23 Years Old & Starting a Pension

Carpi09

Hello all,

I appreciate there are many threads on this subject but I can't really find an answer to my personal situation so I apologise in advance if this irritates anyone and thank you in advance for any replies. It is appreciated.

I am 23 years old, in the military so currently have a military pension on the go. Still haven't decided whether to leave the military as of yet but there is still plenty of time to decide. I currently earn £24074 pa and due to go up to £25245 pa in June 2013 with yearly incremental pay rises of around £1k per year. At this current time, my monthly bring home pay is around £1400-1500 pm with outgoings of no more than £100-200 pm leaving me with £1300+ pm.

Over the next 3 years or so, I will have extra income of around £300-400 pm just for info taking me up to 1600 pm but this will soon drop again in 3 years time.

With all this money coming in, I can't just let it sit with terrible interest rates within savings. So I have a S&S ISA with the VLS 80 fund and plan to use 50% of the annual limit in that with the other 50% in a Cash ISA. So that's roughly £900 pm. Leaving me with roughly £700 extra per month for the next 3 years and around £400 pm thereafter.

I can't really plan ahead yet but I am keeping the Cash ISA going because potentially I made need a deposit for a house in 3-7 years time depending on whether I choose to leave the military or not. This being in my mind, I only want to contribute between £100-150 pm into a pension leaving the remainder into a savings account. Bearing in mind, I do have a military pension coming along too.

Current Situation:

Military Pension, currently 4 years in.
S&S ISA: £5600, 450pm added. Limit reached
Cash ISA: £14,000 £450pm added. Limit reached
Cash Savings: £12,000 Ready for next years allowance.

With this in mind, from research this is quite a low amount for a pension which is quite shocking to me but I'm still young and naive I guess. Sorry if I have bored you thus far but bearing all this in mind with a relatively low contribution, what option would be best:

1. Forget about pension and just keep up to contribution to the S&S ISA and use that instead. Stick remainder into a savings account.

2. Stakeholder, contribute until I get a high pot and then transfer to a SIPP where the cost will be effectively lower because of the pot size.

3. Start a personal pension.

4. Start a SIPP, using an all in one VLS 100%

5. Other - anything I have missed.

I would consider my risk to investment high, as I am still young.

I appreciate this is a long thread but any advice, suggestion would really be helpful.

I would consider an IFA but with my current situation, I don't think I need one with my low contributions and passive approach to investing.

Thank you.

jem16

Carpi09 wrote: »

With this in mind, from research this is quite a low amount for a pension

Your pension is a military pension which is one of the best going. What's wrong with it?

1. Forget about pension and just keep up to contribution to the S&S ISA and use that instead. Stick remainder into a savings account.

Hope you're not contemplating forgetting about the military pension. That would be a big mistake.

2. Stakeholder, contribute until I get a high pot and then transfer to a SIPP where the cost will be effectively lower because of the pot size.

3. Start a personal pension.

4. Start a SIPP, using an all in one VLS 100%

5. Other - anything I have missed.

I don't think you need to be doing much more except perhaps put away for a house.

Carpi09

jem16 wrote: »

Your pension is a military pension which is one of the best going. What's wrong with it?



Hope you're not contemplating forgetting about the military pension. That would be a big mistake.



I don't think you need to be doing much more except perhaps put away for a house.

Thanks for a quick reply Jem, there is nothing wrong with the military pension. I am very happy with that. I was talking about my £100-150 contribution to start a new pension on top of the military one.

My current plan and could change at any time, is to leave the military at my 12 year point allowing me to have half a military pension. This will give me around £500 pm and a lump sum of around 10k at age 65. But I'm considering more options.

So you are suggesting forget about another pension, keep cash in a normal savings ready for a house deposit although I am already saving £5-8k pa for that anyway?

jem16

Carpi09 wrote: »

So you are suggesting forget about another pension, keep cash in a normal savings ready for a house deposit although I am already saving £5-8k pa for that anyway?

