Starting a pension with £50K
Discussion
My 18yr old son may/will soon inherit about £50k from his grandma and I'm thinking of talking to him about starting a pension with it to attract compounded interest, kind of 'invest and forget' type thing.
He lives at home with us and he's just started an apprenticeship earning £12k whilst in training, set to rise over the coming months/years. I would like him to invest the £50k sensibly and in a way that he wont dip into it (he shouldn't need to). I will have some money to one side for things such as helping him buy his first house etc, so the £50k shouldn't be needed for anything.
So, if he started a pension with the money, would he then also need to pay further into it every month? Would it be better to wait to see what pension scheme he might be offered by his employer and shove it into that, if allowed, or best to keep it separate?
He lives at home with us and he's just started an apprenticeship earning £12k whilst in training, set to rise over the coming months/years. I would like him to invest the £50k sensibly and in a way that he wont dip into it (he shouldn't need to). I will have some money to one side for things such as helping him buy his first house etc, so the £50k shouldn't be needed for anything.
So, if he started a pension with the money, would he then also need to pay further into it every month? Would it be better to wait to see what pension scheme he might be offered by his employer and shove it into that, if allowed, or best to keep it separate?
The Gauge said:
My 18yr old son may/will soon inherit about £50k from his grandma and I'm thinking of talking to him about starting a pension with it to attract compounded interest, kind of 'invest and forget' type thing.
He lives at home with us and he's just started an apprenticeship earning £12k whilst in training, set to rise over the coming months/years. I would like him to invest the £50k sensibly and in a way that he wont dip into it (he shouldn't need to). I will have some money to one side for things such as helping him buy his first house etc, so the £50k shouldn't be needed for anything.
So, if he started a pension with the money, would he then also need to pay further into it every month? Would it be better to wait to see what pension scheme he might be offered by his employer and shove it into that, if allowed, or best to keep it separate?
He can only put up to his earnings into a pension (& backdated a couple more years, which I doubt is relevant!).He lives at home with us and he's just started an apprenticeship earning £12k whilst in training, set to rise over the coming months/years. I would like him to invest the £50k sensibly and in a way that he wont dip into it (he shouldn't need to). I will have some money to one side for things such as helping him buy his first house etc, so the £50k shouldn't be needed for anything.
So, if he started a pension with the money, would he then also need to pay further into it every month? Would it be better to wait to see what pension scheme he might be offered by his employer and shove it into that, if allowed, or best to keep it separate?
I’d certainly wait for a company scheme and aim to max that to employees contributions plus a bit if he can.
Maybe open a LISA - forward planning for house deposit. An easy way to pop £4K pa away, plus the ‘free’ £1k government contribution, even if you plan to help him with that.
For med-to-long term, make it a S&S one. I’d follow the https://kroijer.com approach - low cost global fund…
Beyond that: pop £20k into a regular ISA. Maybe S&S, or maybe cash to draw later for adding to LISA, etc.
Maybe even a few PBs. Not really an investment, but a good place for emergency money.
But most importantly, use some of it to remember his Grandma by.
Maybe a holiday with pals, or a new bike (esp if he could get a ride2work deal!), or even something like a nice watch.
It is nice to invest, & as you say, set & forget, but important to live a bit too
Once the money is in your pension it is locked in there until retirement. Retirement age is shifting back from 57, I lost track of when but it seems to be going one way.
You get more bang for you buck when it is paid in as a higher rate tax payer.
I’d be inclined to hang fire for now until you have some decent advice and explored all avenues.
I suspect putting £4K into a LISA for 25% bonus to be the optimum return, but the funds must be channeled into a first property.
I personally imagine using rest of £20k isa allowance (stocks and shares) (£16k) plus the LISA for this year would be a fairly good idea.
Keen to see what greater minds than mine have to offer.
You get more bang for you buck when it is paid in as a higher rate tax payer.
I’d be inclined to hang fire for now until you have some decent advice and explored all avenues.
I suspect putting £4K into a LISA for 25% bonus to be the optimum return, but the funds must be channeled into a first property.
I personally imagine using rest of £20k isa allowance (stocks and shares) (£16k) plus the LISA for this year would be a fairly good idea.
Keen to see what greater minds than mine have to offer.
vindaloo79 said:
Once the money is in your pension it is locked in there until retirement. Retirement age is shifting back from 57, I lost track of when but it seems to be going one way.
You get more bang for you buck when it is paid in as a higher rate tax payer.
I d be inclined to hang fire for now until you have some decent advice and explored all avenues.
I suspect putting £4K into a LISA for 25% bonus to be the optimum return, but the funds must be channeled into a first property.
I personally imagine using rest of £20k isa allowance (stocks and shares) (£16k) plus the LISA for this year would be a fairly good idea.
Keen to see what greater minds than mine have to offer.
Just on the bold bit….OR used as “pension-like” ISA, with access from age of 60….& not allowed to add into after the age of 50.You get more bang for you buck when it is paid in as a higher rate tax payer.
I d be inclined to hang fire for now until you have some decent advice and explored all avenues.
I suspect putting £4K into a LISA for 25% bonus to be the optimum return, but the funds must be channeled into a first property.
I personally imagine using rest of £20k isa allowance (stocks and shares) (£16k) plus the LISA for this year would be a fairly good idea.
