S&S ISA for dummies

londoner01

Hi,

I'm a young(ish! Mid-twenties!) basic rate taxpayer. I currently save through a mixture of cash ISAs and saving accounts, and am concentrating on saving money for a house deposit, but have made it so that some of the accounts are flexible enough to allow me to dip into them for an emergency. So far my savings amount to about 1.25x my current yearly salary (gross), and if I were to leave my job the savings would sustain me for about 2.5-3 years on my current living standards.

My current employer offers no pension scheme and I have noticed I tend to think of my savings pretty much exclusively as "house deposit money", so I would like to start saving for later in life and thought an S&S ISA would work better than a pension for the time being.

I really don't know much about S&S ISAs and about investments in general though.

Do you have any recommendation for relatively easy to manage wrappers? Is it best to avoid banks? From what I read on MSE it sounds like for a long term saving project Cavendish may be the way to go but I really don't know what to judge these things on.

How much do you reckon I should put in to go towards my retirement? I think I would prefer to put a lump sum at the beginning of every year. At the moment I can save about £10K a year and I think I would find it difficult, psychologically, to have to part with more than one or two grand a year to go towards my pension! That sounds really little but it can hopefully increase later in life! Or do you reckon it's naive and I should get closer to 10-15% of gross income?

Thanks in advance

xylophone

My current employer offers no pension scheme

This will have to change. http://www.thisismoney.co.uk/money/pensions/article-2208596/Auto-enrolment-nudge-I-need-Are-ready-The-Great-Pension-revolution.html

When do you intend to buy the house?

lisyloo

How much do you reckon I should put in to go towards my retirement?

Good pension schemes are about 20% - 40% of salary.
It does depend on what income you want though.

innovate

I would recommend you discuss your pension question over on the pension board http://forums.moneysavingexpert.com/forumdisplay.php?f=19

If you decide you want to invest for your old age in an S&S ISA, you have already discarded a SIPP as an option. This might be the right thing to do for you but then, it might not be.

The pensions board will almost certainly tell you that should invest as much into a pension (by whatever investment vehicle) as early as possible - - the later you leave it, the more you will have to save, or the less you will have to spend in your older days.

Whether you invest into a S&S ISA or a SIPP, you need to make two decisions

1. what funds/shares etc you invest in. There is lots to read about this, e.g. on http://monevator.com/category/investing/passive-investing-investing/
2. which provider/platform you do it with. Definitely don't do it with a bank. Their charges are too high, and your choice of investment will almost certainly be extremely limited.

londoner01

Thanks for the answers!

Just to clarify, after reading around in the pensions board, I think that for now (i.e. until I work for someone with a good pension scheme, or until new laws are introduced) I have chosen the S&S ISA method. This is because the returns seem similar, and unlike pensions I don't have to retire in order to access. (Imagining scenarios where I'm not retirement age quite yet but too old to really re-enter the job market so may have to start to rely on income from savings a few years earlier).

Also possibly useful to know, family history would lead to believe that if I reach old age I may have a while after retirement, even if it is at 68 by the time I get there.

xylophone wrote: »

This will have to change. http://www.thisismoney.co.uk/money/pensions/article-2208596/Auto-enrolment-nudge-I-need-Are-ready-The-Great-Pension-revolution.html

When do you intend to buy the house?

Because of the size of my employer, I won't be affected until 2017 or 2018, and that's several years to lose.

I'm not sure when I want to buy the house, it definitely won't be for another 3 years. It may well be 5 or more.

innovate, passive investing sounds exactly like what I had in mind, and that's an amazingly comprehensive guide about how to go about it. I notice it only mentions Vanguard. Where is a good place to start reading about other platforms and providers?

xylophone

Also possibly useful to know, family history would lead to believe that if I reach old age I may have a while after retirement, even if it is at 68 by the time I get there.

Then you'll need as large a retirement pot as possible unless you intend to depend on state pensions and benefits?

http://www.thisismoney.co.uk/money/investing/article-1718291/Pick-best-cheapest-investment-Isa-platform.html
Some more here
http://www.find.co.uk/my_find/for-ifas/ifa-research/pensions-research/guide-to-platforms
http://www.lovemoney.com/news/savings-investments-pensions/pensions/14167/youre-wasting-your-money-with-a-sipp
might be worth a look.

innovate

londoner01 wrote: »

innovate, passive investing sounds exactly like what I had in mind, and that's an amazingly comprehensive guide about how to go about it. I notice it only mentions Vanguard. Where is a good place to start reading about other platforms and providers?

There is loads more than just Vanguard on that Monevator page - - though the easiest by far is probably one of the Vanguard Lifestrategy funds. All you have to decide is which flavour of it you want, and then pick the cheapest platform for it (which I think is still HL, but best to double-check).

Monevator also tells you loads about other funds etc selection - - you just have to make the time to read it. I would say it's time well spent.

innovate

xylophone wrote: »

Then you'll need as large a retirement pot as possible unless you intend to depend on state pensions and benefits?

xylophone makes (as usual) a very valid point there. So may be looking at putting at least some of your investment into a SIPP might be just the right thing to do (and the rest into a S&S ISA), so you aren't tempted to spend your money too early - - you could be needing a lot once you stop working.

Even if your employer doesn't yet contribute to your pension, the taxman will. For every £80 you put into a SIPP, he adds another £20.

I still think you should ask on the pensions board - - a lot of people over there might not read the ISA board so you are potentially missing out on good suggestions.

londoner01

Thank you so much both of you, immersed in those resources to understand things a bit better! It's a slow process but I'll get there!

I will post on the pensions board too although from reading there I'd sort of already decided that at the moment I'm better off with an S&S ISA because of the flexibility aspect.

The taxation element is simply a matter of chronology: in ISAs it's taken when you deposit, in pensions when you take it out. So unless I am in a situation where I'll have a higher tax rate when working than when on a pension, it may be better to set up a S&S ISA because it allows more flexibility.