Teens first job, pension etc

[HoneyMoneyMoon]

Teen DD has just started a Saturday job which she loves. She is paid monthly and has just been paid. Shes in the first year of A levels.

I have talked to her about savings and a pension, and we are going to spend a bit of time setting things up.

The trouble is I am not good with maths and money. I’d really welcome some advice.

I have told her that I’ll pay for her travel and her mobile phone. I’ll give her £40 month in pocket money. She doesn’t really cost much else, isn’t into beauty. I’ll buy the clothes she needs, like coats and shoes. She mostly has lunches from home but will sometimes buy food out. She says she doesn’t want the £40 but I think she has to see something for working.

I put £20 a month into a savings account for her which she will get when she’s 18. She knows there will be about £5k in it and she wants to reinvest immediately.

She has the option of signing onto a works pension. Because of the amount she earns work won’t add to it. But I think she should sign up to it, and she thinks it’s a good idea. She just has to email payroll. IS this a good idea and if there is a choice what percentage of her wage should she pay into the pension?

Shes got a current account and we are going to open a separate Monzo account. In this she’s going to put her monthly spending money.

Then she wants to save. Should she have two lots of savings? One for nice but big things now like trips and driving lessons? And one to not touch, so saving for a flat deposit? If so what percentage of her wage should go into each? Where should she save these?

sorry if I sound naive but I’d like her to enjoy her money and have some for the future, set up decent spending and saving habits.

What is her monthly wage?

10% of wage to employee pension
10% of wage to long term savings + the £20 you usually save for her. She is old enough for you to hand that account off to her and just bank transfer her the £20 direct so she can watch it grow.

The rest of wage and £40 to a regular account. She should save within that account for short term things like days out, nice things.

I wouldn’t bother with pension contributions until ahe is working full time.Neither of my DC did until they started work after degree for DC1 and A levels for DC 2. They barely get anything and it’s just fun money really. I think you’re overthinking this. Good to talk about keeping some money back to save for things she wants but she’ll barely be getting enough to talk about investment and pensions.

What do you mean when you say you will give her pocket money? Surely she gets paid directly for the job? Do you mean in addition to the wages?

Unless her employer are contributing I wouldn’t push it. Especially as she doesn’t seem to be frittering it away so doesn’t need a valuable lesson on savings

I think it’s a good lesson for any teen regardless of how responsible or irresponsible they are. The OP’s teen wants to learn, so why not teach her the 10% rule for pension savings when you’re starting that young? If she waits a decade, it will be closer to 15% she’d have to save.

Yes, i said I would carry on giving her pocket money. It seemed mean to cut that as soon as she got a job. Basically I thought I’d spend her child benefit on her until it stops. That might be next September, or the following if she does a third year of level 3 education. She doesn’t want to go to uni.

Yes, great, she has her savings and can watch it grow.

I thought she should pay into her pension because she hopes to be with this company for a long time. Is it not worth it then?

She is likely to do something creative, so be self employed and have small jobs here and there and it worries me!

She gets about £200 a month and that seems like a lot to me, when she doesn’t have any expenses.

It’s worth it to start the habit of putting aside 10% of your wage into a pension. It’s about building habits at this age, creating the acorn from which her oak tree will grow.

Does not matter how long she is with this company, she can always roll her pension into another one at a new company or an independent one down the line. Pensions it is best to start as soon as you get your first job and save consistently.

Im glad you are still giving her her pocket money.

She can’t do a third year of level 3 funding as it only covers 2 year courses.

Since the employer isn't contributing, and if it's not going to become her full time job I wouldn't bother with the work pension. She could end up with a very small pot, poorly invested with high fees that doesn't do much

Instead open a SIPP. If she's earning £200 a month, put £20 into the SIPP. Let her learn how to invest with a small amount of money. If she intends to be self employed, it's very important that she's responsible for her own pension planning. Now is a great time to learn, and she can continue paying into the same product all her working life

As PP recommended, SIPP is a better option at this stage. Also she’ll get 20% tax rebate up to around £2700 - can’t remember exactly - regardless of whether she’s working or not.

Great! Thanks.

So she’ll save 10% of her wages into a SIPP and not bother about the work pension: that is until and unless she gets more hours work-at some point she may be automatically enrolled.

And she’ll pay 10% into her savings account that she can’t touch until she’s 18 and then she’ll reinvest anyway.

And then she’ll have her Monzo account and she can save in there.

She has more disposable income than me and I don’t want her to blow it all on rubbish, although I want her to have fun.

Yes, three years is maximum. It’s so you get an extra year if you muck up your A levels! Hopefully that does not happen so she can do a free art foundation or a free one year level 4.

She would get the income tax rebate via the employer pension as well IF her estimated annual earnings exceed the personal allowance. At £200 per month that’s not high enough so there won’t be any income tax rebate no matter what type of pension she saves into.

She can. It’s for 16-19yr olds, and even those who turn 20 during the final school year.

Even if you have no earnings, you can still get tax relief on SIPP contributions up to £3,600 gross per tax year. You pay in £2880 and the govt automatically adds £720 to your pension. This is available to UK residents under 75 regardless of whether you pay income tax. From Aviva website

This. And if you do have some earnings, but not enough to pay income tax, you get 20% tax relief on pension contributions up to 80% of your earnings in that tax year (from gov.uk website)

There's loads of good advice here. Often it's the early contributions to a pension which are worth the most long term.

Consider also helping her open a lifetime ISA to build a pot for a property and/or a stocks & shares ISA.

Also, there are some 'regular saver' accounts with good interest rates if she's reliably putting in £25 or whatever. These are designed for putting just a little aside but regularly.

You see, I’ve got no idea what that means! What is tax relief on money that isn’t taxed?

What I haven’t got into yet Is tax-she’s PAYE at the moment and no where near earning £12,700 a year.

However she may end up with self employment wages too.

Shoukd I tell her to put 20% of her self employed wages in an account to pay her own tax at the end of the year? When she starts getting self employment money will her tax code change?

I am warry about suggesting a Lifetime ISA to her. We live in London and it would be difficult to buy a first property for the £450,000. I’ve heard horror stories of people who are stuck as they can’t have access to their money but also can’t buy a property.

Tell her with to try to target about 7% investment growth each year (after inflation) so about 10% gross, similar to what the american stock market has acheived. A good way to try to do this is to buy low cost index trackers in a SIPP/ISA/LISA.

Achieving this will mean that every £1 invested doubles every 10 years (in real terms) so every £100 will become £1,600 after 40 years.

When self-employed (and earning over £1,000 Per annum from self-employment) she’ll have to start doing self-assessment tax returns which will tell her how much tax she has to pay - and yes her tax-code will change but she won’t have to even monitor that as if she over pays tax she’ll get it rebated and if she under pays her tax she’ll get a letter telling her, but her tax returns will tell her everything she needs to know - mostly how much her tax bill is. She’ll have to pay her national insurance too so tell her to be prepared for paying more than 20%.

When it comes to pension tax relief, every £1 she puts in the pension (work or SIPP) gets 25p added as tax relief (basically getting the income tax she paid put into her pension).

This. If she isn't paying tax and her employer isn't going to contribute, then there is no point joining their pension scheme. She'll be paying admin fees for no reason.

Better to pay the amount into an ISA and save towards university fees or driving lessons or a flat deposit.

You can gain access to the money if you don’t buy a house. I think you just lose the government 25% contribution.

I was going to say this. If there's no employer contribution better to have control yourself. She would still get the top up from the government even as a non taxpayer. I'm using the AJ Bell Dodle app as a cheap easy to use platform.