Medium vs long-term savings and investments

mullygrubber

Hello there!
I am currently in the process of doing research into getting started with investing. For some context, I've purchased a property and I've built up a 6-month emergency fund so I would like to start putting away some money on a monthly basis into tracker funds and so on. 

However, I am a bit confused by all the different options so I'll lay out my understanding and hopefully some of you kind people might be able to correct me or guide me in the right direction.

I understand that for medium to long-term savings and investments, there are the following options:
1. Workplace pension (Long-term)
2. SIPP (Long-term)
3. Stocks and shares ISA - which could be a Lifetime ISA (Medium-term if a normal S&S ISA and long-term if a Lifetime ISA)

For retirement, I am investing into my workplace pension via salary sacrifice and I am a higher rate tax payer so I am getting the relief from the government (as well as employer contributions). It seems there is no point opening a SIPP unless I find a provider with lower charges than my current workplace pension provider and if I wanted to access a wider selection of funds. I understand the best way to do this is to transfer money out from your workplace pension into your SIPP annually so that you take advantage of all the benefits of the workplace pension first. Is my understanding correct or is there another reason why you would want to open and contribute to a SIPP alongside a workplace pension? And how does a Lifetime ISA approach compare to the moving your workplace pension into a SIPP annually approach? Should I be considering the Lifetime ISA at all?

On the medium term front, savings rates are clearly low so I want to invest some money monthly into a stocks & shares ISA with a view to keeping it invested for 5-10 years at least (most likely even longer). The purpose of this is just to lock in better returns than savings accounts, beat inflation and maybe to help with any future house purchase or major life events. For this, a traditional S&S ISA with a platform that has good selection of tracker funds and low fees should be sufficient I am assuming. Any recommendations for platforms to use where you can contribute monthly would be much appreciated too! I understand Vanguard, X-O and iWeb are good shouts?

Am I on the right track here or is there a gap in my understanding? Any help would be much appreciated! Thanks

dunstonh

I understand that for medium to long-term savings and investments, there are the following options:
1. Workplace pension (Long-term)
2. SIPP (Long-term)
3. Stocks and shares ISA - which could be a Lifetime ISA (Medium-term if a normal S&S ISA and long-term if a Lifetime ISA)

4 - Stakeholder pension

5 - personal pension

6 - master trust pension

7 - Unwrapped investments

I understand the best way to do this is to transfer money out from your workplace pension into your SIPP annually so that you take advantage of all the benefits of the workplace pension first. Is my understanding correct or is there another reason why you would want to open and contribute to a SIPP alongside a workplace pension?

A lot of people will run an individual scheme outside of the employer one for their own contributions if they are frequent movers of employment.  Or they want investments that the employer scheme will not offer.  

Not all employer schemes support partial transfers.   The time out of the market on a transfer can cost you more than saving in charges (if any).

And how does a Lifetime ISA approach compare to the moving your workplace pension into a SIPP annually approach? Should I be considering the Lifetime ISA at all?

As a higher rate taxpayer now, LISA is not as attractive as pension.  There are scenarios it could be better though.

 I understand Vanguard, X-O and iWeb are good shouts?

Vanguard limits you to only Vanguard funds.  Vanguard do not the best trackers in all areas.   So, that would be a compromise.   Going with a whole of market platform avoids compromise.

Alexland

Yes if you have access to a sal sac defined contribution workplace pension then you don't want to be contributing directly into a SIPP but are better doing periodic lump sum transfers (eg 90% of the value to allow for market movements) if your scheme allows and you think you would do a better and/or cheaper job managing it yourself. But of course the FSCS protection on a SIPP is limited to £85k.

If you are contributing enough into the workplace pension to avoid higher rate tax (perhaps concentrating some into a few months of the tax year to save additional NI) then a S&S LISA provides similar benefit to a basic rate sal sac arrangement. I use a S&S LISA as my pension would otherwise hit the Lifetime Allowance if I used sal-sac against the basic rate income (and I don't have much spare pension annual allowance).

If you are starting a S&S ISA at zero with regular contributions then you want a platform with percentage charges (eg Vanguard) but as the account valuation grows you would want to transfer to a fixed price platform (eg iWeb, or Halifax Share Dealing who have discounted regular trades) as it would be cheaper. Jarvis X-O don't offer funds just exchange traded assets but then you can get tracker ETFs too.

MaxiRobriguez

You don't need a S+S ISA if the money you are investing now will only be used for retirement, and you don't plan to retire early. Pension wrappers are more tax effective than S+S ISA, especially for higher rate tax payer, and at the moment can be accessed once you're 57 or 58 depending on your age.

TheAble

MaxiRobriguez said:

You don't need a S+S ISA if the money you are investing now will only be used for retirement, and you don't plan to retire early. Pension wrappers are more tax effective than S+S ISA, especially for higher rate tax payer, and at the moment can be accessed once you're 57 or 58 depending on your age.

