Advice to a 20 year old re pension or LISA

MissJane007

Hello everyone  

How would you advise a 20 year old who has a zero hours contract (which is likely to change), with regards to putting £4k per year away.

A typical 20 year old with no immediate plans for home buying.

Would you go LISA or pension route?

eskbanker

Given the choice, I'd suggest LISA - even if they don't end up buying a property at some stage, the boosted money can still then be used for retirement saving or investing.

Smudgeismydog

Once they are in a position to be able join a work based pension (even if it means opting in), then I would suggest pension, to benefit from the employer contributions.

Marcon

MissJane007 said:

Hello everyone  

How would you advise a 20 year old who has a zero hours contract (which is likely to change), with regards to putting £4k per year away.

A typical 20 year old with no immediate plans for home buying.

Would you go LISA or pension route?

Join the employer's pension scheme and pay the minimum needed to get the employer contribution, and put the rest in a LISA until the future position is a bit clearer?

BlackKnightMonty

I would advise you get a stocks and shares LISA. Because you can draw down any time tax free, and you will get a much better return on your investment.

There are all sorts of funds available which you can invest your money in. Some have higher risk, some lower risk.

You would need to be mindful that funds go up and down. But over time usually the trend is up.

Even a stock market tracker (eg S&P500) should see an average of 8% a year return averaged out. Some wise investments can see returns of 15% or more.

£4k a year @ 8% x 30 years (max age to invest in a LISA) = to £7.5 million (this is including the extra £1000 a year from HMG).

I imagine you would still be able to keep the funds invested even if you cannot build further. In which case 10 more years (to 60) just with 8% interest per year might take that to over £16.6m.

kempiejon

BlackKnightMonty said:

I would advise you get a stocks and shares LISA. Because you can draw down any time tax free, and you will get a much better return on your investment.

Are we sure? I thought LISA withdrawls before 60 for anything other than a first house purchase have a 25% charge levied.

BlackKnightMonty

kempiejon said:

BlackKnightMonty said:

I would advise you get a stocks and shares LISA. Because you can draw down any time tax free, and you will get a much better return on your investment.

Are we sure? I thought LISA withdrawls before 60 for anything other than a first house purchase have a 25% charge levied.

I might be wrong there.

kempiejon

MissJane007 said:

Hello everyone  

How would you advise a 20 year old who has a zero hours contract (which is likely to change), with regards to putting £4k per year away.

A typical 20 year old with no immediate plans for home buying.

Would you go LISA or pension route?

Being 20 won't last long, young and commitment free, a spare £4k knocking about, there's much more to life than pension or LISA.

LHW99

Why not a normal ISA (or even a savings account, they are unlikely to need to pay tax on the interest at that level)?

It's available for emergencies, could be transferred to a pension or LISA when the job situation becomes contractural instead of zero hours, and could also be withdrawn to cover that first month when you have to wait for your wages to be paid but still maybe have to pay a deposit and a months rent for somewhere to live.

Marcon

BlackKnightMonty said:

kempiejon said:

BlackKnightMonty said:

I would advise you get a stocks and shares LISA. Because you can draw down any time tax free, and you will get a much better return on your investment.

Are we sure? I thought LISA withdrawls before 60 for anything other than a first house purchase have a 25% charge levied.

I might be wrong there.

You are indeed wrong - maybe just linking to the explanatory MSE article would have been a better idea: https://www.moneysavingexpert.com/savings/lifetime-isas/

BlackKnightMonty

Marcon said:

BlackKnightMonty said:

kempiejon said:

BlackKnightMonty said:

I would advise you get a stocks and shares LISA. Because you can draw down any time tax free, and you will get a much better return on your investment.

Are we sure? I thought LISA withdrawls before 60 for anything other than a first house purchase have a 25% charge levied.

I might be wrong there.

You are indeed wrong - maybe just linking to the explanatory MSE article would have been a better idea: https://www.moneysavingexpert.com/savings/lifetime-isas/

I had in mind the tax free ISA when I drafted the post. Then edited my post and did not address that.

The extra £1000k you get from the gov is most attractive. The cost is the tax withdrawal.

Depends if you want to save for retirement or just save for any time.

I wish the OP well.