PhD Student Retirement Savings: Personal Pension or LISA

SuzSunflower

Hi everyone.

I am a new PhD student, 24 years old and looking for some advice on retirement savings. I earn a stipend throughout my 4 year PhD, not a salary, so I don't pay tax on it. On the same note, I can not join the workplace pension scheme and benefit from employer contributions at my university since I am still a student and not an employee. I went straight into higher education from school so I currently have no pension savings (apart from a few years NI contributions from part time work contributing to my state pension- which now, since I don't earn a proper salary, have stopped).

I was originally looking at starting up a personal pension, which I would be able to get basic state tax relief on up to £2,880. It looks like you can open up from quite a few providers online without having to go to a financial adviser. I've also noticed a few apps being released to makes saving for a pension more convenient I guess (PensionBee, for example). I currently save into a LISA (it is a cash Lisa with 1.45% AER at the moment) which I was originally going to use to build up a house deposit, using the 25% government bonus for this purpose but I know I could also use this for retirement savings instead, with the 25% bonus. I know it would probably be best to transfer to a stocks and shares LISA if using it specifically for retirement. I am able to save for retirement and house deposit at the same time, so if I use a LISA for retirement, I would move any more money I save for a deposit elsewhere probably. Considering I don't benefit from employer contributions in a personal pension, I am not sure what the best option for me is really. Any advice would be appreciated.

Thanks

xylophone

A simple stakeholder might suit for the next few years.

https://www.cavendishonline.co.uk/stakeholder-pension

You can pay in your £2880 and receive tax relief of £720.

You could then consider a transfer in (if permitted) to a workplace pension in due course.

Albermarle

Considering I don't benefit from employer contributions in a personal pension, I am not sure what the best option for me is really. Any advice would be appreciated.

You have the right idea , in that if you are in a workplace pension with employer contributions , then you would be crazy not to be contributing at least the minimum to get the free money from the employer .
However without the employer contributions it is less clear cut .
Pension contributions have at least a 6.25% advantage over other forms of savings/investments due to the tax relief . However you will not be able to access the money for probably 35 years .
So you have to think about your own situation to see what is best.

JoeCrystal

While I usually applaud the notion of starting early in your case, I have to admit that I am somewhat more dubious on the merit on saving into a pension scheme while on PhD stipend. I would instead argue for keeping into an emergency fund and having a right amount of savings in case anything goes wrong in the next four years and allowing you more flexibility should you look for a job and enables your move if needed. Once you get employment, you can always contribute up to your salary (subject to various limits) as a lump sum instead.

MaxiRobriguez

JoeCrystal wrote: »

While I usually applaud the notion of starting early in your case, I have to admit that I am somewhat more dubious on the merit on saving into a pension scheme while on PhD stipend. I would instead argue for keeping into an emergency fund and having a right amount of savings in case anything goes wrong in the next four years and allowing you more flexibility should you look for a job and enables your move if needed. Once you get employment, you can always contribute up to your salary (subject to various limits) as a lump sum instead.

Sort of agree.

If OP is renting too then the money may be better being saved for a house deposit, ready to be deployed when proper salary comes into play.

Pension saving is laudable but shorter term needs have to be accounted for as well.

Carolinegv

Hi there!

I'm in exactly the same situation, 24, PhD and no pension previously. I've gone for a stocks and shares LISA (with Nutmeg, as recommend by MSE if you're interested!), so whilst I've no idea if that's the right thing to have done, it seems to be working for me!

As a side note however, I am not a first time buyer so couldn't use a LISA for that. As others have said, keeping it for a house might be a better option?

kinger101

I agree with Joe. Although the idea of starting a pension early is laudable, it shouldn't be done at the expense of having some sort of cash buffer.

If you do feel comfortable enough to do this, the LISA is the better option, as (a) it offers greater flexibility i.e. buying a home, and (b) it's actually more tax-efficient based on your circumstances. While both the LISA and pension contributions up to £2,880 pension contributions would get topped up by 25%, the pension would be taxed at an effective rate of 15% in retirement.

So maximize contributions to LISA before thinking about a SIPP.

SuzSunflower

Hi guys- thanks for all the responses. Lots to think about.

Just to clarify- I do have a cash buffer (Due to bill/rent timings compared to when my stipend is paid, I do have to use some of this at the moment but I always top it back up and a bit more every month). I also pay into my cash LISA every month to save for a house deposit. Of course instead of putting additional money into a pension, I could put it all into my LISA instead to get a larger house deposit. I suppose I am a bit concerned about just starting retirement savings at 28/29 years old.

Thanks everyone

NedS

I was in a similar position to you at your age. I finished my PhD and got my first job with a pension aged 26 (USS final salary pension). I was lucky in that I had quite a few years NI conts by then as I think my sixth form/undergrad years were credited (or I earned enough during the holidays). Doing a PhD, I think the hope is this will lead to increased earnings potential down the line which will enable you to make up the shortfall from starting later in life. I am now in my early 50s and aiming for early retirement in my late 50s having really ramped up the pension contributions for the last 6 years after the mortgage was paid off.

I think for the moment the important thing is that you are financially aware and are saving money, in a tax efficient way. I don't think it really matters too much at this stage whether you save into a LISA or pension so long as you are building wealth. Once you've finished your PhD and have your first proper job, hopefully you'll have a good employer pension scheme and can focus more on retirement savings. I only wish I was as financially switched on at your age as you are!