Pension or stocks and shares ISA

[ivegotthisyeah]

I am thinking of dabbling in a S&SI - I work part time fairly average salary - put a good chunk of my wage into my pension so I put £400 employer puts in £200. Looked at my pension forecast and it's really depressed me that it says I will be getting when I retire roughly the same amount I put in a month (£400).
I am absolutely useless when it's comes to pensions I just don't get them!
So thinking of putting £200 in my pension and £200 in a high risk S&SI.
Am I mad? Not paying an FA as can't afford too and the sums involved don't warrant the cost.
I ran a S&SI calculator and the return is fantastic if I do it now until retirement.
Can anyone tell me the pros and cons to doing this?

What us S&Si?

stocks and shares ISA

I would say first job is to understand your pension better. (I think this week was pension awareness week so you may find stuff on your intranet depending on your organisation?). it’s possible the forecast they give may not account for inflation, or only very cautious growth (whereas the S&Ss isa assumptions you saw may be optimistic) . Also if the pension genuinely is crap then you may be able to move it to something better, often the default fund used is cautious and includes lots of bonds which are not necessarily appropriate depending on your age.
But really, whatever you invest in a S&S isa you should also be able to get your pension invested in, so I don’t think it’s as straightforward as you think that the ISA will give better % returns. Usually people invest in S&S isa on top of their pension because they want to retire earlier they are allowed to take their pension, and they want to bridge the gap.

i am no expert- I really recommend the Reddit Uk personal finance sub and their wiki pages for lots of useful info.

You get tax relief on pension contributions so generally that would be a better option.
Is your employer contribution dependent on your own contribution? You always want to maximise their contribution too.
Have you looked at what your pension is invested in? If you're quite young, perhaps you could increase the risk on that pot?
Having an ISA alongside a pension is often a good idea if you want to retire earlier than you can draw your pension (likely to be 10 years before your SPA).

Can't you invest your pension in the same funds you want to use for your stocks and shares ISA?

Thanks for the reply's
I am maximising my employers contribution even if I half it to put some in a S&SI.
I was think of halving my pension contributions and put half into a S&SI to run along side my pension but for when I retire at 67 or whatever it is now.
I am currently 43 - work in financial services but not pensions so would imagine my pension is invested in a decent place

Brilliant video, the answer is both from memory when I watched it.

Both pensions and S&S ISAs are invested in funds, in that sense they're no different.

The benefit of a pension is you get tax relief on what you pay in, BUT it's locked away until you retire.
The benefit of an isa is you can get to it whenever you like, if you needed the money in an emergency or if you wanted to retire before pension age.

DON'T assume that your pension is invested 'well'. Quite often big companies choose low/medium risk funds which generally give worse returns. Do your homework and find out what your pension consists of, and what other options you have to invest it. This may take some time but trust me it will be worth it!

I highly recommend the Meaningful Monday podcast and Facebook group, I was completely clueless a year ago and while I'm still learning, I'm so much more confident in making decisions and feel more secure that I'll be ok in my old age!

*Meaningful MONEY podcast - sorry for the typo!

Beware of being in a default fund, most people are placed in the pension providers default fund unless they actively choose their own investments out of the pool that are available through the pension provider.
Default funds tend to be too conservative especially at the beginning as they don't want to scare people with highly volatile investments like a fund investing in 100% shares, but if you have decades untill retirement you should be quite aggressive and then back off around 5 years before your retirement date

@yoshiblue thank you very helpful!

Thanks again everyone I think my pension must be in a big standard low risk plan. I am sure we had an email about choosing other options must look into it!
I

I'm 41 and only this year moved my pension out of the default fund. It hadn't done well and I'd never really understood it properly before. My pension is now invested quite aggressively, while my S&S ISA is 60:40 stocks:shares to ride out some of the lows as this is money I might want to dip into at any time.

Thanks Op, this thread has also been a prompt to check how my pension at work is invested too. I understand funds more now, so the right time to do it.

Thanks for everyone's help! Have done some research and have moved my low risk pension into a more medium risk ( little guidance from my partner who invests a bit) - those that said the default work pension is low risk was correct. It was known as a 'lifestyle' pension
Hopeful see a better return on it now fingers crossed 🤞🏻
Also worth noting in the years before restatement I will manually have to move it back to a lifestyle it doesn't automatically do it for you

Retirement not reinstatement !
Confusing everyone even more 🙈

As PP said, I think it might help if you better understand your current pension. Is the pension forecast based on drawdown or is it the income you might get if you buy any annuity? Are the investments you've switched to more suited to drawdown/annuity/cash lump sum? Ask your HR department if there's anyone you could speak to. The company I work for has a company that advises them on pensions - and there's a phone line we can call and speak to a Financial Adviser who'll give guidance of the things you should consider. I'm not a financial adviser, but it might be worth reducing your contribution for a couple of months to fund some advice. Usually pension is one of the most valuable assets someone has and the repercussions of getting it wrong could be quite significant. If you really don't want to pay for advice, then maybe ask your HR department if they could organise some presentation from the pension provider about the default fund, who it's suitable for etc. etc.

You might want to switch to a 100% equities fund at your age. You've got more than enough time to ride out any stock market dips. I think the longest dip was something like 4 years so you'd more than recover by retirement age.

Just for context, the Sharia fund with Nest pensions is 100% equities (and limited ones at that) and has returned 17.4% per year over the last 5 years. My plan is to stay in this until about 50(ish) and then keep a bloody close eye on it until retirement hopefully around the age of 60.

The best thing you could do is join the Rebel Finance School course - totally free and currently still on YouTube. rebeldonegans.com/finance/rfs/ You'll learn so much about how best to invest for maximum returns. I did it last year and I only wish I'd known this stuff when younger.

Put it into your pension. You will get an additional 20% from the government which means that for every £100.00 your pension is credited with £120.00. So it's free money and over time well worth putting whatever you can into it, and watch it grow.

A S&S ISA can go down as well as up, so I wouldn't risk that in these circumstances.

Just to add you can access your pension pot at age 55, rising to age 57 in 2028, if this makes a difference.

OP still needs to decide what to invest her pension in. Stocks and shares offer much better returns long-term. The downside is of course higher volatility (even though it's quite possible to lose money with bonds too as many people discovered during Liz Truss tenure).