Keen to see what greater minds than mine have to offer.
So sort of either used for first property deposit, OR as a pension booster….
Probably matters more what your 18 yr old son decides to do with it rather than what you want him to do.
Perhaps he'll spunk it on a new car to crash in the first month of ownership, snort it up his nose or pee it against the wall.
You can advise what's best but ultimately it's down to him.
Try and take a balanced approach. S&S ISA and/or SIPP plus blow some on car/holiday/girls etc.
Perhaps he'll spunk it on a new car to crash in the first month of ownership, snort it up his nose or pee it against the wall.
You can advise what's best but ultimately it's down to him.
Try and take a balanced approach. S&S ISA and/or SIPP plus blow some on car/holiday/girls etc.
vindaloo79 said:
Once the money is in your pension it is locked in there until retirement. Retirement age is shifting back from 57, I lost track of when but it seems to be going one way.
You get more bang for you buck when it is paid in as a higher rate tax payer.
I d be inclined to hang fire for now until you have some decent advice and explored all avenues.
Agree with above. I am early 40's and used to constantly fret about my pension size i.e: should have a lot more by now but in hindsight think struck a reasonable balance (no right or wrong). You get more bang for you buck when it is paid in as a higher rate tax payer.
I d be inclined to hang fire for now until you have some decent advice and explored all avenues.
Lot of other factors come into play and some are based on personal circumstances. I don't know how long my current line of work will be viable so would rather pay some additional tax now and build up a decent buffer outside of my pensions than go all in. Never know when the govt will change the goalposts or remove certain perks such as sal sac...which conversely would be a reason to go all in if subject to higher rate income tax (if you can afford it)
Edited by VR99 on Monday 2nd June 14:50
The Gauge said:
He lives at home with us and he's just started an apprenticeship earning £12k whilst in training, set to rise over the coming months/years. I would like him to invest the £50k sensibly and in a way that he wont dip into it (he shouldn't need to). I will have some money to one side for things such as helping him buy his first house etc, so the £50k shouldn't be needed for anything.
So, if he started a pension with the money, would he then also need to pay further into it every month? Would it be better to wait to see what pension scheme he might be offered by his employer and shove it into that, if allowed, or best to keep it separate?
Regarding the pension, an employer scheme is likely to give better returns purely because of the employer's contributions (but keep an eye on what it's invested in and the scheme's costs).So, if he started a pension with the money, would he then also need to pay further into it every month? Would it be better to wait to see what pension scheme he might be offered by his employer and shove it into that, if allowed, or best to keep it separate?
That said, there's nothing stopping him opening a SIPP in parallel. Payments in from his inheritance will qualify for tax relief if they don't exceed his earnings or £60k (whichever is lower). Such payments don't have to be regular, they can be one-offs.
As an aside, if you already have money set aside to help him buy his first house, you might want to consider getting him to open a Lifetime ISA. Then, you could gift him £4k every year to pay into the LISA and the government would add a £1k bonus.
I have son who works for a national supermarket on more wages than your lad.
He could not go 'below' national minimum wage, and any contributions over this were not matched by employer (that is preserve of the better paid industries) and did not benefit from the tax-free wrapper/benefit.
That said, popping £10k in a place where compound interest works and he cannot touch for the next 40+ years of his working life is a benefit not to be underestimated.....
Instead he has maxed out LISA each year for 4 years, plus the best savings returns he can, plus a small Tracker Fund. At age 21 he will likely buy his own house next year - and he has never had any inheritance, all earned himself, and also have a modest start to a pension from the age of 18....
He could not go 'below' national minimum wage, and any contributions over this were not matched by employer (that is preserve of the better paid industries) and did not benefit from the tax-free wrapper/benefit.
That said, popping £10k in a place where compound interest works and he cannot touch for the next 40+ years of his working life is a benefit not to be underestimated.....
Instead he has maxed out LISA each year for 4 years, plus the best savings returns he can, plus a small Tracker Fund. At age 21 he will likely buy his own house next year - and he has never had any inheritance, all earned himself, and also have a modest start to a pension from the age of 18....
Tim Cognito said:
He won't get any tax relief on pension contributions if he's earning 12k will he?
Good point. Maybe it would be better to wait till he’s established with his employer and see what pension arrangements they have. The reason I was suggesting a pension is that it’s money he never expected to have, and for me the single most important financial product I have is my employers pension that is allowing me to retire in just under 2 yrs when I’m age 55. That is a life saver as I really don’t want to work any longer despite being in what I thought would be my dream job. I’d like him to have a similar safeguard should he want to leave work at a younger than normal age.
Until a decision is made I’ll suggest he considers some if the investment suggestions that have been made above. Thanks you everyone
Tim Cognito said:
He won't get any tax relief on pension contributions if he's earning 12k will he?
Yes he will …20%. For every £1000 contribution he will pay £800.https://www.pensionbee.com/uk/pension-tax-relief-c...
I have dilligently paid into a pension since I was 18. I’m 48 now and while I have a good pension (at 57) I’m regretting having filled it at the expensive if my isa, which would now be worth a medium fortune which I could draw dividends out of and reduce my days at work. I’d suggest a balance but if he’s remotely sensible edge towards an s&s isa for greater flexibility in middle age, especially while he’s a low rate tax payer.
Just my 2p/experience.
Just my 2p/experience.
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