Should we look at investing some of our savings or should we pay more into our private pensions?

31 March 2022

Question by Jim

We are looking at retiring in about 5 years and have had an initial meeting with a financial advisor. They suggested we should look at investing some of our savings to make our money work harder. What do you think? Or should we pay more into our private pensions to keep investment fees down?

Cheers Jim & Lisa

Should we look at investing some of our savings or should we pay more into our private pensions?


Answered by Boring Money

Hi Jim & Lisa,

"Making your money work harder" can mean different things to different people, but in essence, it is using surplus savings that loses money in real terms to get a better return. By 'investing' your financial adviser may have included using pensions too.

Whether you invest in Share ISAs or pensions will depend upon your own personal circumstances but often doing a bit of both is a good idea. The benefit of pensions is that you get tax relief on the contributions; 20% immediately for everyone and 40% or 45% via your self-assessment if you are a higher or additional rate taxpayer. The benefit of a Share ISA is 100% of the growth and income is tax-free.

The investment return you receive will depend upon how they are invested and also the fees you pay. Naturally, if a Share ISA and a pension are invested identically, the pension will have a better head start due to the tax-relief. Thereafter, the difference in performance will be down to fees.

I've written about the difference in more detail here: https://neliganfinancial.co.uk/whats-better-a-pension-or-an-isa/.
This article on pension charges may also be of interest. It's about pension charges but applies equally to ISA and investment account charges too: https://neliganfinancial.co.uk/pension-charges/.

I hope this helps.

Andrew

Answered by

Boring Money