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  • FIRST POST
    • Skyhigh
    • By Skyhigh 5th Jul 17, 2:03 PM
    • 306Posts
    • 145Thanks
    Skyhigh
    Trapped in Employers Pension?
    • #1
    • 5th Jul 17, 2:03 PM
    Trapped in Employers Pension? 5th Jul 17 at 2:03 PM
    My employer set everyone up using Standard Life the other year. Yes we could 'opt out', but there would be no contributory (1%) benefit applied.

    I've reviewed the Standard Life pension plan. The performance is appalling. The fees and charges opaque. There's not much control either.

    I want to switch to a SIPP with another provider but my employer says that they can only pay into the SL pension as they only support one dedicated provider - and that I can personally pay into my own personal pension, but obviously there's no taxable benefit as it's all post-income-tax.

    What?

    So effectively, to have the tax benefit I'm trapped with Standard Life and with that specific product!


    Surely this can't be right?
    (but looking online, it seems so?!)
Page 2
    • Skyhigh
    • By Skyhigh 7th Jul 17, 10:35 PM
    • 306 Posts
    • 145 Thanks
    Skyhigh
    State pension provision is a core principle of society. That almost without exception everybody subscribes to. That isn't to say that for a better quality of retirement that the onus is on people themselves to make their own provision. Look upon the state pension as a safety net. Nothing more.
    Originally posted by Thrugelmir
    Yes and I agree, but I'm working on the assumption that the net might not be there when I retire. If it is, that's a bonus.
    (ageing population, glut of ageing baby boomers, more coming out than going in, longer life expectancy and thus healthcare costs jumping up, etc, etc, blah, negative outlook for 2057)
    • AnotherJoe
    • By AnotherJoe 8th Jul 17, 5:57 AM
    • 7,559 Posts
    • 8,161 Thanks
    AnotherJoe
    Yes as it would save me time, remove uncertainty and mean I wouldn't have to wait until the end of the tax year to do a SA and claim the relief.
    Originally posted by Skyhigh
    If you are a basic rate taxpayer you get the tax relief pretty much straight away* without doing anything.
    If you are a high rate taxpayer then the additional 20% comes later but that's as money returned to you not extra into the pension, so as long as you can "fund the gap" you can still put into the pension what you want to immediately, it isn't delayed.

    Example.
    Basic rate. Pay in £80, pension contribution becomes £100.
    High Rate. Pay in £80, pension contribution becomes £100, then £20 is returned to you after SA (so net contribution was £60)


    * pension companies arrange it differently, some add the 25% uplift immediately, some wait until HMRC has paid them, say 6 weeks.
    • atush
    • By atush 8th Jul 17, 9:27 AM
    • 16,333 Posts
    • 10,081 Thanks
    atush
    Quote:
    Originally Posted by Skyhigh View Post
    I don't even expect there to be a State Pension when I get to retirement age in 30-40 years.
    Well you can think this way, but I dont think it is very realistic. It would take legislation, and anyone who made this legislation would not be re elected- period.

    What will and is happening, is that it will be tweaked as people live longer, and the age to get it will go up. So yes, saving for yourself is wise, but you will (unless yu die early) get some SP sometime.
    • bigadaj
    • By bigadaj 8th Jul 17, 10:24 AM
    • 10,655 Posts
    • 6,959 Thanks
    bigadaj
    If you are a basic rate taxpayer you get the tax relief pretty much straight away* without doing anything.
    If you are a high rate taxpayer then the additional 20% comes later but that's as money returned to you not extra into the pension, so as long as you can "fund the gap" you can still put into the pension what you want to immediately, it isn't delayed.

    Example.
    Basic rate. Pay in £80, pension contribution becomes £100.
    High Rate. Pay in £80, pension contribution becomes £100, then £20 is returned to you after SA (so net contribution was £60)


    * pension companies arrange it differently, some add the 25% uplift immediately, some wait until HMRC has paid them, say 6 weeks.
    Originally posted by AnotherJoe
    Doesn't even need to be delayed, regular pension payments when advised to Hmrc will allow a change to tax code that will mean the relief comes as the pension money is paid.
  • jamesd
    Their standard pension offering has more than a hundred funds you can choose with no annual fee on top of the fund charge. That includes things like the excellent SLI UK smaller companies fund.

    SL pricing for this pension has a base price and a customer (employer) specific discount. The fund prices quoted in the documentation don't normally include the discount, which is delivered by gradually adding extra units to your holding in the fund.