Not convinced you want to go through life with just 6 months expenses in cash behind you though, for all that pensions are more tax efficient. Plus why remove the early retirement option? You may enjoy your job now but that stuff can get old. 

Audaxer

mullygrubber said:

On the medium term front, savings rates are clearly low so I want to invest some money monthly into a stocks & shares ISA with a view to keeping it invested for 5-10 years at least (most likely even longer). The purpose of this is just to lock in better returns than savings accounts, beat inflation and maybe to help with any future house purchase or major life events. For this, a traditional S&S ISA with a platform that has good selection of tracker funds and low fees should be sufficient I am assuming. Any recommendations for platforms to use where you can contribute monthly would be much appreciated too! I understand Vanguard, X-O and iWeb are good shouts?

That is fair enough to want to put some in an S&S ISA so that you can access it earlier than a pension. You can't guarantee to come out ahead after only 5 to 10 years, so as long as you are prepared to leave it invested longer if necessary it should be okay. For any shorter term requirements, it should really be kept in savings despite the poor interest rates.

The other consideration is if it may only be invested for 5 or 10 years, you probably want to go with a lower percentage of equities than in your pension.

Alexland

TheAble said:

Not convinced you want to go through life with just 6 months expenses in cash behind you though, for all that pensions are more tax efficient. Plus why remove the early retirement option? You may enjoy your job now but that stuff can get old. 

Yes and as the OP says they might want it for a distant house purchase, life events, etc that may happen before retirement. As you get older it's reassuring to have S&S ISAs generating regular dividends as an additional backup to emergency cash.

BananaRepublic

MaxiRobriguez said:

You don't need a S+S ISA if the money you are investing now will only be used for retirement, and you don't plan to retire early. Pension wrappers are more tax effective than S+S ISA, especially for higher rate tax payer, and at the moment can be accessed once you're 57 or 58 depending on your age.

At present it’s age 55 and over. This may of course change in the future. 

bowlhead99

BananaRepublic said:

MaxiRobriguez said:

You don't need a S+S ISA if the money you are investing now will only be used for retirement, and you don't plan to retire early. Pension wrappers are more tax effective than S+S ISA, especially for higher rate tax payer, and at the moment can be accessed once you're 57 or 58 depending on your age.

At present it’s age 55 and over. This may of course change in the future. 

Yes, the (coalition) government of the time in 2014 said they would raise it, but didn't get around to it, and earlier this year the current government said in response to a parliamentary question that they would be putting it up to 57+ for people retiring in 2028. So it's already been announced, just not been legislated for, but in September they did confirm the latter will happen 'in due course'.

If you're already 50+ you shouldn't have any worries accessing pension at age 55.  But as the OP is considering a LISA, they're too young to reach that age before it increases, so should not have any expectation that they will be able to draw pension at age 55. Based on everything announced, it would likely be 58+ for someone of that age bracket (i.e. 10 years below the state pension which is currently expected to be age 68 for someone born after Apr 1978 and hitting state pension age in 2046, and could feasibly rise further).

Albermarle

 It seems there is no point opening a SIPP unless I find a provider with lower charges than my current workplace pension provider and if I wanted to access a wider selection of funds

As already mentioned this statement is correct , except there are other pension options . A SIPP is just one type and to confuse things some SIPPs have restricted choice , so not really SIPPs at all.

The first thing to do is to check the charges on your workplace pension. If it is one of the newer auto enrolment providers like NEST or Peoples Pension, the charges will be clear from the website. If it is with a big pension insurer like Standard Life, Aviva, Scottish Widows etc their websites will normally just show standard pricing and your employer will probably have negotiated a discount . Probably best to call them to be really sure what you are paying.

Then check how your money is invested in the workplace pension. If you are not happy with that you can normally change that on line . Some workplace pensions may only have a handful of choices , some may have   a few hundred. 

mullygrubber

Thanks all for your replies!

I wasn't aware that all these other options for pensions existed. I think I'll have to do some more reading on these. Would I be right in saying the likes of stakeholder, master trust pensions etc. aren't that commonly used? Also, without doing any research, 'unwrapped investments' instinctively sounds worse than an S&S ISA. I guess you only use this if you are ridiculously wealthy and exceed the annual £20k threshold?

I am still a little baffled by the value of a S&S Lifetime ISA though. It seems that higher rate tax relief and the employer contributions outweighs the government top-up so this probably isn't a good option.

I think my takeaway from what everyone has said so far is:

1. I need to double-check the charges and actual funds that my workplace pension is invested in
2. Do some research into other pension types and consider if it makes sense to transfer some of my workplace pension into these other types but I understand there is an element of timing the market here as you sell your holdings in order to transfer out so you need to be happy with your fund value at that point in time to some extent
3. I think investing in an S&S ISA for me makes sense as I will likely keep cash on hand in fixed savings accounts to meet major expenses that crop up but I still want to invest to beat prevailing market rates (and yes, retiring early does appeal which the S&S ISA over a longer time horizon of 15-25 could help with).
4. A S&S LISA doesn't seem to make that much sense for me