I'm 23 and working as a software engineer in the UK. I've made a point in wanting to start saving for retirement as early as possible in order to retire younger.

I'm looking for the most effective (and importantly hands-free) way to invest for retirement that is shielded from high-risk (I can accept risk of investments relating to mutual funds generally, having done my due diligence).

Currently I only contribute 5% to my pension (matched by my employer) and ~15% of take home pay into a stocks and shares ISA run by my bank.

I've read a lot into Vanguard plans such as life strategy but this seems to be less efficient (even with more growth) due to capital gains tax.

Are there other options available to me than what I am currently doing and is it worth committing more to one avenue than another in order to maximise gains against risk?

3 Answers 3


I think that you should

  1. Maximise your ISA allowance
  2. Consider premium bonds for a 'cash like' tax-free place to keep your "emergency money" to spend short-term so you don't sell distressed investments.
  3. Increase pension contributions

There should be nothing to stop you putting the Vanguard LifeStrategy funds into a Stocks and Shares ISA (though you might have to get one with someone other than your bank, maybe Vanguard direct - note, until 2024 you could only pay into one ISA per tax year).

  • Would the priority be placed toward maxing out the ISA allowance (£20,000 / year) before increasing pension contributions (which is already at the highest percentage my employer matches)? Commented Jan 10 at 16:26
  • 1
    Pensions are not just about your employer match - there's also the tax-relief that the government adds, and the ability to keep other benefits e..g child benefit by salary sacrificing the pension contributions. However it probably deplends on how early you plan on retiring. Pension contributions will not be able to be accessed until you're at least 58, which doesn't help if you want to retire at 45. Commented Jan 10 at 16:43
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    Pension contributions DO help! If you retire at 45 with a big pension pot available at 58, then you only need enough on hand to cover ages 45 to 57. Regular retirement is part of early retirement.
    – bjmc
    Commented Jan 10 at 17:58
  • "only pay into one ISA per tax year" nit: afaik this will change in 2024-5. Not that I see much point managing two separate ones of the same type
    – falsedot
    Commented Feb 3 at 0:07

Depending on when you'll need to access the money, consider an SIPP instead of an ISA. The tax benefits are significant: you'll receive an extra 20-40% "top up" of your invested money in the form of tax relief. Remember that even if you intend to retire before age 57, you likely plan to live past that age.

Vanguard offers a low-cost SIPP in the UK and, as you say, investing in one of their life strategy or target-date funds is a very sensible choice.

As a general rule, investment return is correlated with risk. You will not find an investment yielding high returns for no risk. However, you can be smarter about the risk you take by designing a portfolio that maximizes returns for a given level of risk. If you choose one of the ready-made portfolios from Vanguard, they will have done this work for you.

If you are new to this entire topic, I would suggest beginning with the Boggleheads wiki. Some of the information there is specific to the United States, but most of it is generally sound advice, and there are some pages with information targeted to UK investors

  1. pension [..] stocks and shares ISA run by my bank.
  2. Vanguard plans such as life strategy [..] due to capital gains tax.

I might be misunderstanding the question a bit, but 1 and 2 are completely separate concerns. Specifically, 1 is about the where you have the investments while 2 is more about the what you invest on. While there might be overlap (eg funds only available in in specific accounts, limitations on what you can have in a SIPP etc), for the majority of the mainstream cases you could consider them independently.

Overall, for 1 there are three main options:

  • a plain account. If we're talking about stocks/funds this would be a regular trading account. No tax benefits: interest is taxed, capital gains are taxed, dividends are taxed (note that even for accumulation funds that automatically reinvest the dividends you still need to consider them)
  • ISA. You dont get any tax relief but gains (CG/dividends/interest) are protected. Can only put ~20k/year
  • SIPP/Pension. On top of no taxes for any gains, you also have tax relief assuming you dont exceed the allowance (60k atm but you can also carry over from previous years). But you can't take any money out until you reach a certain age (which could increase, introducing some risk to your model).

As said, this is almost completely separate from what funds you buy (2). You can have a lifestrategy fund in a trading account, an ISA, and a SIPP if you want! Also do keep in mind that even outside ISA/SIPP, you have an annual capital gains allowance and that you pay no tax until you materialise the gains.

In terms of what to prioritise, this is where things get tricky and it will wildly vary based on your personal targets, TC, tax bracket and many more. Some observations:

  • Pension/SIPP maximises tax efficiency but also locks the money. For early retirement, once you've saved up enough for 58+, it might not make sense to keep adding money as the problem will be having enough for the eg 40-58 period.
  • Additionally, the pension/sipp allowance carries over (up to 3y) so you will have a chance to backfill it later and potentially with higher tax relief (eg if atm you're at 20%/40% tax rate and next year you'll hit the 40%/45% bracket, you'll save more by delaying the contribution).
  • Regulations change, markets change, personal circumstances change. I've had meticulous planning absolutely destroyed by unexpected bonuses (in a good way!). If your retirement plan hinges on whether you use 75% or 85% of your pension allowance at 23 then it might benefit more from additional safeguards :)
  • Similar to the previous point, don't forget the basics (eg emergency funds)!

Are there other options available

Lifetime ISA pops to mind, a bit of a cross between an ISA and a SIPP, but the annual allowance is fairly small (and consumes part of your ISA allowance).

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