Starting a pension in a credit slump

still_learning_4

Hi everyone

I'd appreciate some advice about starting my pension, as my employer has finally started up a stakeholder scheme (hurrah!) but I'm new to all this and don't have much of a clue about where to get started.

Right now I'm conflicted on what type of funds to invest in, and even on how much to contribute - I really didn't know even a ball park figure before looking into it this week... :embarasse

But anyway - the bare facts are I'm 31, I earn around 21k a year, and the pension we've been offered allows you to invest in a mixture of funds and swap between them with no major restrictions. Most of what I've read suggests that at this stage, it's best to go for equities, but with the markets doing what they are, is this really wise? Should I go for a cash option or a UK bond and then switch when things pick up a bit, or am I being over-cautious? I know that doing this long-term would be bad as these sort of funds don't grow very much.

So...main questions are:

- should I go for a cash fund and or bonds for now? Or since it's long-term, is it not worth the hassle of switching into equities later? (I'm the sort of person who might even forget)

- is there any particular harm in splitting it into 3 or more funds? (say a cash fund, bonds and one equity fund?)

- what sort of figure should I look to save each month? I am thinking about £200 is sensible but in honesty can't afford it.

Thanks to anyone who's bothered reading!

dunstonh

but with the markets doing what they are, is this really wise?

Markets are doing what markets always do. Despite media coverage, this is not some new event. The degree of the impact this time round is more than usual but you should expect events like this periodically.

Should I go for a cash option or a UK bond and then switch when things pick up a bit, or am I being over-cautious?

What you are saying there is should you buy the units cheap or wait until they are more expensive and buy them then.

- should I go for a cash fund and or bonds for now? Or since it's long-term, is it not worth the hassle of switching into equities later? (I'm the sort of person who might even forget)

If you are not employing someone to manage the pension and you may well forget then you should go with a balanced managed fund. Dont try and pick indivdual funds if you dont know what you are doing.

- what sort of figure should I look to save each month? I am thinking about £200 is sensible but in honesty can't afford it.

There is a rough yardstick that a 35 year old should look to have £35k in their pension at that point. Its not a rule or an absolute but one of those benchmarks useful as a guide. You are 31 so not far off that point. How much do you have in your retirement planning so far?

If nothing, then around £260pm gross, including employer contribution should be a good starting point. You dont mention what the employer contribution is. You are looking at this back to front though as you need to decide what you need in retirement and work it backwards to find out how much you should be paying. We can only give you rough guides.

still_learning_4

hi there

My employer does not contribute, unfortunately.

As for the wisdom of picking funds, I agree that I am not in a good position to do this because as you have clearly gathered I am completely clueless. But that is unfortunately something I have to do before I can start payments - I would prefer to leave it to someone who knew what they were doing but sadly don't have that option which is why I am asking here. So, when you say I should go for a 'balanced, managed option', are you saying that picking - say - three different funds (e.g. one fixed interest, one global equity tracker fund and one other) is a good idea? I.e. splitting the risk across two or three funds - some lower, some higher risk? The scheme we are being offered gives quite a lot of flexibility and this is apparently not an unusual way of doing it.

As I mentioned in my post, I am startnig my pension now so no, I don't have anything in my retirement planning. I have spent too long paying off student debts to even contemplate saving anything up until now.

Thanks

dunstonh

If the employer doesnt make contributions, then why do you want to tie yourself to the employer's pension which is probably on standard terms with a limited fund choice and limited features?

Why not choose your own and if you cant decide investments for yourself then get an IFA to do it. Even if you did a stakeholder on maximum commission basis (rather than fee) it wouldnt cost any more than the hollow scheme your employer has.

The pension will offer funds for those that want to build portfolios using a strategy. Or for those picking them out at random with a hit and hope strategy. It will also provide a few default funds such as balanced managed (sometimes just called managed), cautious managed or adventurous managed etc. They are for the lazy investors. I wouldnt want to be in one personally but they are not designed with me in mind.

still_learning_4

I'm just going with it because it's easier to sort out through work. I don't know enough about this that I could guarantee getting a better deal elsewhere so it seems like the obvious thing to do. As others have made clear I'm doing this relatively late in the day so speed is an issue for me at this stage.

dunstonh

I don't know enough about this that I could guarantee getting a better deal elsewhere so it seems like the obvious thing to do.

Who is the employer using?

still_learning_4

They're using HSBC - seems like a reasonable scheme from what little I've been able to figure out.

RichyRich

still_learning wrote: »

So, when you say I should go for a 'balanced, managed option', are you saying that picking - say - three different funds (e.g. one fixed interest, one global equity tracker fund and one other) is a good idea? I.e. splitting the risk across two or three funds - some lower, some higher risk?

I think DunstonH was referring to choosing a "Balanced Managed Fund" such as the Schroeder Balanced Managed fund rather than trying to balance and manage it yourself.

dunstonh

still_learning wrote: »

They're using HSBC - seems like a reasonable scheme from what little I've been able to figure out.

Stakeholders are fairly generic. Some offer fund based discounts, some offer good fund ranges. Some offer little. HSBC is middle of the road. Still, the HSBC sales rep will get an easy commission out of it.

For a DIY stakeholder, you are paying about 50% more in charges than you need to.