start a pension

diveleader

Hi all,
Myself and the wife, aged 41 and 40 are the sole employees of our self owned Ltd company.

We have been paying ourselves with a small salary and (larger) dividend to keep us just below the higher tax threshold.

This has lead to a build up of retained profits in the Company of approx 35K pa (over the last 3 years ie - 105k). This money is currently sitting in company savings accounts earning approx 5%

We have our own savings and investments (more on this on another post soon) and think that the best place for the retained and future retained profits in the company is to pay them into 2 pension funds. (as apart from a small bit of hospital superannunation with my wife, we don't have any other real pensions) With an aim to perhaps take the income from them at 55 years of age.

Reading this wonderful forum and other sources of information, it would seem that the company can pay this fund into pensions pots for me and the wife.

With this is mind, and based on the fact that we would probably not make any contributions ourselves what sort of pension wrapper do we require?

- SIPP?
- Stakeholder?
- something else ?

with that, hopefully sorted, would it be best to pay a lump sum into each pot each year, or drip feed a monthly amount. (ie 1500 per month into each pot - but what about the initial lump sum sitting in the company)?

Many thanks

Dean

dunstonh

what sort of pension wrapper do we require?

- SIPP?
- Stakeholder?
- something else ?

The options are SIPP, stakeholder or personal pension if you are using a pension.

SIPP is for experienced investors using direct investments. It can be used for funds but is an expensive way to do it. Stakeholder has a defined charging structure that will be cheaper than a SIPP (for funds) but the fund choice will not be extensive. Personal pensions have variable charging structures but a mono charged personal pension would offer the same funds of a stakeholder whilst allowing a wider fund range to pick from.

It really depends on how you intend to buy the pension, what investment options you intend to use and how you intend to monitor and review the investments in the future. There is no point paying for features you are never going to use.

would it be best to pay a lump sum into each pot each year, or drip feed a monthly amount. (ie 1500 per month into each pot - but what about the initial lump sum sitting in the company)?

Swings and roundabouts. For the last 2 years its been better paying monthly amounts but for the 4 years before that it was better paying single premiums. Only hindsight will tell which option is best.

diveleader

Thanks DunstonH,

I was leaning towards a stakeholder but wasn't 100% sure if it was applicable, as my company was going to make all of the contributions.

That aside, I was looking at the funds available at Cavendish Online (please let me know any alternates that I could also look at) but, what company and what fund to choose?? Is there a place to start some research, or are they all 'much of a muchness?' Crystal ball required here

dunstonh

I was leaning towards a stakeholder but wasn't 100% sure if it was applicable, as my company was going to make all of the contributions.

stakeholder is fine. Its a basic product with basic funds but if you dont have investment knowledge and are not getting investment advice then you can do less damage with a stakeholder than the other options.

I was looking at the funds available at Cavendish Online (please let me know any alternates that I could also look at) but, what company and what fund to choose?? Is there a place to start some research, or are they all 'much of a muchness?

Cavendish are cheap. Indeed, there probably isnt much cheaper given your age. if you were 30, then IFA products under advice would come in cheaper as Cavendish only offer a limited panel of pensions for execution only basis.

You need to think of the pension as a container for investments. Different pensions will have different investment options. So whilst the "container" may not be a lot different between providers (in particular stakeholder), the investments you put in the container will vary a lot between providers. You may find some of the stakeholders dont offer the investment options you want. That will eliminate those straight away. So, it really depends on how you want to invest.

johnllew

diveleader wrote: »

This has lead to a build up of retained profits in the Company of approx 35K pa (over the last 3 years ie - 105k). This money is currently sitting in company savings accounts earning approx 5%

KSF pay 5.75% AER on £10k+ in their 180 day notice account.

http://www.kaupthingsingers.co.uk/deposits/base-rate

diveleader

Thanks John - I will take a look at that account

shaunrc

Hi Dean

Please do not take this posting as advice as I am an IFA and such a term has a specific meaning for regulated people.

Firstly you are doing exactly the right thing looking at paying directly from your company into a pension for you both.It beats paying national insurance. Just in case you have not considered it there are options for life cover and income protection which the company can pay for in a tax efficient manner.

Unless you are a sophisticated investor and are absolutely clear where you want to invest then it sounds as though you would be wise to take advice. Personal pensions offer a much wider choice than stakeholders as dunstonh says. Cavendish might save you 0.1% a year in charges but choosing a wise investment strategy is usually much more valuable.Have you given much thought to what sectors/areas you will invest in? Taking advice often has the value of making people think about what they do want and where they are happy to invest.If an adviser is any good they will be able to translate your opinions into a portfolio.

diveleader

Hi Shaunrc,

I haven't yet thought of what areas to invest in, other than a probable cautious risk level on the investments - thats assuming that the 14 years or so from start to the end of the pension means I should be exposed less to risk (?) as opposed to a younger person who has 20 years+ to invest in.

With an IFA, would their fee be based on commission from the scheme we sign up to, or just as a fee based service? (or perhaps both?)

I take your point that its a short sighted view to choose a fund based on the lower initial start up charges - is there a web page that allows you to see past performance of various funds, perhaps coupled with management charges?

thanks

dunstonh

With an IFA, would their fee be based on commission from the scheme we sign up to, or just as a fee based service? (or perhaps both?)

Depends on the service you want and the IFA you use. You can go fee based (where you pay a cheque), hybrid fee where you agree a fee but use the commission to pay it (with any surplus commission being rebated into the plan - good option on pensions as you effectively get tax relief on the fee) or commission (good for small amounts but not for large.

For ongoing servicing you can either get a servicing adviser where you pay a retaining fee or you get one that uses the natural fund based trail commission (not on stakeholder) which can be used to pay for that servicing.

Nowadays the options are quite varied but the choice is in your hands. Good IFAs will have good fee options to suit different needs. Discussing such issues early on can be a good indicator to the quality of the adviser.

shaunrc

Hi again Dean

In principle I agree with Dunstonh. The bit I would add is that what and how you might pay for a service depends on what service you want.

This site is concentrated on price and that in itself is good. For example it works well for something like life cover. Here as long as the company will pay out then cheaper is clearly better. However for a pension investment choice does matter and it can matter a lot. An IFA can help in structuring your thoughts into a portfolio. Some of the best funds are more expensive than poorer ones in annual charges and might not be offered in a stakeholder. As you pretty much seem to know what you want to do this is where an IFA can offer value to you in suggesting a portfolio. Presumably this will need updating from time to time and so your agreement with him will need a servicing element so that he does some work and gets paid for it.

So if you want that sort of service you could agree an initial fee and a retainer. Because of the tax relief in a pension as Dunstonh says it is logical to pay it as commision from the pension.

As to your question about fund sites there are plenty. I pay for a service but free sites such as trustnet provide a lot of information.It is trustnet.co.uk i think. However without a little guidance there is so much data you can get swamped!

Also plan for more than the 14 years.If you are retiring at 55 you might want to keep the money invested rather than take an annuity as an annuity commits you for life which is a big decision at 55.This form of pension vesting is called drawdown.

diveleader

Thanks all - I will contact an IFA and see what he can offer us. Cheaper is certainly not always best when it comes to arranging a pension