As a basic rate taxpayer with a pension already, there's not a lot of advantage to another pension other than the 25% tax free lump sum. Perhaps better to contribute later if you become a higher rate taxpayer.

You could use all of your S&S ISA allowance as opposed to having a cash ISA or simply use unwrapped investments. Whether you use this for a house depends on when you would want to purchase the house.

Carpi09

jem16 wrote: »

As a basic rate taxpayer with a pension already, there's not a lot of advantage to another pension other than the 25% tax free lump sum. Perhaps better to contribute later if you become a higher rate taxpayer.

You could use all of your S&S ISA allowance as opposed to having a cash ISA or simply use unwrapped investments. Whether you use this for a house depends on when you would want to purchase the house.

Thank you Gem, that's my dilemma. I am not sure when I am going to purchase a house so I want to keep my Cash ISA contributions up.

I didn't really give unwrapped investments a thought really because I thought a pension would be a better option because I get an extra 20% contribution allowing the investment to grow quicker.

atush

In your shoes, I would be saving for the house first before opening another pension.

If you are ready to buy, before you are ready to live in it- buy one and let it out instead. In an area you think would have good rental yields (incl student towns, near hospitals) or an area you feel you will live in once you finish service. That way you are on the ladder and will have a place to go once you leave (having given appropriate notice to your tenants of course. Lots of expats do it this way as well as people serving as you do.

This would only work if you had someone to look after it while you are based overseas. Be it family, or a management company.

Wobblydeb

It strikes me that you are already well covered where pensions are concerned. I would keep the extra ready to put it into property - either investment or to live in.

Interest rates are shocking at the moment though. If you are willing to hang on 5+ years I would consider using the S&S ISA in preference to Cash ISA. Otherwise have you looked at what regular savings accounts are available at the moment? Typically they pay more after tax than cash ISAs.

Carpi09

atush wrote: »

In your shoes, I would be saving for the house first before opening another pension.

If you are ready to buy, before you are ready to live in it- buy one and let it out instead. In an area you think would have good rental yields (incl student towns, near hospitals) or an area you feel you will live in once you finish service. That way you are on the ladder and will have a place to go once you leave (having given appropriate notice to your tenants of course. Lots of expats do it this way as well as people serving as you do.

This would only work if you had someone to look after it while you are based overseas. Be it family, or a management company.

Thanks Atush, I brought up investments today in the office and my colleague has said exactly what you have just put. He said to buy in a good area, rent it out and because I am going to be living in Cyprus for the next three years, he said I should get a management company to look after it. Definitely need to look into this...

Wobblydeb wrote: »

It strikes me that you are already well covered where pensions are concerned. I would keep the extra ready to put it into property - either investment or to live in.

Interest rates are shocking at the moment though. If you are willing to hang on 5+ years I would consider using the S&S ISA in preference to Cash ISA. Otherwise have you looked at what regular savings accounts are available at the moment? Typically they pay more after tax than cash ISAs.

Thanks WB, my problem is with 5 years, which would be ok to wait, is that it's such a short time frame, investments could tank and timing could be an issue.

Currently I hold First Direct Regular Saver so I'm covered there.

I'm actually quite surprised that no one has gone with an extra pension option but its very interesting to hear everyone's thoughts.

atush

Normally I don't rec BTL unless investors have a lot of other assets.

But in your case (as with expats) you can be priced out of the market over a number of years away or have no where to live on your return/exit. Plus you have a good pension, plus S&S isa and cash savings. So it would be a logical step for you if you can afford it.

Lots of pitfalls, so go over to the House forums.

jem16

Carpi09 wrote: »

I didn't really give unwrapped investments a thought really because I thought a pension would be a better option because I get an extra 20% contribution allowing the investment to grow quicker.

Yes it would do. However you are only deferring tax as with your military pension and state pension it is likely thet you will end up paying 20% tax on your retirement income.

Basically the only thing you are gaining is 25% tax free lump sum, whilst useful, is not necessarily the reason to use the pension.

Carpi09

I think I will just utilise more regular savers and fixed savings accounts then.