventually be advising other people on this stuff. :eek:

Because you are training to be an accountant I'd say you should be making yourself familiar with the details you can find at https://www.hmrc.gov.uk. There's a search facility to enable you to find, for example, pensions info. Also look at the articles in the sections on this site. And https://www.fool.co.uk is a good site to research on as well.

HTH

lizzyb

PS - it's hard work but it is worth it - good luck

jamesd

For both pension and stocks and shares (meaning funds, really) you should learn about asset allocation and rebalancing since that's the approach that is expected to produce the best results. It's also the most complex part and the one that has the greatest effect on the end result.

A minimal start is 4-16 or so funds in different parts of the market and in different parts of the world. The higher end is better than the lower since the objective is to obtain good diversification to reduce risk. Trackers aren't really the best of options since a well managed fund can do better, the skill is picking one that will. Fund statistics can help to identify likely candidates.

ISAs are generally better than a pension since they offer more flexibility, not having the annuity purchase requirement or restrictions on what you can draw, when. However, they do affect eligibility for benefits during the working life so if you're ever unemployed for a long time and the ISA is your sole retirement income plan, that could hurt.

Pension tax relief on the way in can provide a benefit for income up to the end of the lower tax band at around 10,000 total annual income, including all work and state pensions, since you get tax relief on the way in but pay no or 10% tax on the way out.

Tiny_Tiger

Thanks Jamesd, that's really useful. I think I'll speak to the IFA where I work as well - its just finding the time!! Also, I guess he'll want to get me a pension, as that's the easy and the usual route. However, as you say, its the inflexibility of a pension that make's me want to explore other options. If my employer were to match my contributions I'd be in the pension scheme tomorrow, though.

It's all really rather complicated, isn't it?

jamesd

Shhh.. you're supposed to be explaining how easy it is!

You might consider a SIPP type pension if you do want to learn about funds and do a lot of active investing. If you don't, you can get cheaper personal pension plans that can still have a fair number of externally managed funds. The SIPP doesn't help with the end-stage flexibility but at least it gives a broad range of funds to select from.