Lifetime ISA or Pension

Stevensuperbike

Hi there, 
I’m looking for some much needed advice or help on what investments are best for retirement and later on in life and what are generally good decisions when it comes to investing. 

I’ve just turned 37, married (9yrs this year), have 2 kids (7&5), I earn 42k a year, combined me & Mrs together our income is just over £4000 a month actuall income in bank. Mortgage left is £57k (house valued at £250). I pay 3% workplace pension and employer pays 5% so I’m still in it so I benefit from my employers contribution. Currently have around 12k in savings in bank. Have £6k in workplace pension and (25k value) in a defined benefit scheme probably worth around 3.5k per year at age 55. 

I’ve done some math and we can afford to put away around £700 per month. My initial thought was to chuck it all in my workplace pension however my employers financial director phoned me saying I ought to take a hard long think about it. I appreciated the call and was surprised someone was out there looking out for me!

I’ve now been thinking about opening a S&S LISA and putting the max £4k a year in (£333 per month) not sure which company is best though and if the investment can track the S&P500. I’ve heard the UBS S&P500 Class C is available through Hargreaves & Lansdown. Possibly increasing my Legal & General workplace contribution up to 15% alongside this also. These 2 contributions together totalling around £690. 

Do these seem sensible options? I’ve been thinking about the LISA in case down the line if I needed some cash (I know it’s a 25% fee) I could under the circumstances take it out of here rather than lock away my money in a pension where I can’t get to it. Sounds like it’s a minefield out there! Any help would be massively appreciated. Thanks in anticipation. 

Steve 

masonic

Why S&P500? Do you have a particular affiliation with the USA?

A LISA can form part of a retirement strategy for a middle earner, but may be less tax efficient if you can make pension contributions via salary sacrifice. It is useful for a slice of income in retirement above your personal allowance.

Remember that the LISA you pick now needs to be suitable to keep until 60, since there aren't currently any options to transfer between providers when you reach the age of 40. A larger pot may work out cheapest elsewhere, e.g. with AJ Bell Youinvest if you hold ETFs and can benefit from a cap on custody charges (HL also do this, but the cap is higher).

Stevensuperbike

Hi thanks for your reply. I’ve asked at work about the salary sacrifice but they don’t offer this option unfortunately. 

No preference on the s&p500 it’s just a name a colleague suggested along with the Fundsmith Equity Class 1. He has money invested in these and says they have good performance over a few years to date. I understand you can’t invest directly in the S&P 500 however there are other investments that try and match these. 

I have considered investing in just s&s but don’t want to put all eggs in 1 basket. So many options available. It’s all a bit too confusing to me. I’ve had a recent remortgage and the advisor said it’s a specialist thing investments he steered well away from anything to do with it. 

masonic

Typically, a UK investor would invest globally, perhaps with some UK bias. There are various global index funds and multi-asset funds that could be used to get broad market exposure in a single fund. Multi-asset funds would also include bonds and other defensive assets to manage the level of risk.

tebbins

Stevensuperbike said:

Hi there, 
I’m looking for some much needed advice or help on what investments are best for retirement and later on in life and what are generally good decisions when it comes to investing. 

I’ve just turned 37, married (9yrs this year), have 2 kids (7&5), I earn 42k a year, combined me & Mrs together our income is just over £4000 a month actuall income in bank. Mortgage left is £57k (house valued at £250). I pay 3% workplace pension and employer pays 5% so I’m still in it so I benefit from my employers contribution. Currently have around 12k in savings in bank. Have £6k in workplace pension and (25k value) in a defined benefit scheme probably worth around 3.5k per year at age 55. 

I’ve done some math and we can afford to put away around £700 per month. My initial thought was to chuck it all in my workplace pension however my employers financial director phoned me saying I ought to take a hard long think about it. I appreciated the call and was surprised someone was out there looking out for me!

I’ve now been thinking about opening a S&S LISA and putting the max £4k a year in (£333 per month) not sure which company is best though and if the investment can track the S&P500. I’ve heard the UBS S&P500 Class C is available through Hargreaves & Lansdown. Possibly increasing my Legal & General workplace contribution up to 15% alongside this also. These 2 contributions together totalling around £690. 

Do these seem sensible options? I’ve been thinking about the LISA in case down the line if I needed some cash (I know it’s a 25% fee) I could under the circumstances take it out of here rather than lock away my money in a pension where I can’t get to it. Sounds like it’s a minefield out there! Any help would be massively appreciated. Thanks in anticipation. 

