Pension options - my first post

andmas

I run a small company and an Advisor from my bank (NatWest) has suggested that I set up a Norwich Union SIPP through them with my company making the payments to save Corporation Tax. I would be looking to invest around £750 per month.

The advisor has suggested 12 nr funds (5 nr unit trusts, 4 nr OEIC’s, 1 nr cash, 2 nr property).

The charges are 2.5% of each monthly payment and a yearly charge from the fund averaging around 2% (0.55% ‘management charge’, 0.65% ‘fund based commission charge’, av. 0.16% ‘fund manager expense charge’ and av. 0.63% ‘fund charge’). Compared with H-L’s Vantage SIPP with yearly charges of around 1.5% the NatWest / NU SIPP seems expensive. When I queried this to the advisor I was told that NU have a better return than others that more than makes up for the additional charges. I am not convinced – has anyone got any knowledge of NU SIPPs?

Rather than a SIPP would I be better of investing in a stakeholder pension – at least until the fund has reached £50k?

I do have a personal pension with Zurich (formerly Allied Dunbar) that I have been paying into for nearly 14 years – currently pay £600 per month. The transfer value is around £75k and the estimated value in 10 years is £340k (based on an investment growth of 7% a year).

With this Zurich pension I’m not sure whether to:
1. Transfer it into the new SIPP
2. Re-pension through Cavendish On-line
3. Continue payments
Any advice or opinions most welcome.

A final thought – my wife doesn’t have a pension and I was wondering whether there would be any tax advantages in setting up a SIPP (or stake holder) for her with the company making the payments? If so would she need to be an employee of the company?

Thanks for all advice and opinions.

medders2604

I would suggest speaking to a financial advisor that deals with the whole of market. The advisor in your bank can probably only advise on the banks products and you might be able to get something better suited elsewhere as well as a SIPP that has lower charges, more flexibilty and more fund choices.
You can get a list of Financial Advisors in your area at https://www.unbiased.co.uk

MrMicawber_2

Yes - An IFA & pay a fee rather than commission. Advisors with banks and building societies are generally trained salesmen and are as medders says highly likely to be tied to a very imited range of products.

It may transpire that the NU prduct is spot on but an IFA will let you know and you should be able to sleep at night.

andmas

Thanks MrMicawber and medders - I was considering going to an IFA but was just seeing what information and opinions others on the forum could provide before I do.

shaunrc

Hi andmas

I am an IFA but please do not take this posting as formal advice as it has a specific meaning.

I have a few questions/thoughts which may help in focusing your mind.

1. Why do you need a SIPP? It seems curious when it looks like only Norwich Union funds are recommended. A SIPP offers a very wide investment choice which is valuable if you are going to use it. Not so valuable if you don't!

2. Another way of phrasing the same question is that this scheme is expensive if you are only going to use Norwich Union funds.

3. There are one or two tweaks to a pension funded by a company make sure you talk to someone who fully understands it. Done properly it can be an excellent very efficient idea.

To answer your question there are a lot of new style personal pensions which with your level of funds and monthly contributions can have low charges and have a very wide fund choice. Some of these also have an option to switch to a SIPP at a later date.

So you are on the right track but find someone who like me has experience of advising on company contributions. For example your wifes situation is easily fixed.

Shaun

andmas

Hi Shaun

Thanks for your thoughts, particually the 'tweaks' that can be done to a pension funded by a company - sounds interesting!

I wasn't very clear in my first post - it is Norwich Union who manage the funds - the funds suggested by NatWest's adviser are as follows:
- Black Rock UK Class A Acc [8%]
- Black Rock UK Smaller Companies Class A Acc [8%]
- Cash [3%]
- Invesco Perpetual Corporate Bond Gross Acc [7%]
- Invesco Perpetual Income Retail Acc [8%]
- Investic Global Free Enterprise C1 A Acc [10%]
- Jupiter Income Trust Inc [8%]
- M&G Global Leaders Class X Acc [10%]
- New Star Property Acc [10%]
- Norwich Union Insured Funds Property Series 8 [10%]
- Norwich Union Property Acc [10%]
- Schroders UK Mid 250 Acc [8%]

Even with these proposed differing funds I was still wondering whether I could do any 'better' by either the one of the new style pensions you refer to or a low cost SIPP such as the HL Vantage. I suppose it depends on how much I wanyt to control the investments (and how much time I have to do so)?

Cheers

dunstonh

46% of that portfolio is placed in funds which could be easily achieved on cheap internal funds. Possibly a bit more really.

External funds do provide important diversifcation potential but it seems to be that a personal pension would be the cheaper and more appropriate option here as you get the best of both worlds Availability of internal funds and use of a range of external funds.

I was still wondering whether I could do any 'better' by either the one of the new style pensions you refer to or a low cost SIPP such as the HL Vantage.

HL's Sipp is not low cost. It is sometimes called that on this forum but they do not discount any of the annual management charges and a full commission personal pension can usually beat their SIPP let alone an IFA doing it on fee basis.

Nothing posted so far suggests SIPP is the right option.

andmas

Thanks for your post dunstonh

Do I understand correctly that 46% of the funds suggested by NatWest’s advisor could be achieved by internal funds in a personal pension?

Regarding the HP SIPP I thought that there were around 1900 funds for which they didn’t make an annual charge and so the costs would only be the approx. 1.5% annual Fund charge.

