Savings - Pension vs Premium Bonds vs ISA

diablo676

Premium Bond prizes are calculated on a very low interest rate at the moment, so unless you are feeling very lucky I'd avoid them. Shares values are pretty high at the moment and I suspect the only way they will go in the next few years is down. In my opinion they should only be bought when everyone else is selling.

Paying extra into pension may be best, but all savings opportunities are poor at the moment.

atush

I only hold 100 in premium bonds. But I bought them as a bit of fun, not as in investment.

But I won 100 the month after I bought them, and just won another 25 this month lol.

LHW99

Keep the premium bonds for fun, or if you have a sudden largish amount (eg from a house purchase) that you need to park on fairly short notice so don't mind if you don't win - tho it would be nice if it did.

Pensions are good (and vital) for the purpose for which they were intended - retirement - but not so much if you may need the money before retirement.

NPowerUser

I think all forms of savings have a role to play in life.

As I look to retirement a mix of pension, isa and premium bonds are all important.

Personally, I have just over 15 years to retirement and I invest £50 a week via Standing Order in Premium Bonds.

My plan is to have a pension, savings and 40K worth of Premium Bonds in retirement and although I wont be rich, it should provide an income in old age.

jamesd

Since this is for retirement the first choice at younger ages is the stocks and shares ISA. That has the flexibility to let you move the money over time into a pension later in life. It beats savings accounts and Premium Bonds because the growth rate s on average have historically been significantly higher.

The pension can beat the ISA in a range of cases and you can wait until one or more of them applies, then move money from iSA to pension:

1. Salary sacrifice, you get the employee NI and maybe some employer NI saving on top of the income tax relief. You'll have to repay some income tax relief when you draw the money out but you'll keep the NI part.
2. Higher rate tax relief, basic rate income expected in retirement. Another fairly pure case where you keep a gain that you had when putting money in.
3. Up to the amount that an employer will match. Immediate gain, hard to beat.

Pensions also have the advantage that when relatively young and accumulating a pension pot the money is not subject to means tested benefit savings limits, so the money is safe from things like long term unemployment or disability until retirement age. This can be very important for say single people or those in uncertain jobs without permanent health insurance to pay an income until retirement age if they become unable to work. In such cases going for the pension immediately would be the most sensible approach, to avoid the risk of losing the money to means tests.

So see whether any of the pension is better cases applies and if not, perhaps use the S&S ISA until you're in a case where one does, or until you get closer to the age at which you might want to take money out of a pension.

In practice a lot of employees are likely to have at least some employer matching so at least some pension use is likely to make sense.

Pensions can also have a broader range of investment options than S&S ISAs and that may sometimes favour use of the pension for at least some of the money that might go into the ISA.

Once you start to get to the point where it might be hard to put the money into the pension fast enough, and ideally a fair bit sooner, it's time to start that switch, upping the pension contributions and draining the ISA to live on by the extra amount going into the pension. Ideally by this time you'll at least be in a salary sacrifice setup or paying some higher rate income tax to gain from those.

thriftytracey

After much research I have decided to add the cash (which is now £1000) into my husband's Aviva pension which currently stands at £106k. He has not contributed to it since he stopped full time work. It grew by over £10k this year. That way we get the extra £200 tax relief (we are basic rate tax payers). I have also decided to close my Nationwide Flexaccount and open a Lloyds bank and use that to deposit any surplus cash. I have investigated a self select stocks and shares ISA and may start one of those next time I have a lump of cash minimum £1k. I've only got another 5 years though before I/we want to retire so I am hoping that is enough time to smooth over the bumps in the stock market. Finally, I have increased my own pension contribution to my employer defined contribution scheme by £100 a month so it is will be £400 a month including my employer's contribution.

xylophone

Yes, the interest bearing accounts do offer an attractive rate of interest but usually limited to maximum of £2000 so you are only talking a few pounds extra especially as you reduce your account down each month.

Not necessarily! https://forums.moneysavingexpert.com/discussion/5099524 See post 8