    You automatically get some tax relief in this pension, how depends on how the contributions are shown:

    1. If all are shown as employer contributions it's a salary sacrifice scheme and you're saving employee NI as well as getting income tax relief at the relevant rate, including higher rate relief, via reduced taxable earnings, though if you have non-work taxable income and the sacrifice takes you into basic rate for the work pay you'll still need to tell HMRC. You can do that during the tax year and they will adjust your tax code. In this case ensure that they know any mention of pension contributions is by salary sacrifice or they will give you the wrong amount of relief. If you are on low pay you may not get any income tax relief via salary sacrifice, tell us if this might apply to you.

    2. If there are employee contributions you get basic rate income tax relief added to your contributions immediately with no claim or delay. If you are entitled to higher rate relief you can tell HMRC and they will adjust your tax code to give it to you. Low earners do get the tax relief if it is done this way.
    Last edited by jamesd; 08-07-2017 at 11:31 AM.
    • Skyhigh
    • By Skyhigh 19th Jul 17, 12:36 PM
    • 306 Posts
    • 145 Thanks
    Skyhigh
    Thank you for all your input, so as a general update:

    Standard Life
    Despite the scary warnings and dialogs, it is possible to invest in different funds.
    I've researched *all* the funds they offered and re-invested the entire pension value into a split of 11 different funds spread over different investment types (bonds, stocks, etc), sectors, regions (e.g. EU, US, Asia, etc) - so it's well balanced.
    That said, I'm young, so I've gone a little more risky than usual, although kept away from some high risk funds that heavily focus on India & China which seem to 'up and down' a lot.

    Even though funds charge a small management %, many of them out-perform the Standard Life Active fund by a fair amount. So the additional growth should more than over the addition fee.

    I'm keeping it at the minimal amount to ensure that I get the matched employer contribution %.


    SIPP
    I'm opening a SIPP with Interactive Investor as a personal pension, investing in that myself and getting the tax relief.

    Yet to think about a strategy around this. Likely to be a similar balance of risk and centred around managed funds, possibly with one or two direct stock investments in very specific companies I'm comfortable with (likely to make up less than 10% of total pension value).


    Thank you for all your help!
    • MichelleUK
    • By MichelleUK 19th Jul 17, 1:12 PM
    • 319 Posts
    • 194 Thanks
    MichelleUK
    ....SL pricing for this pension has a base price and a customer (employer) specific discount. The fund prices quoted in the documentation don't normally include the discount, which is delivered by gradually adding extra units to your holding in the fund.....
    Originally posted by jamesd
    Skyhigh, have you checked into this? The SL fund fees may be much less than you think.

    My partner is with SL and his employer has a 0.65% discount on the fund charges that are shown in the SL documentation and it is credited to his account monthly as extra units.

    The SL website is pretty poor as it does not show this transaction easily. I check that they are in fact crediting the units by tracking the number of units over the month. At some point during the month, the number of units will jump, and there will be no corresponding increase in the amount of payments in to the pension. I can then check that the amount of units added equates roughly to the amount of discount expected.

    This is probably really OTT by most people's standard's, but over the years, I have seen so many errors (through my work) in things that people take for granted, that I never trust any calculations unless I can verify them myself!
    • Bazofts Revenge
    • By Bazofts Revenge 19th Jul 17, 8:27 PM
    • 295 Posts
    • 150 Thanks
    Bazofts Revenge
    I enquired about shifting a lump away from Standard Life and they said it wasn't permitted whilst I was still contributing. I explained I wasn't happy with their published charges. They explained I was getting a 0.5% corporate discount so I am happy with it for now.
    Solar PV cost £5760 (15/03/13)
    FIT inc + Electricity saved £3746 (65% Paid back) Tax free
    Last update 30/09/17
    • Skyhigh
    • By Skyhigh 20th Jul 17, 8:11 AM
    • 306 Posts
    • 145 Thanks
    Skyhigh
    Good point.

    After some digging, the plan fee is 0.65% as there is a corporate discount - although this is buried away.
    Not sure how it's done (lower rate or 'rebated' units), but as it's documented I'll trust them it's working out as 0.65% !

    This is better than I thought but still:
    £10k pension pot = £65 per year
    £50k pension pot = £325 per year
    etc

    So from my perspective it still makes more sense to use someone like Interactive Investor with a fixed fee (£80pa ex vat) for a SIPP as it's regardless of value.
    (There is a £20 per quarter fee for an III trading account, so if you're only using III for a SIPP then it's £160pa ex vat. But still, at least it's a fixed cost. I plan to trade infrequently in funds, so trade costs will be low, keeping the overall cost below the % of SL).

    And although the SL funds charge their own fee on top (e.g 1.01% to 1.86% for the funds I've chosen), if they even perform to 1/4 of what they have done historically and is predicted, I'm still "up" compared to keeping it in SL Active Life.
    • AlanP
    • By AlanP 20th Jul 17, 1:37 PM
    • 954 Posts
    • 671 Thanks
    AlanP
    Good point.

