New saver

wifeforlife

Hi folks,

Pretty intimidating to scroll through and post here as I don’t really understand the terminology. I’m just hoping for some straight talking guidance

I’m turning 40 early next year and for the first time in my life I am debt free all be it with a mortgage, so I want to start a regular savings account to build on for a rainy day later in life. At a minimum of £100 a month (possible increase throughout the years) long term 10-20 years however I’m reading through all the information and the posts but it’s hard to really understand the best option to take.

As it’s long term I’m thinking a stocks & shares ISA, but then I’m wondering is the LISA a good option before I miss the cut off age?

In the guidance it says to consider saving into a pension. I’ve a public sector pension however I intend to take a career break and hopefully leave through opening my own business in the next 3 years so I don’t think it’s a good idea to pay extra into this but happy to be wrong.

If I’m safer going to an advisor just let me know, but just thought I’d check here first

Thanks guys!

Cate

maxsteam

wifeforlife said:

If I’m safer going to an advisor just let me know, but just thought I’d check here first

My opinion is that it's safer to do as much as possible yourself. There are IFAs on this forum who will disagree with this.

You are thinking about a LISA, ISA and SIPP. One option is to simply dive in and put £30 per month into each. YouInvest (AJBell) set £25 as their minimum monthly contribution for regular savings. Other providers will have other minimums.

MX5huggy

An adviser (IFA) is not going to be interested in your situation, due to the low value of your proposed contributions and value of your pot.

The LISA door is closing at 40 for you but if you open one now you keep that option open to you. But pension is better currently (tax changes could change this over the long term).

Which Public sector pension are you in? They all have different options for additional contributions. Thinking that you are leaving is not a reason not to add more to it, in fact the opposite as you won’t be able add to it after leaving.

You say you are willing to save for many years so investing is generally advised. Using ISA or pension. But then you say you plan on starting your own business will you need cash to finance this, to “pay” yourself while the business builds? 

Have you got any savings yet? It’s normally advised to have an emergency fund in easy access savings of say 6 months living costs. 

[Deleted User]

If you already own a house then for most people the LISA doesn't make sense as you need to pay a penalty to withdraw before you're 60. A SIPP (pension) is generally a better option if you're going down that route - you can withdraw at 57 and the advantages are better for most people. There are scenarios where the LISA does make sense but this is the brief answer. 

The stocks and shares ISA is better if you think you might want the money earlier than this as you can withdraw it at any time. The choice therefore is basically about when you think you might want to take money out. 

A vanilla approach to a stocks and shares ISA would be to set up a regular payment into something like "Vanguard Lifestrategy 60", which is a moderate risk fund popular with novice investors. It also has cheap fees. This is the cheddar cheese of investing - unexciting but often better than trying something fancy for the sake of it. Someone will tell me off for being so bold as to actually give you specific advice on here about which fund to invest in, but you won't have a clue if nobody gives you a specific recommendation. Hopefully others can add their own suggestions.

Alexland

wifeforlife said:

I’m turning 40 early next year and for the first time in my life I am debt free all be it with a mortgage, so I want to start a regular savings account to build on for a rainy day later in life.

Rainy days can happen at any point in life so suggest building a suitable cash savings buffer first before plouging all your money into the various types of S&S investment accounts. S&S isn't really suitable for rainy days as you never know if the stock market will be high or low at the point you suddenly need to withdraw and the process takes several days. Better to plan withdrawals derisking in advance.

maxsteam said:

You are thinking about a LISA, ISA and SIPP. One option is to simply dive in and put £30 per month into each. YouInvest (AJBell) set £25 as their minimum monthly contribution for regular savings. Other providers will have other minimums.

AJ Bell charge at least £1.50 per trade so that would be a high initial percentage on a low contribution rate. For a smaller rate of contribution then it's better to look at those with no trade charges on some/all types of investment. At the very least it's worth opening a S&S LISA with someone like Nutmeg (easy ETF portfolio) or HL (choosing funds) with a minimum amount before 40 to secure the option to contribute until age 50. AJ Bell are better suited to those likely to make larger contributions each tax year where the lower percentage charge can work out better even if paying trade charges.

