Where to start?

wyldeandfree

Hi MSE-ers,

I've been doing a lot of reading around investing on blogs like Monevator and their American equivalents, and having recently received a pay rise I want to start saving/investing/improving our retirement planning.

My husband and I have had some very tight financial times and some unconventional jobs and as a results we have almost no pension to speak of between us despite being in our late thirties - so addressing this is clearly urgent! We also do not own a house and do not have a deposit saved up. Post pay-rise I am employed full time on a good salary, but still in the 20% tax range. I pay into a workplace pension scheme. My employer pays the minimum statutory requirement (3% on eligible earnings) and I pay my minimum (5% on eligible earnings). Our pension scheme is on a net pay arrangement. My husband is self-employed part-time and not currently paying into a pension. Neither of us are using our ISA allowance.

I want to put all of my pay rise into savings/investment/pension but I'm not sure where to start, despite hours upon hours of reading! This stuff is a lot to take in for a newbie.

I want to put our money towards a globally diversified, low-cost index fund - and get the benefits of the available tax wrappers. At least, I think this makes sense.

One option would be to contribute more to my workplace pension, though I wouldn't get any additional employer contributions. The fees on the account are 0.4% annually plus £2 a month. Our pension company uses Scottish Widows and the fund my pension is currently invested in is called Scottish Widows Pension Portfolio Three Pension (Series 5) (factsheet is available online but I'm not allowed to post links).

Another option would be to set up a SIPP and use that to top up our pension contributions. I think (?) I could find a SIPP with lower fees (??) but what I'm even more interested in is a SIPP with a higher investment in equities than and that is even more globally diversified. I'm on the email list for Vanguard's UK pension but it's been delayed and is still not live. Having said that, most of the advice I've read seems to be saying if you have extra money you should top up your workplace pension rather than set up a SIPP because SIPPs are quite complicated to manage and it's harder to benefit from economies of scale.

A third option would be to invest in an ISA S&S. For example, something like this: Vanguard's Lifestrategy 80 or one of Vanguard's Target Retirement Age funds. This seems to have much lower fees than my workplace pension (.22% and no monthly fee), and so the fees wouldn't eat away at the investment so quickly. I could still get the tax benefit through it being an ISA.

But...Monevator folk think that ISA is probably better than pension for retirement saving, and their argument makes sense to me. How does this weigh up against potentially lower fees though? Also, do you HAVE to use a broker to buy stocks and shares in the UK or can you buy a fund directly? How how are brokers like HL making their money? It seems like their fees are zero on the Vanguard Lifestrategy funds. This makes me think I'm missing something. And why would I use HL as a broker rather than Vanguard themselves, for a Vanguard fund?

The wild card would be putting our savings into a Lifetime ISA to save up towards a house deposit. The advantage to this would be getting something we could live in mortgage free in our old age which would obviously massively reduce our outgoings (e.g. having paid off our mortgage). We're pretty reluctant to buy though. We like the flexibility and predictability (in terms of expenditure) of renting.

If anyone has any thoughts or can clarify what I've learned so far that would be so helpful. Thank you!

Thrugelmir

wyldeandfree wrote: »

We're pretty reluctant to buy though. We like the flexibility and predictability (in terms of expenditure) of renting.

When you are retired. Wouldn't the security of tenure and lack of an increasing outgoing be more important though. No guarantee that your choosen investment route is going to lead you to a pot of gold at the end of the rainbow.

Dazed_and_confused

There's more to pensions than just workplace schemes and SIPPs.

You (and your husband) could look at personal or stakeholders pensions.

My husband and I have had some very tight financial times and some unconventional jobs and as a results we have almost no pension to speak of between us despite being in our late thirties

You may be underselling yourself. You both should check your State Pension forecast on gov.uk. You may be pleasantly surprised at how much you pension you are a) on track to get and b) have built up already.

Best to ignore the almost inevitable £168.60 that will hit you when you first look at it but look a line or two further down to see what you have accrued so far (probably to 05:04:2019 but maybe 05:04:2018).

And you have plenty of years to get up to the £168.60.

badger09

First of all, after having those 'tight financial times' have you got any debts? Is your emergency fund sorted?

