Advice for 22 year old nephew

[Raven08]

Hi.
I'm asking advice on behalf of my dn.
He's 22 (23 soon) and currently working ft as a teacher.
He's been working since January this year.
He earns around £30k pa and is now having to pay back his student loans.
He isnt eligible for the tps yet as he's currently employed through an agency.
He is living at home with my sister atm and trying to save money to potentially move out next summer (renting initially)
He is asking me about sipps and investing and I'm not sure my advice is appropriate as we are at very different stages of our lives!
I've suggested he look at opening a sipp and also an s&s isa.
I've told him to only invest money he can afford to lose/lock away for some time.
I also wondered about a LISA? He could save £5k pa if I understand correctly?
What would you advise?
Thanks!

He needs to have different pots of money.

A SIPP is tax efficient but more so once you are earning enough to pay 40% tax.
A LISA is a good idea if he plans to buy a house.
He's entitled to £1000 of savings interest tax free so until he's built up some savings a cash ISA isn't necessarily the best option unless it's got a higher interest rate than a non ISA.
Stocks and shares ISAs are worth starting young with a view to the long term. My DC both opened Vanguard s&s ISAs as soon as they started working.

Regular saver accounts are the highest paying interest rates in the short term and a good way to save up for something in the next year or two. Santander have one at 8% currently. You can only save limited amounts into these but most banks do them.

He's young and at this stage needs flexibility for future rent/ moving etc, so he probably isn't looking at anything long term.
Probably saving into an ISA should be his starting point.

Just a cash ISA if he's likely to want to access the cash in the next five years
Perhaps a Stocks and Shares ISA if he is happy to tie it up from longer.
Or a split between both.

SIPPS and LISAs are much longer term investments.
Does he think he'll be eligible for the TPS soon? If so, probably worth waiting for that, rather than setting up a SIPP.

LISA is only for future house purchase or retirement, and LISAs are set to change soon anyway.

Definitely recommend he head over to MoneySavingExpert website and forums, where he can learn a lot and ask his own questions!

Yes, good point about ISA only being relevant if he is likely to exceed his £1000 savings interest tax free allowance! Does he have any savings currently?

Perhaps he could do a little of all of these since ultimately they will all benefit him and he'll probably have these accounts eventually.

He could open a SIPP now and start funding it and if he continues teaching and joins TPS, he could perhaps roll the SIPP in to the TPS (not sure of their rules). Whatever his career path, he'll still have his SIPP and can keep contributing to it regardless or roll it into a workplace pension further down the line. But this is money he can't touch for 25+ years so he might not want to put all his spare cash into it.

Whilst all the forms of ISA are great savings paths, if he's looking to use his savings sooner rather than later, he might do better to find an account paying good interest, e.g. limited access or regular saver accounts. Then his savings would have a boost he could use towards moving to his own rental. (see above about the £1k threshold for tax on interest)

If he wants to save specifically for buying a property he could open a LISA - he doesn't have to put in the maximum at this time, anything would be a start. But this will be money he can't access except to buy a property and that might not be as helpful right now as having cash in hand.

If he wants to have cash available, since he's very young and his circumstances may change quite a bit in the next few years, he could put some in a cash or s&s ISA - again he can put in as much or as little as he likes. But your point about this being money he's not planning to use for a while is a good one regarding s&s.

He's entitled to £1000 of savings interest tax free so until he's built up some savings a cash ISA isn't necessarily the best option unless it's got a higher interest rate than a non ISA.

Although do bear in mind that the tax free nature of a cash ISA isn't just for this year- interest will be tax-free as long as he keeps the money in there. So even if it doesn't make any difference this year there may be a point in future when it does (for example if he loses some or all of his savings allowance because his salary increases, or holds a lot of cash in future).

My DD (21) has put money in 212 Trading ISA that is currently recommended by Martin Lewis. With a code (on his website) it earns 4.61% AER, for the first year, yet it is also instant access. It will drop a bit after a year but then shop around.

This is true and I think it reinforces the view that a bit of all sorts of savings are a good idea.

I think that opening a SIPP very young is worthwhile but only put a small amount in that he knows is untouchable for 30+ years. Those 30 years are what builds it. Obviously add to it when other priorities have been met.

My DS (soon to be 24) has just opened a SIPP with Interactive Investor and although he earns hardly anything (is a creative freelancer) we are giving him a small amount of money to put into it each year at the moment to get him started.

The best RoI in his situation will be a LISA. The most flexible is cash - in a high interest savings account or cash ISA. The primary advantage of a SIPP for him at the moment will be the fact it's locked away from temptation and has a very long time to grow. The teaching pension is likely to be better once he's eligible but it's good to have a mix of both because one is guaranteed and the other is much more flexible.

He needs to start with an emergency saving fund, in easy access cash. Regular savers have thebhighest headline rate, and are good for drip feeding savings; but they're usually not the best option for lump sums because most of the money isn't in there and earning interest for the whole term. The effective rate works out as about half what you'd get for putting the whole lot in at once.

Then look at medium and long term strategy for house buyung and retirement. Although they aren't the first priority he shouldn't put them off too long, because the benefit of compounding takes a while to get going

Non-cash investments are for money he definitely won't need for at least 5 years, ideally 10+.

If it looks to good to be true, it almost certainly isn't true.

Doing something (subject to the above caveat) is better than doing nothing - he can tweak strategies and holdings as he goes along.

Always check fees. Fees eat growth.

Thank you!
Should have mentioned...
He owns his own car and has £25k in cash isa atm
I think he's looking to the future...
He will definitely join the tps as soon as he can

I think he'd be best to do a bit of each?
So £50 pm into a sipp, £50 into a s&s isa after putting a lump sum in? (£2k?)
And open a LISA and put a lump sum in plus £50 pm?

NB that you can only use a LISA to buy a first property under £450k. Depending on the area of the country he lives in, this may make it unsuitable.

@Raven08 make sure he joins TPS as soon as he can.

The personal finance flow chart may help him prioritise savings https://ukpersonal.finance/flowchart/

As pp say given his age cash savings is the way to go. If they give a good rate of return cash ISAs/LISA etc.