Pension planning at 26

Owen1991 · 7 January 2018 at 3:12PM

I'm a 26 year old in the military and all though the pension changed in 2015, as I see it, it's still one of the best, even though everyone in the military complains about it.
It's now a CARE scheme, I get 1/47th of my salary a year without any contributions, currently salary is £20,000 due a rise to £25,000 after i finish a course in 2019.
Currently done 4 years and at the moment plan on doing the full time, leaving at age 44.

At this point I'll get a tax free lump sum of 2.25x my full annual pension amount and will also immediately begin receiving 34% of my pension until 68 when I get the full pension (at 55 this also increases with CPI).
So being extremely conservative and presuming I have no promotions for my whole career this will be worth around £10,000 a year from 68 onwards.
This is also presuming theres no more changes to our pension (unlikely).

As my outgoings are extremely small (£40 phone bill and a few other little luxuries) I'm also saving £200 into a SIPP. Currently only have £2000 saved but it's very early days. Currently have 96% in equity split equally between these funds:
Baillie Gifford Global Alpha Growth Accumulation
iShares Emerging Markets Equity Index Accumulation
Jupiter Asian Income Accumulation
Legal & General UK Index Accumulation
Artemis UK Smaller Companies Accumulation
Not sure how risky this is but at this age I'm happy to take plenty or risky honestly.
Any advice on this would be greatly appreciated.

As I'm also saving for a house I also have £7000 in a LISA, and have another £4000 to put in on 6th of April. I try to save another £800 on top of the £200 I put into my SIPP every month. All though if anything comes up with friends I'll normally say yes and save a little less :beer:

My mum is taking her NHS pension this year and has already said she'll be giving me 25% of her lump sum.
I also know I'll be getting a decent inheritance within the next 10-15 years.

For my salary I'd like to think I'm doing pretty well and hoping for another decent year of saving this year.
Haven't mentioned the state pension, but obviously know I'll be entitled to that as well at what ever age that will be by then.
I know a lot can change over the years as I'm still young but any other advice I'll happily take, especially regarding the SIPP.

Prism · 7 January 2018 at 3:38PM

For me the SIPP is too heavy on emerging markets and Asia and not enough developed world markets ( US, Japan and Europe). I reckon you are about 10% US, 5% Europe but about 35% EM and 12% developed Asia Pacific. Any reason you are avoiding the large majority of the world?

Owen1991 · 7 January 2018 at 4:17PM

Prism wrote: »

For me the SIPP is too heavy on emerging markets and Asia and not enough developed world markets ( US, Japan and Europe). I reckon you are about 10% US, 5% Europe but about 35% EM and 12% developed Asia Pacific. Any reason you are avoiding the large majority of the world?

It's around 44% UK (22% Tracker, 22% Small companies), 20% EM Asia, 13% NAmerica, 11% Developed Asia, 5% Europe.

hugheskevi · 7 January 2018 at 4:17PM

At this point I'll get a tax free lump sum of 2.25x my full annual pension amount

I couldn't readily see in the AFPS 2005 and AFPS 2015 schemes where 2.25x comes from? But I am not very familiar with this scheme.

and will also immediately begin receiving 34% of my pension until 60 when I get the full pension (at 55 this also increases with CPI).

So being extremely conservative and presuming I have no promotions for my whole career this will be worth around £10,000 a year from 60 onwards.

Won't your AFPS 2015 pension scheme benefits only be payable in full at your State Pension age (68) as you plan to leave at age 44?

Owen1991 · 7 January 2018 at 4:24PM

Won't your AFPS 2015 pension scheme benefits only be payable in full at your State Pension age (68) as you plan to leave at age 44?

Ahh yes you are right thanks :beer:, misunderstood the leaving before 60,

I couldn't readily see in the AFPS 2005 and AFPS 2015 schemes where 2.25x comes from? But I am not very familiar with this scheme.

If you leave the Armed Forces on or after the 20/40 EDP point but before your pension comes into payment, you will receive a tax-free lump sum equivalent to 2.25 times your deferred pension plus a monthly income of 34% of the value of your annual deferred
pension. For each whole year served beyond the 20/40 EDP point, the value of the EDP will be increased by 0.85% of your deferred pension. From age 55, the EDP income is adjusted to take account of annual increases in the Consumer Price Index (CPI), CPI increases will be backdated to the point at which you left the Armed Forces.

IanSt · 7 January 2018 at 9:04PM

Hi there.

Re your sipp, I personally think you're doing the right thing and going very heavy on the equity portion. You've got plenty of time to recover from any market dips/crashes and so you can afford that equity risk for the longer term outperformance it usually brings.

How did you choose that particular portfolio? An investor has to be happy with the funds they choose, so if you've done the research and are happy with your reasons for having them then keep them. But if you think you may have just bought them on a bit of a whim then you may want to reconsider and consolidate them - maybe just an emerging market tracker fund and a global developed country tracker.

One bit of advice is to keep an eye on your sipp costs both in terms of the funds and the platform, but don't just go for the lower cost product unless you're happy that it also provides what you want it for.

Owen1991 · 7 January 2018 at 9:35PM

IanSt wrote: »

Hi there.

Re your sipp, I personally think you're doing the right thing and going very heavy on the equity portion. You've got plenty of time to recover from any market dips/crashes and so you can afford that equity risk for the longer term outperformance it usually brings.

How did you choose that particular portfolio? An investor has to be happy with the funds they choose, so if you've done the research and are happy with your reasons for having them then keep them. But if you think you may have just bought them on a bit of a whim then you may want to reconsider and consolidate them - maybe just an emerging market tracker fund and a global developed country tracker.

One bit of advice is to keep an eye on your sipp costs both in terms of the funds and the platform, but don't just go for the lower cost product unless you're happy that it also provides what you want it for.

At the moment I'm pretty happy, I'll obviously keep a close eye on how things go as my pot grows but the numbers are pretty small at the moment and anyways it's better to be invested than sitting in a bank as I see it.
If/when I get a decent lump sum to deposit then I'll get plenty more advise too, my grandads done pretty good with his investments :j
Fee wise I'm with HL so 0.45% and my funds ongoing charges average out at about 0.4%, I know this could be cheaper but I'm ok with it as it's going at the moment.

jamesd · 7 January 2018 at 11:19PM

You're doing well, though you might consider investing in eliminating your income tax bill by deferring some of your income for five years.

Venture capital trusts are how you can do that. Initial 30% tax relief capped at tax payable in the year of purchase, has to be repaid if you sell within five years. So pick some with decent performance then just recycle the same money on a five year cycle.

With £20,000 current income and £11,500 personal allowance that's 20% income tax on £8,500, £1,700 a year. £1,700 / 03 = £5,666 of VCT buying to get tax relief on the lot and £1,700 back from HMRC. VCT buying normally has to be in £1,000 multiples, so say £5,000 bought and £1,500 back from HMRC.

With your expected raise that'd be around £37,000 invested in VCTs over five years then the same £37,000 recycled indefinitely to get rid of most of your tax bill. Of that £37,000 you'd get back £11,100 in the years of initial investment. After fifteen years you'd be getting close to 100% tax relief on the money: £37,000 in and still invested, £33,300 in tax relief so far.

Pension planning at 26

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