My daughter is at university and has at last asked about setting up a pension. As I have some spare cash, I was wondering how to go about this.
M.T., by email.
Tony Hazell replies: ‘At last’? I expect your daughter must be about 20. When I was that age, my outlook didn’t extend much beyond sex, drink and rock ‘n’ roll.
However, the earlier she starts saving the better.
Leg-up: Helping children start saving for a pension earlier will give them a huge boost later in life
Let’s assume she invested £5,000 now and that grew by 4.5 per cent a year after charges. She could have £39,578 if she retired at 67. But if you gave her the cash in ten years’ time it would grow to just £25,485.
If she added £300 per month to your starter cash she could retire with £606,214. Whereas if you both waited ten years she would have £361,180 — just over half that.
But is a pension truly the best option?
She might like to consider a lifetime Isa (LISA). Available to those aged 18 to 39, the maximum investment is £4,000 per tax year (April 6 to April 5), which receives a 25 pc top-up, making £5,000. The money can be used only for a first-home deposit (maximum £450,000) or retirement.
There are two other points in its favour: LISA money taken out is tax-free as long as it is used for a house deposit or retirement. With a pension, 25 per cent is tax-free and the rest taxable at your highest rate.
A LISA won’t use any of her pension lifetime allowance, which may become relevant if she builds up a large pension.
There are tax penalties for breaching the allowance, which is frozen at £1,073,100 until April 2026.
If you are set on a pension (or have more than £4,000 to spare) then, assuming she’s a non-taxpayer, she can contribute £2,880 per tax year from your gifts, which would be topped up to £3,600 by tax relief. So £2,880 now and the same again after April 6.
Charges are also a consideration. Let’s assume you invest £5,000 now and this grew by 5 per cent a year for 45 years. With a 0.5 per cent annual fee, you would end up with £36,242, losing £8,682.
Raise that charge to 1.5 per cent a year and you would finish with £23,512, losing £21,412 in charges.
Website moneyhelper.org.uk has information about setting up simple pensions.
With a LISA or a pension, the best starting point is probably an investment supermarket such as AJ Bell, Nutmeg or Hargreaves Lansdown. Fidelity and Interactive Investor offer pensions only.
Check charges carefully when choosing. They have good guides on starting out as an investor plus ideas for where to put the money.
As for funds, the world is hers, but for a long-term investment I would look at something with worldwide exposure and low charges, such as Vanguard Global Equity.
You can invest in a pension with Vanguard, but it does not offer LISAs, so you would have to use an investment supermarket.
Ovo billed me £600 but house was empty
My tenant left on April 1 and I sold the house in September. I took electricity and gas readings. The place has been empty, so no energy has been used.
Letters arrived, addressed to the occupier, so I opened one to discover a bill from Ovo Energy for £605.49. I phoned and explained the house had been empty and gave meter readings.
I am now getting bills for £113.39, have had a default notice and been warned of court orders.
L. B., Shrewsbury.
Tony Hazell replies: Ovo Energy has done nothing wrong here. After you called, it removed the outstanding bill from your former tenant.
However, the power remained connected after April 1, so you were liable for a £113.39 standing charge.
Ovo Energy has offered £30 as a goodwill gesture.
A company spokesman says: ‘We have apologised to Mrs B for not providing her with a clear explanation on why she was liable for the property.’
- Write to [email protected] co.uk or Ask Tony, Money Mail, Northcliffe House, 2 Derry Street, London W8 5TT. Please include your phone number, address and a note addressed to the offending organisation giving permission to talk to Tony Hazell. We regret we cannot reply to individual letters. Please do not send original documents as we cannot take responsibility for them. No legal responsibility can be accepted by the Daily Mail for answers given
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