    After some digging, the plan fee is 0.65% as there is a corporate discount - although this is buried away.
    Not sure how it's done (lower rate or 'rebated' units), but as it's documented I'll trust them it's working out as 0.65% !

    This is better than I thought but still:
    £10k pension pot = £65 per year
    £50k pension pot = £325 per year
    etc

    So from my perspective it still makes more sense to use someone like Interactive Investor with a fixed fee (£80pa ex vat) for a SIPP as it's regardless of value.
    (There is a £20 per quarter fee for an III trading account, so if you're only using III for a SIPP then it's £160pa ex vat. But still, at least it's a fixed cost. I plan to trade infrequently in funds, so trade costs will be low, keeping the overall cost below the % of SL).

    And although the SL funds charge their own fee on top (e.g 1.01% to 1.86% for the funds I've chosen), if they even perform to 1/4 of what they have done historically and is predicted, I'm still "up" compared to keeping it in SL Active Life.
    Originally posted by Skyhigh
    I realise that this is hypothetical as the employer wants to stick with the scheme they set up and won't contribute to a different one but how can you plan to trade infrequently when there is a regular monthly contribution going in?

    With only 1 fund it would be 12 trades per year minimum surely?
  • jamesd
    The SL plan fee would normally include the fund management charges of the built in fund range, though it'll be higher than that for external funds. The external ones would typically begin with SL someothermanagername and the internal ones with Standard Life.

    For the III account the fund charges would normally be on top of the III charge.
    • atush
    • By atush 20th Jul 17, 9:12 PM
    • 16,333 Posts
    • 10,081 Thanks
    atush
    Yes and I agree, but I'm working on the assumption that the net might not be there when I retire. If it is, that's a bonus.
    (ageing population, glut of ageing baby boomers, more coming out than going in, longer life expectancy and thus healthcare costs jumping up, etc, etc, blah, negative outlook for 2057)
    Originally posted by Skyhigh

    Even the usa has a state pension. And some say it is more generous? You can even take it early at 62 with a reduction.

    While you consider it a bonus fine. But for anyone with an idea about politics, there will NEVER be a repeal of state pension. Outside of a world wide apocalypse/failed state scenario. The main risk is increasing age of attaining (re the recent change) and perhaps increase in Nics.

    IMHO, the recent rise is due to the fact that after the election they cant get rid of the triple lock. I think they should have, and then said we wont do this (ie the recent raise in time scale) if we can get rid of triple lock.

    Just look at the USA, where a rabid repealer wants to get rid of universal healthcare insurance an can't do so. Because too many people who vote republican are alive today because of it. And too many politicians are afraid what will happen to them next election if they do.
    • Not Me Officer
    • By Not Me Officer 20th Jul 17, 10:02 PM
    • 280 Posts
    • 49 Thanks
    Not Me Officer
    Let us suppose that you want to contribute £100 a month from your salary to your SIPP.

    You actually pay the provider only £80 - the provider will claim 20% tax relief on your behalf.
    Originally posted by xylophone
    Am i the only person who says that i want to pay in £100 a month so therefore i pay in £100 a month. The tax relief is just a bonus really.

    Everything i read on pensions regards this seems to gear towards paying in the £80 as per your example if you want to pay in £100.

    I'm currently paying in £200pm to mine to see how i go. Tax relief on top is just a bonus to me.
    • greenglide
    • By greenglide 21st Jul 17, 9:25 AM
    • 2,895 Posts
    • 1,867 Thanks
    greenglide
    IMHO, the recent rise is due to the fact that after the election they cant get rid of the triple lock. I think they should have, and then said we wont do this (ie the recent raise in time scale) if we can get rid of triple lock.
    So are you actually suggesting removing the 2.50% making it a double lock? That is what most people are assuming.

    With CPI above 2.50% this is purely academic and will continue to be unless CPI falls and remains below 2.50%. That seems unlikely in the current climate.
    • Skyhigh
    • By Skyhigh 22nd Jul 17, 7:57 PM
    • 306 Posts
    • 145 Thanks
    Skyhigh
    I realise that this is hypothetical as the employer wants to stick with the scheme they set up and won't contribute to a different one but how can you plan to trade infrequently when there is a regular monthly contribution going in?

    With only 1 fund it would be 12 trades per year minimum surely?
    Originally posted by AlanP
    It's the SIPP with InteractiveInvestor I'm referring to - which would be a private pension I'd have to actively pay into.

    This means I could pay in as much and as often as I wanted.

    So, theoretically I could pay in every quarter = 4 trades per year required to buy (assuming single fund/stock each time).
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