Steve 

Firstly, thank you. This is exactly how I like to see questions presented - you've summarised your financial situation, provided a meaningful amount of information to enable meaningful responses, you are being serious and not considering anything silly like putting all your money into gold or crypto, and you haven't fallen into the 'little bit of knowledge' trap that befalls many.

With the whole cost of living shenanigans, I would suggest continuing to review that £700 amount carefully.and ensuring your savings committments are affordable and realistic.

In the first instance, while this money is cash it does make sense to get the best interest rate you can, currently Chase's 1.5% account (https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/).
Can you clarify your pension provision? Is this a £25k defined contribution 'pot' and a defined benefit pension with estimated benefits of £3.5kpa at age 55 (this could mean £3.5kpa that you could take from 55 at the earliest with an early retirement reduction which could reduce your benefits significantly, for some DB schemes the reduction for the earliest retirement age can half the income you get, very simply it is worked out in such a way that someone living to average life expectancy should get the same amount paid out in total over their retirement regardless of when they take it).
Have you also checked your NI record (https://www.gov.uk/check-national-insurance-record), are you and your partner both on track to get enough qualifying years to get the full state pension?

Next - you have a number of options aside from cash:
1. Pay off the mortgage faster.
2. Invest via S&S ISA if you think you may need the money before 55-60 (tl:dr 55 is the current minimum age to access a pension but expected to rise to 57-58 after 2028, 60 is the minimum age to access a LISA if not using it for your first home purchase, which you obviously can't).
3. Invest via pension or LISA if you are confident about putting this money away until 55-60 for the tax benefits.
There is no one consensus in the forum, generally a balanced and simple approach is sensible, the best option will vary by peoples' circumstances.
Investing via a LISA can be a beneficial complement to your retirement planning, however enquire about additional contributions with your employer's scheme and compare those options with opening a SIPP. Also make yourself aware of the differences between pensions and LISA. There are pension and LISA guides on the website (see https://www.moneysavingexpert.com/savings/lifetime-isas/, for example). Meaningful Money on YouTube also has a good explainer video (https://youtu.be/lfsIQ7swO0E).
Once you have selected the type(s) of tax wrapper you want, the next step is the platform (https://www.moneysavingexpert.com/savings/lifetime-isas/ and selected "investment LISAs to try", https://www.moneysavingexpert.com/savings/cheap-sipps/).
The next step after that is the actual investment.
For example, you could open a SIPP, on AJ Bell, add money to the account, then use that money to buy iShares S&P 500 ETF, or Fundsmith Equity.
General wisdom is that UK investors should invest globally, not just in the US. Vanguard FTSE global all cap and HSBC FTSE all world, both fairly popular global tracker funds, would both invest around 60% of the money you invested in them, into the US stock market anyway.

If you're interested in some more opinions about the S&P500, just search through the forums, there have been plenty of threads about it the past few months.
Over the very long term, the UK's  and the rest the world stock markets have performed around the same, but having a global tracker with some degree of home bias seems to help lower the volatility (wobbliness) of your overall portfolio (page 5 of https://www.google.com/url?sa=t&source=web&rct=j&url=https://corporate.vanguard.com/content/dam/corp/research/pdf/Global-equity-investing-The-benefits-of-diversification-and-sizing-your-allocation-US-ISGGEB_042021_Online.pdf&ved=2ahUKEwjAivCy5NP3AhWxlFwKHR0hCgQQFnoECA0QAQ&usg=AOvVaw2Uek3hNNVpzavnEXcL9Eiy).
Home bias means having more of your money in the UK than a vanilla global tracker does. Vanguard's Lifestrategy range do this. There is no objectively right answer here, reasons against home bias include the greater diversification of a global portfolio, the fact that "upweighting" the UK means you think you know better than the rest of the stock market that the UK will do better over the foreseeable future, and criticisms of the UK equity's heavier weighting in cyclical/dying industries such as oil, gas, banks, miners, tobacco etc. Proponents of home bias, myself included cite longer-term data, believe the UKs recent underperformance of the global market is temporary and not an indicator of future underperformance, see potential advantages of the "bad" stocks in an inflationary/rising interest rates environment, see the UK as undervalued compared to the rest of the world etc.

Albermarle

No preference on the s&p500 it’s just a name a colleague suggested along with the Fundsmith Equity Class 1

To some extent your future will be affected by how well your investment strategy works, as well as how much you actually contribute. So just following 'a name a colleague suggested ' is not an ideal way , more like getting a horse racing tip !