Would a personal pension through an IFA on full commission or on a fee basis still beat the HL SIPP where some of the 1900 odd funds were used?

If so it would appear that the only advantage of a SIPP would be that I would have control of the investment funds whereas with a personal pension I would be stuck with the original choices or need an IFA to deal with any fund changes?


Also has anyone any views / opinions on the other queries in my original post:

• What should I do with my existing Allied Dunbar / Zurich personal pension?
• Are there any tax advantages in my company contributing to a pension for my wife?

Thanks for all replies.

dunstonh

Do I understand correctly that 46% of the funds suggested by NatWest’s advisor could be achieved by internal funds in a personal pension?

Yes. Either directly or by very close equivalent (NU funds in NU PPP for example, New star property using internal property fund, schroder 250 using mid cap tracker)

Regarding the HP SIPP I thought that there were around 1900 funds for which they didn’t make an annual charge and so the costs would only be the approx. 1.5% annual Fund charge.

Correct. Remember HL are not providing advice. However, their annual management charges are the same as those you would get from an adviser using unit trust funds. If you want execution only then a PPP with a good range of funds would be cheaper.

Would a personal pension through an IFA on full commission or on a fee basis still beat the HL SIPP where some of the 1900 odd funds were used?

No. It would equate to about 0.1% p.a. more expensive over the term (depending on how old you are)

If so it would appear that the only advantage of a SIPP would be that I would have control of the investment funds whereas with a personal pension I would be stuck with the original choices or need an IFA to deal with any fund changes?

Having a personal pension doesnt mean you are stuck with original funds. You can fund switch and many personal pensions have 100-1200 funds. If you can get those internal funds on execution only basis at say 0.5% p.a. then you can see the benefits of using a PPP over the SIPP. You are unlikely to get the same fund tools with a PPP as you would with HL but you have to decide how often you would use those and whether its worth the cost when you can get fairly decent data using trustnet or morningstar free of charge.

What should I do with my existing Allied Dunbar / Zurich personal pension?

They had different versions over the years but the most common one has high charges on contribution but zero annual management charge. If that is the case with yours then it makes sense to make it paid up, redirect the regular and not transfer it.

Are there any tax advantages in my company contributing to a pension for my wife?

Does she already have her own retirement provision? If not, then the benefit is in retirement when the pension income could use up her tax free allowance. e.g. a couple earning £10k each p.a. in retirement wont pay tax. One person earning £20k will have £10k tax free but pay tax on the other £10k (in todays terms).

andmas

Thanks again dunstonh

Further queries that hopefully you or someone elese can help with>


I am 50 – does this mean that an IFA on a fixed fee rather than on a commission basis would be better for a PPP?

I would probably only want to make transfers every quarter. Would the circa 0.5% p.a. execution only fee normally be pro-rata if I only held a fund for say 6 months? i.e. would an IFA normally charge 0.5% or 0.5% x 6/12? (apologies if this is a stupid question!) Is there any other charges for fund transfers with a PPP?

I believe that my Zurich / Allied Dunbar pension is one of the common varieties. To clarify are you saying to stop further payments and leave dormant until I retire and make further payments into a new PPP?

My wife doesn’t have any pension provision. It would therefore seem beneficial to set up a PPP for her with the company making contributions. Does she need to be an employee for the company to make contributions? (she is currently a Director but not an employee).

Thanks for your input.

dunstonh

I am 50 – does this mean that an IFA on a fixed fee rather than on a commission basis would be better for a PPP?

It depends on the fund size. At your age, a smaller fund value would be better on commission. This is due the pecularity of many of the providers choosing to buy pension business at a loss. Many pension products require 15 years to break even on commission basis. Larger funds are nearly always cheaper on fee basis as you get it done and dusted. Although its worth having the fee deducted from the pension as you get tax relief on the fee that way.

I would probably only want to make transfers every quarter. Would the circa 0.5% p.a. execution only fee normally be pro-rata if I only held a fund for say 6 months? i.e. would an IFA normally charge 0.5% or 0.5% x 6/12? (apologies if this is a stupid question!) Is there any other charges for fund transfers with a PPP?

The 0.5% p.a. amc is daily charged. So, it would be pro-rata. Just as it is with the HL SIPP. There is no difference there. Some providers may make a switch charge but many do not any more or reserve the right to introduce one if you start going crazy.

I believe that my Zurich / Allied Dunbar pension is one of the common varieties. To clarify are you saying to stop further payments and leave dormant until I retire and make further payments into a new PPP?

If it is the type with no annual management charge deducted (typically it was 0.7% amc with it then refunded to cancel it out) then it makes sense to keep it there. You would need to verify the annual management charge and product charges to verify this. Zurich will tell you if you ask them.

My wife doesn’t have any pension provision. It would therefore seem beneficial to set up a PPP for her with the company making contributions. Does she need to be an employee for the company to make contributions? (she is currently a Director but not an employee).

Usually its best to pay them from the company but you may wish to ask your accountant if its best to do it this way just in case the contributions would alter how the income is recorded. It usually comes down to NI contributions but that would depend on how much you pay your wife and how the accountant has told you to do it. Whilst the issue over NI is relatively small. The real gain will be in retirement and utilising your wife's personal allowance.