Deleted_User said:

If you already own a house then for most people the LISA doesn't make sense as you need to pay a penalty to withdraw before you're 60. A SIPP (pension) is generally a better option if you're going down that route - you can withdraw at 57 and the advantages are better for most people. There are scenarios where the LISA does make sense but this is the brief answer.

I wouldn't agree a SIPP is generally a better option than a LISA it really depends on circumstances.

It's always worth considering workplace pension options first. Then if a higher rate taxpayer (and assuming unlikely to reach the lifetime allowance) a SIPP would be useful. At basic rate (most people) the LISA is likely to work out better than a SIPP as there is no tax on withdrawal however as you say access is from 60 but then that's the earliest age many can hope to retire.

You can still open SIPPs with some providers such as Fidelity where the scheme rules are written in such a way (an unconditional right of access at 55) they are not expected to be affected by the rise in minimum access age from 55 to 57 in 2028. Fidelity have already released a statement that access age for those who have SIPP accounts (opened before April 2023) should be protected and remain at 55.

We have found a mix of workplace pensions, SIPPs and LISAs works well to balance out the various considerations.

wifeforlife

Wow thanks guys! Honestly it’s much appreciated 

Luckily I do have savings for family emergencies/rainy days. As a couple we’ve budgeted for what I call family savings, children, uni, house issues etc, My husband deals with that but as a couple in our budget we each have a monthly allowance like pocket money that we can do with as we please.

So now as I’m moving into the next stage of life I thought it would be nice if I could save a little for us so we could have a nice surprise sum later. Having access to it isn’t a big deal. I was thinking initially until I was 50, then if we don’t need it to go again saving to 60

I wish I’d been a saver but it’s taken 20 years to learn the hard way. I’m in NI civil service and my pension is good but I’ve been part time for the majority of it. I’ll have 20 years completed by the time I hope to take a career break so didn’t consider it as an option to invest more in but happy to check it out. I don’t know what SIPP are so I’ll go read about it and get a wee bit of learning 

Sorry forgot to ask this question, I’m a basic rate tax payer, my husband is higher rate tax payer so should I consider anything with him before opening any account? I want to do this for us both to benefit from and to be honest me saving is the best gift I could give to him 

Albermarle

You mention terminology being confusing and there is one important distinction that you should be clear about .
Savings - means money in savings accounts with banks, building societies etc . You can have up to £85K in an account that is 100% covered by the government if something happened to the provider. The downside is that the interest rates payable are usually below inflation , so your money gradually loses its value over a long period.
Investments - means money in risk based investments in financial markets , that can go down as well as up . In theory you could lose everything but this is highly unlikely if you stick to mainstream funds. Statistically/historically investments will increase above inflation in the long term , but it is not guaranteed .
Long-term investing: Increasing your chances of positive returns (nutmeg.com)

Savings are for money you may need within the next say 5 years .
Investments are for money you will not need for >10 years ( between 5 and 10 years is more debatable about what is best )

On an individual note your public sector pension is very valuable . As suggested already if you can improve it by adding to it , this could well be the best option. At least it is worth investigating and if you are not clear about the answer feel free to come back to the forum with more questions. 

Alexland

wifeforlife said:

As a couple we’ve budgeted for what I call family savings, children, uni, house issues etc, My husband deals with that but as a couple in our budget we each have a monthly allowance like pocket money that we can do with as we please.

If you already have children and at least one of you has a high income you may find making the right amount of pension contributions can reduce adjusted net income low enough to qualify for child benefit.

https://www.gov.uk/guidance/adjusted-net-income

While we have some direct child investments via Junior ISA/SIPPs we are also planning on using our adult S&S ISAs, pension 25% tax free lump sum and LISAs to help our children with uni, house deposits, etc. Consider how the various ages align to see what might be possible.

If you were part time depending on your exact work pattern you might want to check your National Insurance record online to see if there are any gaps in those years qualifying towards state pension and consider if it's worth taking any action at this stage to buy any incomplete years depending on if you expect to work long enough ahead to get full state pension.

https://www.gov.uk/check-national-insurance-record