Savings and Investments versus Pensions

We have been asked many times by clients and prospective clients whether they should save in bank accounts/cash, property, investments, or pension schemes.

There is no right or wrong answer.  Much depends on what your goals or objectives are, the timescale, tax efficiency requirements, your age, your priorities and more.

Objectives and Goals

If you are in your twenties or thirties, your goals may be different to when you are in your forties, fifties, sixties and indeed in later life.

• Younger adults may be concerned with short term savings for travel, cars, house deposits or getting married/starting a family.  Retirement seems a long way off.
• Save some in pensions but we believe most will be saving in Lifetime ISAs (to get the government’s 25% bonus) to save towards a house deposit (or retirement) as well as well as Cash ISAs and using your tax-free Savings Allowance if you can afford even more savings.
• Middle aged adults may have already been through the above and are more focussed on paying mortgages down, savings for children e.g.  for university or weddings and of course their retirement plans.
• Always try to pay extra towards your mortgage, whether it is £50pm overpayment or doubling up your payments, the more you pay, the more you save.  Pension contributions should be gradually increasing through your thirties and forties.  The sooner your mortgage is paid off, the sooner you can crank up your pension contributions.
• Those on their retirement ‘glidepath’ may be pre-retirement planning, career changes, working part time and possibly early retirement.
• Children may have ‘flown the nest’, this is the time to maximise pension contributions, ISA allowances etc, building up medium term and long-term funds.
• Those in later life may be more concerned with inheritance tax planning (particularly now unused pension funds will be included in the estate for inheritance taxes) and later life care planning.
• Assuming, you have saved consistently and had regular pre-retirement reviews, we would hope you are mortgage free and have built up retirement funds.  You focus may now be short and medium term needs.  The use of trusts, insurance bonds for tax efficiency and assignment gifting, Wills, care fees deferred annuity policies etc.

We suggest for all age groups, you should set goals for the short term (1-5 years), medium term (6-10 years) and longer term (10yrs +).  This will help you and us as advisers work out what the best investment strategy for you is.

We believe all people should have short, medium and long term goals and also have a balanced portfolio to include bank accounts/cash, property, investments, and pension schemes.

30 – 30 – 30

Even younger adults should save not just for the short term e.g.  for a house deposit, marriage or starting a family, younger adults should also plan for retirement too.  We use this simple analogy:  If you are 30 years old and saving £30pm in a pension, do you really think your £30 per month will have grown enough in 30 years to pay you £1,000 per month or £2,000 per month income in retirement?  At 30 years old, you have 30 years to save for a possible 30-year retirement.  £100pm will not achieve £2,000pm let alone £30 per month.

The reality is that day to day living costs will dictate how much ‘spare’ cash will vary at different ages as your life progresses.  We suggest you should always plan to save towards all your short, medium and long term needs although the priority of where the majority of your capital savings goes will depend upon age. 

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