As explained in detail above, picking the correct tax wrapper/investment vehicles ( pension, LISA, S&S ISA etc ) is one thing .

Picking the investments to hold in them is a separate point .

Finally looking holistically at your finances is another. This means a balance between, living expenses, mortgage/home; long term retirement planning; cash savings for emergencies and maybe some medium term plans .

It can all be a bit daunting at first, but it is not rocket science and the links suggested above should help.

Stevensuperbike

tebbins said:

Stevensuperbike said:

Hi there, 
I’m looking for some much needed advice or help on what investments are best for retirement and later on in life and what are generally good decisions when it comes to investing. 

I’ve just turned 37, married (9yrs this year), have 2 kids (7&5), I earn 42k a year, combined me & Mrs together our income is just over £4000 a month actuall income in bank. Mortgage left is £57k (house valued at £250). I pay 3% workplace pension and employer pays 5% so I’m still in it so I benefit from my employers contribution. Currently have around 12k in savings in bank. Have £6k in workplace pension and (25k value) in a defined benefit scheme probably worth around 3.5k per year at age 55. 

I’ve done some math and we can afford to put away around £700 per month. My initial thought was to chuck it all in my workplace pension however my employers financial director phoned me saying I ought to take a hard long think about it. I appreciated the call and was surprised someone was out there looking out for me!

I’ve now been thinking about opening a S&S LISA and putting the max £4k a year in (£333 per month) not sure which company is best though and if the investment can track the S&P500. I’ve heard the UBS S&P500 Class C is available through Hargreaves & Lansdown. Possibly increasing my Legal & General workplace contribution up to 15% alongside this also. These 2 contributions together totalling around £690. 

Do these seem sensible options? I’ve been thinking about the LISA in case down the line if I needed some cash (I know it’s a 25% fee) I could under the circumstances take it out of here rather than lock away my money in a pension where I can’t get to it. Sounds like it’s a minefield out there! Any help would be massively appreciated. Thanks in anticipation. 

Steve 

Firstly, thank you. This is exactly how I like to see questions presented - you've summarised your financial situation, provided a meaningful amount of information to enable meaningful responses, you are being serious and not considering anything silly like putting all your money into gold or crypto, and you haven't fallen into the 'little bit of knowledge' trap that befalls many.

With the whole cost of living shenanigans, I would suggest continuing to review that £700 amount carefully.and ensuring your savings committments are affordable and realistic.

In the first instance, while this money is cash it does make sense to get the best interest rate you can, currently Chase's 1.5% account (https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/).
Can you clarify your pension provision? Is this a £25k defined contribution 'pot' and a defined benefit pension with estimated benefits of £3.5kpa at age 55 (this could mean £3.5kpa that you could take from 55 at the earliest with an early retirement reduction which could reduce your benefits significantly, for some DB schemes the reduction for the earliest retirement age can half the income you get, very simply it is worked out in such a way that someone living to average life expectancy should get the same amount paid out in total over their retirement regardless of when they take it).
Have you also checked your NI record (https://www.gov.uk/check-national-insurance-record), are you and your partner both on track to get enough qualifying years to get the full state pension?

Next - you have a number of options aside from cash:
1. Pay off the mortgage faster.
2. Invest via S&S ISA if you think you may need the money before 55-60 (tl:dr 55 is the current minimum age to access a pension but expected to rise to 57-58 after 2028, 60 is the minimum age to access a LISA if not using it for your first home purchase, which you obviously can't).
3. Invest via pension or LISA if you are confident about putting this money away until 55-60 for the tax benefits.
There is no one consensus in the forum, generally a balanced and simple approach is sensible, the best option will vary by peoples' circumstances.
Investing via a LISA can be a beneficial complement to your retirement planning, however enquire about additional contributions with your employer's scheme and compare those options with opening a SIPP. Also make yourself aware of the differences between pensions and LISA. There are pension and LISA guides on the website (see https://www.moneysavingexpert.com/savings/lifetime-isas/, for example). Meaningful Money on YouTube also has a good explainer video (https://youtu.be/lfsIQ7swO0E).
Once you have selected the type(s) of tax wrapper you want, the next step is the platform (https://www.moneysavingexpert.com/savings/lifetime-isas/ and selected "investment LISAs to try", https://www.moneysavingexpert.com/savings/cheap-sipps/).
The next step after that is the actual investment.
For example, you could open a SIPP, on AJ Bell, add money to the account, then use that money to buy iShares S&P 500 ETF, or Fundsmith Equity.
General wisdom is that UK investors should invest globally, not just in the US. Vanguard FTSE global all cap and HSBC FTSE all world, both fairly popular global tracker funds, would both invest around 60% of the money you invested in them, into the US stock market anyway.

