Opinions on my pension arrangements please

RebTech

My personal pension is with Standard Life in their Pension Managed One fund, which seems to be known also as Managed S4.

Now that protected rights are going to be holdable within SIPPs, I'm wondering whether I should transfer into one. I already have an S&S ISA with Hargreaves Lansdown. The pension presently represents most of my portfolio's exposure to UK equities, pension/ISA/other equities ratio is 60/25/15, and the rest of my capital is currently in cash.

I'm about ten years from retirement, and on a very low income, but with enough capital in cash to feed pension and ISA for 2-3 years at the moment, and the prospect of more to come, so I might be able to keep feeding one or the other (that decision later) for most or even all of the ten years. Because I got a late start and have only around £20k in the pension, and I'm used to living on a low income, I think I'm significantly less risk-averse than the average person of my age. I'm single with no dependents, and don't want to leave anything behind when I go.

Assuming I can make sensible decisions regarding choice of funds and maybe other vehicles within a SIPP, would I be well advised to transfer the SL pension into one? I'd be disinclined to move unless there were fairly clear benefits, because I'm contributing monthly and like the idea of getting into UK equities for the long term via pound cost averaging in the current climate -- though I could obviously do that in a SIPP too. Is there anything else I should be considering?

dunstonh

Assuming I can make sensible decisions regarding choice of funds and maybe other vehicles within a SIPP, would I be well advised to transfer the SL pension into one?

I am not a fan of standard life. However, the pension you have is cheaper than the SIPP (HL dont discount on the annual charges on their SIPP). SL does have a fairly good fund range but HLs will be more extensive. However, how many funds are you going to be in. Currently you are in a default fund.

As you are looking at DIY and not advice, the choice to you really is keep SL, switch to a cheaper personal pension or stakeholder or the SIPP. If the switch to a personal pension then the annual charges would be about half those you would pay on the HL SIPP. So, you need to decide if you want to pay 50% more in charges to access funds which you may or may not use. If you use them, fair enough but if you dont use them then its a waste of money.

EdInvestor

RebTech wrote: »

I'm about ten years from retirement, and on a very low income Because I got a late start and have only around £20k in the pension, and I'm used to living on a low income, I think I'm significantly less risk-averse than the average person of my age. I'm single with no dependents, and don't want to leave anything behind when I go.

Have you checked your likely situation regarding benefit entitlement and state pensions at retirement? It's possible you should not be investing in a pension at all - that you are simply replacing money you would receive from benefits.

RebTech

dunstonh wrote: »

I am not a fan of standard life. However, the pension you have is cheaper than the SIPP (HL dont discount on the annual charges on their SIPP). SL does have a fairly good fund range but HLs will be more extensive. However, how many funds are you going to be in. Currently you are in a default fund.

As you are looking at DIY and not advice, the choice to you really is keep SL, switch to a cheaper personal pension or stakeholder or the SIPP. If the switch to a personal pension then the annual charges would be about half those you would pay on the HL SIPP. So, you need to decide if you want to pay 50% more in charges to access funds which you may or may not use. If you use them, fair enough but if you dont use them then its a waste of money.

Thanks very much. Looks like I should look again at SL's range of funds. This one was chosen for me by an IFA, before I took much interest in such things.

dunstonh

RebTech wrote: »

Thanks very much. Looks like I should look again at SL's range of funds. This one was chosen for me by an IFA, before I took much interest in such things.

If you are not going to use an IFA then look at the personal pensions on offer via execution only at Cavendish. Switching to one of those would cost you around £25 but lower your annual charges. Cavendish only offer a limited panel on execution only (compared to whats available on advice) but you should find Scot Widows or NU come in with cheaper options that SL whilst offering the fund range that is good enough.

RebTech

EdInvestor wrote: »

Have you checked your likely situation regarding benefit entitlement and state pensions at retirement? It's possible you should not be investing in a pension at all - that you are simply replacing money you would receive from benefits.

Ignoring what's already in the pension, and future growth, but including expectations from frail elderly relatives, my capital will be in the region of £100k, so I don't think benefits come into the picture. I'd be very interested if anybody disagrees with that, though.

EdInvestor

RebTech wrote: »

Ignoring what's already in the pension, and future growth, but including expectations from frail elderly relatives, my capital will be in the region of £100k, so I don't think benefits come into the picture. I'd be very interested if anybody disagrees with that, though.

Possibly not, but tax might be a consideration.How much state pension (basic plus S2P) are you expecting? Old age tax allowance will be 10k p.a, so if the total of all pension and other income comes in under that, you will not pay tax on it, and thus pension investment now will be worth it as you will get tax relief upfront.

However if you have to pay basic rate on the pension in retirement,and if there's no employer's contribution, most people reckon investing in a tax free ISA is a better deal as you retain access and control over the capital as well as escaping tax on the income. The 25% tax free cash from the pension is not really enough to justify the loss of the capital and other restrictions on how much income you can take.

The key factor is the size of your state pension.

RebTech

EdInvestor wrote: »

Possibly not, but tax might be a consideration.How much state pension (basic plus S2P) are you expecting? Old age tax allowance will be 10k p.a, so if the total of all pension and other income comes in under that, you will not pay tax on it, and thus pension investment now will be worth it as you will get tax relief upfront.

I'm expecting the basic state pension, I think I saw it quoted somewhere recently as £4.7k.

However if you have to pay basic rate on the pension in retirement,and if there's no employer's contribution, most people reckon investing in a tax free ISA is a better deal as you retain access and control over the capital as well as escaping tax on the income. The 25% tax free cash from the pension is not really enough to justify the loss of the capital and other restrictions on how much income you can take.

My pension, IF I keep up contributions at the same rate, is projected to be under £3k, so adding the basic state pension that comes to, say £7.5k, making pension contribution worthwhile by your rule.

At present I'm putting the maximum in both pension and ISA (£3.6k & £7.2k). I have 10 years to retirement and enough capital in cash at present to cover both contributions for about 3 years. Even if nobody dies, I might well get enough during the next couple of years to keep feeding both for an additional 2 years, ie 5 altogether. And, to be brutally realistic, the chances of someone dying during the next 5 years are quite high (they're not just old but have specific degenerative diseases), in which case I'd probably be due another couple of years worth at the very least, and quite likely enough to cover the whole 10 years.

On my reckoning, all that makes pension contributions worthwhile, but I don't have a lot of confidence in my reckoning in this sort of area. I just realized I've incurred a CGT liability by disposing of assets in one year when some of that could easily have been held back a year. STUPID!:o

EdInvestor

RebTech wrote: »

My pension, IF I keep up contributions at the same rate, is projected to be under £3k

Careful with using these lifeco projections, they are normally based on an index-linked pension with full spouse provision: the reality is you could end up with somewhat more as most people get level annuities (or enhanced ones) and often these days spouses have their own provision and thus a joint life pension is not required.

Also (unless you've always been self employed) worth rechecking your state pension entitlement as they are redoing the basis of SERPS/S2P to benefit those on lower incomes going forward.

Forecast here:

https://www.thepensionservice.gov.uk