Pension choices for a very young, self employed, non-tax paying person?

[KatyMac]

DD (21) is all of these and I have suggested an ISA

She isnt too worried about buying a house yet but it's a year since she graduated and I'd like her to start something towards her pension

We can pay for advise but we'd rather go into the appt knowing a bit

Holy trinity is SIPP, ISA and LISA.

SIPP - A personal pension. Multi-asset equity fund(s). Later on may de risk with some bond allocation but at a young age then 100% equity is fine but will be a bumpy ride.

ISA - good idea for shorter term money. 5-15 year time horizon using a Stocks&Shares ISA with multi-asset equity fund(s).

LISA - cash or stocks & shares version depending on how soon a first property purchase is likely to happen. LISA can also be used for retirement (age 60) savings.

Look at all three of those. Have her start to learn about money, there are many websites and podcasts and videos around. Some are designed for those in their 20's such as some from Money To The Masses (on Instagram, Youtube and Podcast).

Not really an area of interest to her ATM - we've discussed the fees needed to move out and she is saving for that; she doesn't anticipate ever owning a house

It's hard to imagine what savings/pension will be needed in 50-70 years and what it would look like

So am isa is as good as it gets right now - we will look at the different types and see; we are talking about tiny amounts right now

Small amounts now can be a lot of money later. Look at the options, pay attention to fees and minimum investment amounts. Try to get a mix of very long term and shorter term. Do not ignore tax relief, it can make a big difference.

Even if she doesnt' pay tax yet?

Yes, you can get the tax relief added on even as non-tax-payer

www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions#tax-relief-if-youre-a-non-taxpayer

LISA is much better than ISA as you get a government top up. And you can use the money towards a deposit for the first property too.

And SIPPs do have tax relief added as app mentioned.

I’d chill out and let her grow up a bit first. My dad did the pension chat with me when I was eighteen, I just thought he was daft. Maybe leave it until she’s 25?

If she’s not earning much (I assume as she’s not paying tax), a personal pension may be expensive and her contributions will be tiny. Maybe start her off with an ISA (try stocks and shares) and see what happens with her career.

Long-term, I’d not assume a personal pension is automatically the best option. It’s unlikely that she never pays tax, and she’ll still have to make NI contributions if she’s self-employed and makes profit. You can also pay in NI voluntarily, to make sure you’ve got a complete record of 35 years (this would mean she could get the full state pension). Also - if she does end up being a self-employed, basic rate tax payer, LISAs are sometimes better value than pensions. I remembered an article in the Torygraph about this from a few months ago, which may be useful:

www.telegraph.co.uk/investing/isas/millennials-better-getting-boss-back-lifetime-isa-pension/

I'd do a LISA - buying a property isn't on her radar now but that might change in 10 years. This way she has a choice. It can be kept as pension if that's what she'd prefer.
Worth revisiting the home buying idea in future though. For example, to rent a one bedroom flat in my area is £1000 a month. Buying that flat means you won't have to pay rent in retirement and therefore your income will go further...

IFA here. I'd advise ISA (or LISA) before pension. Problem with a pension is that you cant get at the money until age 55 (will be 60 by the time your dd reaches that age). She will need the money in the short term for housing, marriage etc

Stocks & shares ISA. A mix of funds (not all equity as pp said) or a multi manager /multi asset fund. Expect platform or product charge of around 0.3% pa & then fund charges on top. Maybe even advisor charges as well if you get advice. Dont be scared of these charges, they will be worth it.

Your dd can then start a pension when she is settled & knows what she is doing.

Another vote for
use Auto Enrollment once she is working

and then do ISAs that are not locked away for decades until she has more idea where life will lead

I imagine the next 10 years willl be low income ones - then 2/3 years of retraining before she gets a normal job

I don't anticiapte the state pension being viable in 30 years never mind 50/60

My dad lost his private pension twice; and at 51 I keep hopeing I will earn enough to save any thing......but it aint going to happen

so Isa or Lisa - that telegraph article is fab thanks

One thing to be careful with regarding LISA and ISAs is that they are counted as savings if she ever needs to apply for Universal Credit, whereas SIPPs are disregarded as long as she is too young to access them. So if she is on a low income and needs a top up from UC to help pay rent (UC has replaced Housing Benefit and tax credits everywhere now), or if she gets sick and needs to claim, the DWP would expect her to use ISA/LISA savings (even if she has to pay the penalty for withdrawing her LISA early). Savings in an ISA of below £6k aren't counted for UC, but between £6-£16k then the amount you can get is reduced, then over £16k and she wouldn't be entitled to UC at all. But she could have £££ in a SIPP and it wouldn't affect UC at all.

OP, times have changed. You don’t just lose your private pension any more.

Weird update @Katymac. Why would the next 10 years be low income then retain to a "proper job". Why isn't she working in a "proper job" now. Why do you expect her to be earning less than the personal allowance (£12500) for years & years....?

She is a self employed dancer and assume no instant fame she will lurch from one contract to another until she is ready to give up and retrain

She works a lot but earns very little so, it is what it is

Honestly Katy
her best bet is to join whatever unions are available and then put aside what she can into somewhere that she can get it back.

As a dancer she'll be having a total career change by the time she is 35
THAT is when she should worry about pensions

You could start a pension for her and put in £20 per month, better than nothing at all and easier than starting from 0 at 35...
I know she's not at the tax threshold yet, but getting into the habit of always checking (use a tax calculator online, put in income this month, set aside the appropriate tax and NI it says) will make a big difference. I've had a not unrelated career path, and when people's income does bob up over the threshold they get into all sorts of trouble as the were not expecting the tax bill...