If so, pay off debts then most on here would advise an easily accessible (so cash) emergency fund sufficient to cover, say 6 months of essential expenditure, in case of redundancy, illness etc. This should be held in the highest interest accounts on offer.

Then for longer term saving, if you are definitely not considering buying a home within the next few years, have you considered S&S LISAs? You can open one each and pay in up to £4k pa, which the government tops up to £5k. If you change your minds later, you could use them for a house purchase. If not, you can save for retirement.

Any excess could go into SIPPs or S&S ISAs for some flexibility.

Basically, you can hold the same investments in all 3.

You mention Vanguard Lifestrategy Funds, which are a sensible option. There are similar offerings from HSBC, Blackrock Consensus and L&G Multi Index.

First decide what you want to invest in, then where you want to hold your investments.

For example the Vanguard Lifestrategy Funds have the same fund charge wherever you hold them BUT if you hold them with Vanguard they will cost an additional platform charge of 0.15% per annum, whereas at H&L they will cost an additional 0.45% ie 3 times as much. This won't make much difference at the beginning, but in time will eat heavily into your returns.

Hope this hasn't confused you even more but I'd suggest
1 pay off any debts & sort out emergency fund
2 decide purpose(s) of long term savings/investments
3 decide on tax wrapper(s)
4 decide on investment
5 decide on platform

Aminatidi

Couple of things to consider:

Saving v Investing - if you put £10K in do you want to be sure there will be £10K there when you come to take it out?

Access - Pensions and SIPPs can't be accessed in an emergency, the money is locked away whilst with an ISA or general investment account you can access it at any time, but as above, the value might not be what you put in depending on the timing.

wyldeandfree

Thank you all for your replies.

@Thrugelmir: This has been a conversation we've been having a lot. We are leaning more towards buying now than when I first wrote this, for the reasons you state.

@Dazed and Confused: OK...on the different types of pensions...thanks. I clearly have yet more reading to do. On the State Pension, you're right, I should have mentioned that, but unfortunately even with that it's not looking great (yet!)

@badger09: This was very helpful. Thank you so much for breaking it down in clear terms. To respond...
1 pay off any debts & sort out emergency fund
We don't have any debts. We did anything and everything we could to avoid that, and managed to do so. We do not have much of an emergency fund to speak of, but we are slowly building one up.

2 decide purpose(s) of long term savings/investments
The purpose is definitely to do the best we can to avoid being dirt poor in retirement!

3 decide on tax wrapper(s)
4 decide on investment
5 decide on platform
And as for (3), (4) and (5) that's a useful way of breaking it down - and I guess that is what I am getting stuck on knowing the answers too. Maybe we need an appointment with a financial advisor.

@Aminatidi Thanks, yes that much is clear to me. We still have 25-30 years until we retire I'd guess, so investments seem to make more sense, even with the risk attached. As for access, I guess that's why an emergency fund makes sense to have first.

Thank you all - any further thoughts welcome!

atush

1 Emergency fund
2 Open pension for the OH who doesnt have one
3 Save deposit in cash and S&S isas
4 Once on housing ladder, increase your pensions

Albermarle

We still have 25-30 years until we retire I'd guess, so investments seem to make more sense, even with the risk attached.

Over that time frame the risk is very small, based on historical statistics going back a long, long time .
A much bigger risk is not to invest and leave money languishing in low interest accounts , not even keeping up with inflation .

steviecoyle

Getting an emergency fund built up will help with not getting into debt.


ISA v high yielding current account: quickly find out if you can get a high yielding current account which is better than an ISA. Then open one and start saving. Just think of all the weeks and months spent trying to decide which is best. Sometimes its best to just start. The sooner the better.

Remember you can always change your ISA to a new provider & switch from 1 current account to another.

steviecoyle

Nationwide FlexAccount 5% AER fixed for 1 year.
https://www.moneysavingexpert.com/banking/compare-best-bank-accounts/#nationwideflexdirect


Even use this as your emergency fund account. Switch once the AER drops after 1 year.

dividendhero

Albermarle wrote: »

Over that time frame the risk is very small, based on historical statistics going back a long, long time .
A much bigger risk is not to invest and leave money languishing in low interest accounts , not even keeping up with inflation .

Very true, but a risk with pensions is politicians constantly tinkering with pensions - though obviously their own generous pensions are sacrosant :wall: