Pension Advice.....

rs_azzuri

Hi Folks - my first post here and I'm looking for advice - hope someone can help me out.

I'm in a lucky situation that I made quite a lot of money in my fledgling business at a young age (I'm now 23). This business is taking a huge downturn as I expected it to as it's an internet only business but has no chance of surviving for another than 2 years.

I already own a property outright (albeit only a 2 bedroom flat), have paid off all of my student loan and have no credit card debt or personal loans outstanding.

I have quite a bit of money in savings accounts of which I reckon £100K is mine and the rest is currently held in lieu for the taxman!

Anyway, I am self-employed and am looking to tie £25K of this into a pension plan. My reasoning for putting this into a pension is that I rather like my cars/holidays so if I don't put it beyond reach for my and my families' future I will fritter it away on stuff and be left with nothing when my business finally has to close it's doors.

I plan to start another specific business over the next 12 months for which I will need around £50K so £25K is the maximum I can really put into it just now. I would go to my own business bank as they are champing at the bit to sell me one of their pension products (Lloyds TSB/Scottish Widows) but I'd rather get advice from an IFA. I am normally clued up on all things financial but pensions is something I just don't have a clue about because I have always seen it as irrelevant at my age but with settling down and hoping to have a family over the next couple of years I really need to take this into consideration.

The way I look at it, if I lock this money away now I won't need to contribute as much over the next 30 something years as I would if I just started saving monthly just now - meaning a more comfortable life until and during retirement.

I'm not sure how it works but do the Government contribute an extra % when you put money into a pension plan? I think I remember my bank saying that they add 40% on or something like that? Or maybe I've just went mad?!?!

Anyway, I was thinking about investing £25-26,000 split between 2 different low-to-medium risk pension plans and have them mature when I turn 60 - with a nice 25% cash lump sum in 1 and just a monthly income from another. At the moment I would be happy to put an extra £100 per month into each plan at the moment in order to keep the long-term saving going on while I work out what I'm going to do with my life next!

Anyway, does the above sound wise and what are your recommendations? Thanks in advance for any help and I'm sorry if I've misunderstood the workings of anything or if I've totally missed the point anything.


Kindest Regards,

rs_azzuri

dunstonh

I would go to my own business bank as they are champing at the bit to sell me one of their pension products (Lloyds TSB/Scottish Widows) but I'd rather get advice from an IFA.

The LTSB version of the Scot Widows contract is a cut down version of the IFA product so you are correct. Plus LTSB advisors, being tied, cannot recommend investment funds. Most of their customers end up in just one fund and often the bog standard managed funds. Scot Widows pensions offer a good fund range. The Personal Pension is better than the Stakeholder as it offers all the stakeholder funds but includes other areas, including a Euro property fund which is flavour of the month right now. Ideal for those wanting a diverse portfolio within their pension.

I'm not sure how it works but do the Government contribute an extra % when you put money into a pension plan? I think I remember my bank saying that they add 40% on or something like that? Or maybe I've just went mad?!?!

If you paid £10,000 into a pension, you would write the cheque for £7800 and the Govt would make up the other £2200. This is 22% tax relief. If you are a higher rate tax payer in the year of contribution, you can claim another 18% off your tax bill. You would make your accountant aware of the contribution to the pension and he/she would take care of the extra 18%. If you do it yourself, there is a box on the self assessment form to show pension contributions.

Anyway, does the above sound wise and what are your recommendations?

It would certainly give you a headstart and could take care of your retirement income planning. You could then concentrate on building capital in future years (rather than focussing on pensions). As for amounts, they really mean nothing to us here as it is dependent upon how much you earn now and how much you will want to earn in retirement.

We cannot give product advice here or recommend providers as that is a regulated issue and this site is not regulated. One thing is clear though that with that contribution, you should not be considering a tied agent/bank. You probably wouldnt be looking at a stakeholder pension but the better fund ranges available on a personal pension. You could consider a self invested personal pension with those sort of values. An IFA could help you on that front. You could get them all cheaper if you do it yourself direct but you would need to know what to do and you would need to keep an eye on the investments for periodic switches, moving funds out of cash to purchase investments etc. Only you know if you would have the knowledge and time required to do that yourself. If not, that's where the IFA comes in.

I am sort of pre-empting responses from a couple of the regulars who assume a SIPP is correct for everyone and that they believe you should do it yourself at the cheapest price possible. You can decide that for yourself but the way I look at it is that I pay for someone to do jobs that I cannot do myself or where it is cheaper for me to pay them to do it rather than take time off myself to do it, which would cost me more.

EdInvestor

Anyway, I was thinking about investing £25-26,000 split between 2 different low-to-medium risk pension plans and have them mature when I turn 60 - with a nice 25% cash lump sum in 1 and just a monthly income from another.

Not quite sure what you mean by this.

If you're looking to take out a cash lump sum from one of the plans at retirement then the tax wrapper you want is an ISA, not a pension.

A low cost online SIPP would certainly be something to consider for a low to medium risk lump sum investment to be left for many years with little trading.You could do a lot better than with an ordinary pension because the charges could be a lot lower.

rs_azzuri

dunstonh wrote:

The LTSB version of the Scot Widows contract is a cut down version of the IFA product so you are correct. Plus LTSB advisors, being tied, cannot recommend investment funds. Most of their customers end up in just one fund and often the bog standard managed funds. Scot Widows pensions offer a good fund range. The Personal Pension is better than the Stakeholder as it offers all the stakeholder funds but includes other areas, including a Euro property fund which is flavour of the month right now. Ideal for those wanting a diverse portfolio within their pension.



If you paid £10,000 into a pension, you would write the cheque for £7800 and the Govt would make up the other £2200. This is 22% tax relief. If you are a higher rate tax payer in the year of contribution, you can claim another 18% off your tax bill. You would make your accountant aware of the contribution to the pension and he/she would take care of the extra 18%. If you do it yourself, there is a box on the self assessment form to show pension contributions.



It would certainly give you a headstart and could take care of your retirement income planning. You could then concentrate on building capital in future years (rather than focussing on pensions). As for amounts, they really mean nothing to us here as it is dependent upon how much you earn now and how much you will want to earn in retirement.

We cannot give product advice here or recommend providers as that is a regulated issue and this site is not regulated. One thing is clear though that with that contribution, you should not be considering a tied agent/bank. You probably wouldnt be looking at a stakeholder pension but the better fund ranges available on a personal pension. You could consider a self invested personal pension with those sort of values. An IFA could help you on that front. You could get them all cheaper if you do it yourself direct but you would need to know what to do and you would need to keep an eye on the investments for periodic switches, moving funds out of cash to purchase investments etc. Only you know if you would have the knowledge and time required to do that yourself. If not, that's where the IFA comes in.

I am sort of pre-empting responses from a couple of the regulars who assume a SIPP is correct for everyone and that they believe you should do it yourself at the cheapest price possible. You can decide that for yourself but the way I look at it is that I pay for someone to do jobs that I cannot do myself or where it is cheaper for me to pay them to do it rather than take time off myself to do it, which would cost me more.

Ok - I understand you cannot recommend specific plans but overall is there anywhere where I can find out the performance of certain plans over the last decade so that if I get in touch with an IFA I have some sort of idea of what I want?

Thanks again for your help in advance.

rs_azzuri

rs_azzuri

oh - and would it be better to lump it all in on one plan or spread it over 2 or even more?

rs_azzuri

EdInvestor wrote:

Not quite sure what you mean by this.

If you're looking to take out a cash lump sum from one of the plans at retirement then the tax wrapper you want is an ISA, not a pension.

A low cost online SIPP would certainly be something to consider for a low to medium risk lump sum investment to be left for many years with little trading.You could do a lot better than with an ordinary pension because the charges could be a lot lower.

Thanks for the advice but I don't even know what a SIPP is! I don't have the time or inclination to study up about pension plans as the end of the financial year is coming up at the start of April and I'd be starting with knowledge of zero. Couple that with the lack of confidence in understanding these matters and the lack of time due to my heavy workload means I'm perfectly happy for an IFA to do the work for me in exchange for a fee or %.

rs_azzuri

exil

I would think you'd need to spend your time and energy building your business, not managing your pension fund - so I wouldn't think a SIPP would be ideal. Basically, it's
a pension fund you manage yourself, thereby avoiding management charges.

dunstonh

Quick and simple summary:

1 - Stakeholder pension. Simple charging structure no more than 1.5% for first 10 years and then 1% thereafter. Fund range can be limited and with your contribution, you could do better on a personal pension. However, there is nothing wrong with a stakeholder. It's just designed for people on low contribution levels and low budgets. (exceptions exist like post retirement contributions etc)

2 - Personal Pension. Charging options can be variable and can result in a higher charge than stakeholder pension but also lower. If more than 20 years to go until retirement, a personal pension with selected companies can be much better value for money, even if you only invest in stakeholder funds. Main benefit is access to a much better fund range giving a decent portfolio spread. If charges do concern you, more than potential for growth, you could instruct the IFA to only consider mono charged contracts and not multi charge contracts. Mono charged contracts only have an annual management charge and these are based on the funds used. Multi charge plans can be cheaper but they can be more expensive.

There is a rule called RU64 which means advisors have to recommend stakeholder pensions first unless there is a good enough reason to recommend a personal pension or a SIPP. Fund selection would be a good enough reason.

SIPPs need work. An IFA can do the work but it may be better to start with a personal pension which has an option to move into a SIPP at no cost at a later date (which is most of them now).