If you're interested in some more opinions about the S&P500, just search through the forums, there have been plenty of threads about it the past few months.
Over the very long term, the UK's  and the rest the world stock markets have performed around the same, but having a global tracker with some degree of home bias seems to help lower the volatility (wobbliness) of your overall portfolio (page 5 of https://www.google.com/url?sa=t&source=web&rct=j&url=https://corporate.vanguard.com/content/dam/corp/research/pdf/Global-equity-investing-The-benefits-of-diversification-and-sizing-your-allocation-US-ISGGEB_042021_Online.pdf&ved=2ahUKEwjAivCy5NP3AhWxlFwKHR0hCgQQFnoECA0QAQ&usg=AOvVaw2Uek3hNNVpzavnEXcL9Eiy).
Home bias means having more of your money in the UK than a vanilla global tracker does. Vanguard's Lifestrategy range do this. There is no objectively right answer here, reasons against home bias include the greater diversification of a global portfolio, the fact that "upweighting" the UK means you think you know better than the rest of the stock market that the UK will do better over the foreseeable future, and criticisms of the UK equity's heavier weighting in cyclical/dying industries such as oil, gas, banks, miners, tobacco etc. Proponents of home bias, myself included cite longer-term data, believe the UKs recent underperformance of the global market is temporary and not an indicator of future underperformance, see potential advantages of the "bad" stocks in an inflationary/rising interest rates environment, see the UK as undervalued compared to the rest of the world etc.

Thank you everyone for all the help you have provided, I understand and appreciate the time everyone has taken out of their day to write such advice for the help and the need of others! 

Tebbins- thank you for this reply and I can confirm the defined benefit scheme would yes definitely reduce if I was to take at 55. My aim is to keep it locked away until I can take out without penalty. My NI contributions are 21 years full contributions, I have checked this today. I assume I need to continue with these contributions until I have worked 30 years full to reach the level required for a full state pension.

I've considered paying off the mortgage faster but having recently re-mortgaged at 0.99% I'm paying less than <£50 interest on the mortgage per month, I have been mindful that contributing to my workplace pension even at the minimum of £71.75 (3%) after the £520 pension free pay is deducted it enables me to benefit from the £149 (ish) free money per month from my employer, so where I lose here (mortgage) I gain elsewhere (pension). I've not completely disregarded it just seems more sensible for me to do this rather than pay a large amount off my mortgage and pay it off at a increased rate. 

I have researched a lot of things regarding tax lately and I have decided to open a lifetime ISA via MoneyBox to be invested in S&S not cash and also invested at a 'balanced' level (currently, 'cautious', 'balanced' and 'adventurous' to choose from- low-medium-high risk).. I will be putting the full £4k a year in via weekly deposits rather than monthly. My take on this here is, I know it matures at age 60 however the money invested is still accessible to me (yes I know I lose the 25% bonus plus a additional 5-6%) in the event of emergencies. I have calculated its around £50 per £800 withdrawn but I don't mind absorb this under an emergency- if that makes sense. 

I will be considering increasing my workplace pension up to 10-15% (£239-£359) per month . These two investments combined, hopefully will put me in a decent position for later years. Combined min £572/ max £692 per month. This is within my £700 budget for pensions and investments. I would like to put these 2 contributions aside and leave them working in the background with the aim to continue to save cash in my bank account for my 2 kids, cost of living, expenses, luxuries, holidays etc etc. Again  not sure if this is the way to go but I will look into accounts for my kids see if there are any accounts out there which have some good tax benefits?

Thanks

Albermarle

but I will look into accounts for my kids see if there are any accounts out there which have some good tax benefits?

There are children's savings accounts that pay better rates of interest than normal .Top children's savings accounts: 3% interest - MoneySavingExpert

Or you can invest money via a JISA or even a Sipp/pension . The investment platform Fidelity is usually recommended as they have no fees for child accounts .

My NI contributions are 21 years full contributions, I have checked this today. I assume I need to continue with these contributions until I have worked 30 years full to reach the level required for a full state pension.

Just checking your NI contributions is not sufficient . Rules around how many years etc are more complicated than that. You need to check your actual state pension entitlement, to be sure.

Check your State Pension forecast - GOV.UK (www.gov.uk)