Advice for a 20 year old starting out.

crv1963

Hi all,


In the midst of sorting my and my wife's pension plans as we approach retirement I discussed what I was up to with my 20 year old son. He lives with his mother as we divorced some years ago.


He has a job- 18k pa and he is paying extra into his company pension scheme his and his employers matching contributions are £170 per month. I know tax relief will also be added to this so the real figure is higher.


He has asked me should he start a personal pension as well or a SIPP? He would be looking to save £25-50 per month no lump sum starting amount. He is saving rainy day cash at a rate of £50 per month, has plans to share a flat with a friend so is also saving with his mother by giving her the difference between what he pays her in board and what his expected flat share costs will be so that he will have monies to move and buy the things he will need when he does move out.


What would others advise? PP or SIPP, I did suggest an ISA but he (probably correctly) told me that he would gain more by way of pension savings (tax relief) and investing these in stocks and shares for growth than by an ISA which he would probably end up taking money from for other things.


He has seen the way the state pension is and wants to retire before this (as I am but my case is different of course totally to his) probably in his mid-late 50s so a 35 year time scale!

PeacefulWaters

Without knowing the lad, it's hard to suggest SIPP or PP. For most people that age I'd suggest SIPP is taking on too much.

LISA is something to look at. Even if it's a relatively small deposit now. The reason being that future changes to legislation may close the door on opening new ones, but leave the door open for existing users to top up in later years.

Overall strategy should get to get as much matching funding from the employer as possible. Select funds that offer decent growth potential. As pay rises come in allocate a portion to the pension. A 2% rise might mean increasing pension contributions by 0.5%. Repeat year after year.

Then review in middle age!

ischofie1

£25-£50 PM may not be enough to start a PP or Sipp.
Most want something like a minimum of £100-£125 PM.
He may be better voluntary increasing his contribution to his Co scheme.
The is especially true if his Co operate the scheme via salary sacrifice (also known as smart pension) as this will save him the NI, which he otherwise wouldn't get by going outside the Co scheme.

tacpot12

Starting early is the best way to improve the potential to retire early and on a good income.

He's still very young, but if his job is secure, then starting a personal pension or SIPP now is a great idea.

Paying £50/month for just 12 months (£600) could be worth around £5000 in 35 years time even allowing for inflation. The tax rebate basically means the government are giving you money with is free to invest, so if he has spare money, it is a great idea.

tacpot12

£25-£50 PM may not be enough to start a PP or Sipp.

AJ Bell allow regular investment into their SIPP from £25 a month. There is nothing inherently complicated about a SIPP.

The OP's son would be well advised to start investing in a single, large, diversified global equity fund such as VLS 100 until they understand more about investing.

crv1963

Thank you PeacefulWaters


I think he's getting the maximum employers contribution as a % of his salary at the moment but I'll check with him, he does seem switched on regarding is saving. I did tell him I thought that having slightly over 11% of his salary saved monthly plus tax relief was a decent amount at his age.


I will suggest the LISA again to him maybe offer to help him by putting a few hundred pounds in to start him off for his 21st birthday! Then retrospectively do the same for my other 21 year old son on his 22nd birthday- children don't get any cheaper as they get older only the packaging gets smaller!!

crv1963

Thank you all for your prompt advice I'll pass this on to him.

Lokolo

Personally I would say forget the pension increase.

His contribution is around 11%, which is great. But he is also living with his mother.

Does he want to live there for the rest of his life? I would say don't put any more into pension for the time being, he has already got a great contribution going in there. Save for a property deposit. I know he is planning on moving out and living with a friend. Maybe he could purchase a property and rent out the other room to a friend?

I obviously have no idea where in the country he is based, but on £18k he is looking at only being able to afford a £80k mortgage.

When he has a stable home of his own and some emergency savings, maybe he can then look again at increasing pension contributions.

xylophone

Doesn't he want to buy a home of his own?

I'd be looking at a LISA.

GunJack

I've just started looking at such stuff for my 19-y-o, and a help-to-buy ISA may be worth a look if he's on about buying in the next couple of years...that 25% bonus could be good for a deposit...£200 a month into one of them gives a healthy £6k for a deposit after 2 years

badmemory

Whilst your son is quite young he does seem to have a good initial idea of what he wants to achieve. Perhaps it is time for him to actually have a read on here & see how far he can really get. For example, if he gets in a position to own his own home, he can rent out a room and as long as the income from that is under £7500 (I think that's the figure it used to be £4k) there is no tax to pay.