I am not sure what John Ralfe had in mind when he tweeted

Unless this self-employed 25 year old is paying 40% tax, they should be saving outside a pension, not inside (and possibly even if they are 40% taxayers) https://t.co/XwI8SigZfv

— John Ralfe (@JohnRalfe1) January 22, 2022

Ellie Kime, who is on “the Perfect Path to a wealthy retirement” is saving £50 per month into a Penfold self-employed pension and will increase that when she can .  She checks her pot each month and says she will review her plans if she moves jobs or if her business makes a significant change.

She’s chosen a good pension plan , set up a standing order and she’s in the savings habit. 

Who knows where Ellie’s career will take her.  Her linked-in profile tells me she wants to change things with enthusiasm. She’s in the wedding business, writing, doing podcasts – she looks like she is making the most of being young!

How pensions dulls enthusiasm!

The Times Article itself is a chaotic mash-up of half-digested ideas.  It snips tips from various sources including Guy Opperman and Steve Webb,

It suggests taking a midlife MOT, making the most of free money and keeping track of your pots with a pension dashboard. It tells us that Pension Bee will help you find pots, that the self employed can save into a SIPP, personal pension or stakeholder plan (they can also save into Nest) and it does its best to explain how young people can and will benefit from auto-enrolment . All good but so much information!

We hear that the Pensions Minister is now looking at how we can use drop down menus for the self-employed to allocate excess funds to pension saving schemes as part of completing their tax return. Steve Webb suggests a nudge to graduates to increase saving once they’ve paid off their student debt though a nudge from the loans office. All good but so much information!

All of this noise leads us to Pension Wise , guidance , advice – a thousand ways to dull the enthusiasm of a 25 year old enthusiast.

Back to Ellie

All of this complex stuff is in contrast to the way Ellie sees things

“The pension is definitely something that needs to move with my needs. I’m well aware that I could be doing more with it and there’s more scope, but having set up the standing order, I’m one step closer to where I should be.”

She clearly has a business brain,

“I started thinking about the finances of my business and the future, Once it was starting to run smoothly, I thought I needed to set up stuff for the future.”

Keep saving Ellie and up your rates when you can- you’re not saving enough but you know that! You know the importance of that standing order!

Ellie’s pension

Ellie is not alone. Penfold will have many Ellie’s , Pension Bee many more.

Maybe Nest is better value for their money but it doesn’t seem to be doing much to reach out to self-employed youngsters like Ellie.

All of these pensions pay the self-employed the equivalent of basic rate tax relief, whether they are paying tax or not – that includes Nest.

So Ellie’s £50 per month is really £62.50 with a £12.50 kicker from the Government. If Ellie’s business goes well and she draws more than £50,000, she can get another £12.50 back from the taxman because of her grossed up pension payment. She could end up paying £37.50 pm to get £62.50 into her account.

Her contributions are smart – even if meagre.

Ellie doesn’t need to be told she is paying too little, she wants to pay more and the Penfold technology makes that easy. If Ellie joins (or sets up) a workplace pension she could move her Penfold savings into that plan or (if she leaves employment)  vice versa – what’s not to like? Her plan is smart – and can move with her.

Credit to Ellie, she worked out what to do, having chatted with her friends, she hasn’t paid for advice and she’s got herself into a good place on her own.

So why the advice not to save into a pension John?

I was shocked to read John Ralfe’s comment. Because I know how important it was for me and for the friends I advised in my twenties, to start saving and keep saving.

Somewhere, in my big fat pot, are the contributions I made into my Allied Dunbar self employed retirement annuity plan in 1986-7 when I was 25. They were invested in a poor fund and attracted high charges – nowhere near the VFM Ellie gets from Penfold (or you can get from Pension Bee or Nest). Yet 35 years on, those contributions will have grown at around 7.5% pa (based on some back testing we did at AgeWage). Funnily enough, I think I  was saving £50 per month back then. My £600 back then is worth £8,200 today (and that’s not counting the tax I got back.

I paid by standing order too. It made me feel that I was making progress and I hoped that at 60 I’d be proud of my younger self (I am). I dare say I could have invested my money in other ways, I  might have used a PEP The personal choices we make with our money are based on the happiness those choices bring us. I found spending money on my retirement when I was 25 made me happy.

I hope that Ellie follows me and finds herself , when she is my age, as happy with my retirement plans as I am. And I hope that she follows her heart – it looks a good one!

And Ellie – if you’re reading this. This was what I was listening to when I was 25. Follow your heart and keep taking good financial decisions!