Pension v S&S ISA v House

jj_5

Hi Guys,

looking for some advice really, coming up for my 25th birthday and deciding on a few things financially, I earn around £1500 a month after tax with outgoings around the 700-800 quid mark. Have a pension with £300 quid in it and my employer doesn't contribute to this, I'm thinking about putting 2 or £300 a month into this pension just now (seeing as I have a fair bit spare cash) However because my employer doesn't contribute wondered whether a Stocks and shares Isa would be a better option?

My thinking is detailed below, please correct me if it's flawed:
essentially the tax benefits would work out the same due to the pension being taxed eventually but recieving tax relief when you pay into it, whereas the Isa recieves no tax relief but doesn't get taxed upon drawing it. the Isa is more accessible though


I have emergency savings equalling 6 months expenses
The other thing I need to balance out is where should my priority's lie RE saving for a house? I rent my flat just now so think I might put away a wee bit for that too, should this be prioritised over pension saving??

grey_gym_sock

pension and S&S ISA work out similarly, for the reasons you give, except that the pension has the advantage of a 25% tax-free lump sum.

is your pension scheme a salary sacrifice scheme? (because, if it is, you also save NI on contributions.)

how long before you might want to buy a house?

edinburgher

except that the pension has the advantage of a 25% tax-free lump sum.

Good point!

our understanding is essentially correct (ISA contributions come from post-tax income and won't be taxed further, while pension contributions come from pre-tax income (so 'free' money now, but you'll probably be taxed at the other end)).

As a basic rate taxpayer receiving no contribution from your employer, the money is probably better off in an ISA just now (assuming you have the strength of will not to dip into it). At this stage of your life, the flexibility of the ISA is possibly what makes it most useful.

Re. saving for a house/flat of your own - you need to look at the sort of place you'd like to buy, the timescale in which you'd like to buy it and the associated costs that you'll need to plan for (in addition to the deposit).

xylophone

Is your pension the employer's scheme?

atush

Your title is wrong, it should be Isas, house AND pension. Using VS means one over the others, whereas you should save for them all.

you have the cash, so keep up with paying into a pension (but your employer will HAVE to pay in contributions for you soon- have you asked them when?)

Then pile the rest of your readies into funds/cash for you house purchase.

The proportion of pension/house savings will depend on how soon you want to buy.

kidmugsy

I suggest that you wait until your employer has to make a contribution before you put more into a pension. Then you should contribute whatever amount gains his maximum contribution. Meantime, you could indeed use ISAs.