Pension or investment or savings?

[AnnieLobeseder]

Dear money-wise folk

My pension from work is currently on hold as I'm a full-time student for the next 4 years, but I don't want to miss out on 4 years worth of investing in my retirement. So I want to keep putting money away, but I'm not sure what's best.

I keep hearing that pensions aren't a great method of investment because they won't be worth much in 30 years, I know nothing of other investments, and savings accounts seem a bit pointless with the current interest rates.

If I want to invest £150 or so a month for my retirement, where is the best place to put it?

Thanks!

Think about ISA (prob a tracker) or NS&I index linked cert - these are the two tax-free methods of saving.

pensions are good because in theory they are invested in the stock market and so keep pace with inflation (or better) and so build up a pot over time. They are also tax free and usually the employer contributes too. The problem is you can't draw the funds until you retire.

Savings accounts are not good over the long term - they give a bit less than inflation usually. You should use them to keep a readily available buffer for immediate unforseen spending (eg new cooker).

ISA - can be cash or invested in the stock market - good because they are tax free, but limited by the amount you can add each year (to a few thousand) - can cash in at any time - but can also leave in to accumulate over time (similar to a pension in that way).

Depends on how much you have to save, and how keen you are on risk (riskier often gives higher return but you risk losing it all).

I would look at ISA's assuming you don't have a huge excess to save.

Also if you have any debts - pay those off first because you pay more interest on a debt than you earn on an investment as a general rule.

The downside of pensions is the charges (and in the OPs case there isn't an employer contribution at the moment). I'd say use your ISA limit, and whatever you can in index-linked NS&I (the only tax-free, chargeless inflation proofed product - they stopped selling them for a while as they were too popular so its probably a good idea to get one started while they're available).

It's certainly a good idea not to put all your eggs in one basket for retirement and I would recommend building up tax free savings as well as a pension fund.

throckenholt, what you have said about pensions keeping pace with inflation as a result of their exposure to equities is errant nonsense. The FTSE is now at a similar level it first hit in 1998.

The OP would be best talking to a fee-based financial adviser regarding their circumstances.

Cheeznbreed - Don't forget equities will also pay dividends, which if reinvested and with compound interest will almost certainly give better returns than savings account.

I agree with STIDW about building up both.

The one advantage of a pension fund that hasn't been mentioned yet is that for every £80 you put in, the exchequer tops it up to £100. It's free money, basically.

A mix of pension, savings, investments and property is probably the way to go for old age. The younger you are the bigger the risks you can take because you have longer for any blips to correct.... so consider putting proportionally more into pensions and investments. The older you get, the less risk you can take because you have less time on your side to make up any shortfall.... so adjust your portfolio to safer options such as index-linked bonds

A good way of looking at it is that if you were 25 years old you'd put 25% of your spare cash in 'safe' places like ISAs and 75% into 'riskier' places such as unit trusts. If you are 60 years old, however, the proportions would be more like 60% in the safer places and 40% in riskier ones.