Should I start a SIPP?

Masomnia

The more I think about it, the more tempting it seems.

The background is this; I'm currently a student, graduate next year, not a tax payer, beginning to build up what I gather are fairly substantial savings for my age, due more money in the coming months from inheritances.

The markets, whilst they have recovered somewhat recently, are still low. Apparently, according to Fidelity, I can still gat tax relief on contributions despite not being a tax payer. So, why not get the tax relief now and take advantage of low markets whilst I still have the chance? Don't want to miss the boat, as it were.

I've got some thoughts about funds, perhaps Jupiter Financial Opportunities, Invesco Perpetual Income, and maybe something with Index Linked Gilts. Basically nothing too far from the beaten track, with good records, and good prospects. Not asking for advice on this, just showing that I have thought about it at least a bit!

So am I missing anything? Apparently it's free to set one up with Fidelity, with no charges (apart from fund management charges). I won't be needing the savings any time soon, not getting married, putting down house deposits, or anything like that. I'd be putting about £2000 in to begin with (I understand I can't contribute too much more than that as a non-tax payer), so money that I could make up after working for a bit. I'm well aware I can't get the money out again, and these savings are intended with my entire future in mind.

What am I missing, why not get the tax relief when the market is low?

yelf

what are the charges on the SIPP? Why a SIPP - why not a personal pension? What are fidellitys charges: reulars, annual, investment etc.

Based on what you've said you have no need for a sipp

Masomnia

yelf wrote: »

what are the charges on the SIPP? Why a SIPP - why not a personal pension? What are fidellitys charges: reulars, annual, investment etc

There's no set up fee on it and no admistration charge. As I understand it, you pay the charges of the funds you choose as you would holding them any other way.

I suppose I want the flexibilty of doing it myself, don't want to be at the mercy of whoever manages it. You hear horror stories on the news about these things, so I suppose I'd like as much control as possible. 'If you want a job done properly...' and all that.

dunstonh

You hear horror stories on the news about these things

About what things?

I suppose I want the flexibilty of doing it myself, don't want to be at the mercy of whoever manages it.

So, why are you picking managed investment funds?

'If you want a job done properly...' and all that.

Not saying it will apply to you but a common error that many inexperienced investors make (and I have seen novice advisers make as well) is to go along with fashion investing and go too heavy into higher risk investments without realising what they are doing. Investments like Jupiter Financial Opportunities for example.....

EdInvestor

In the absence of any free money from an employer, it would be better to save and invest in a stocks and shares ISA (same funds are available).Wrapper is much more flexible, which makes sense at your age.If you later want to put the money into a pension and have a job, you can get tax relief on the whole lot, not just £3,600 a year. If you need to use it for a deposit on a property, then it's available, which it isn't in a SIPP.

The cheapest way is to use a discount broker such as https://www.h-l.co.uk

yelf

SIPPS allow you to buy and sell individual shares if you wish. Any pension plan allows you to choose and move between investment funds. I rememebr seeing an example once: Mr A invested £100 based on what was good during the previous year, over 100years that £100 had grown to £1000.

Mr B invested with a forward looking approach. The £100 turned into over £1.3million

(Ok, I cant remember the exact figures, but they were based on real figures and the difference was jaw dropping)

Masomnia

I was hoping you'd post, thanks.

dunstonh wrote: »

About what things?

I remember all that debacle in the news fairly recently about one of Standard Life's pension funds, as well as the news every day about company pensions, final salary schemes with widening deficits, unreliable state pensions. I suppose I want something that I have more control over.

So, why are you picking managed investment funds?

Point taken, I realize the inconsistancy. Was thinking of using managed funds to begin with since I'm investing small amounts as the most effective way to diversify my risk on the small amounts I'm investing. This is why I mentioned the gilts too.

Not saying it will apply to you but a common error that many inexperienced investors make (and I have seen novice advisers make as well) is to go along with fashion investing and go too heavy into higher risk investments without realising what they are doing. Investments like Jupiter Financial Opportunities for example.....

I remember the same happening on here with Blackrock's Absolute Alpha fund, people rushing in and then complaining when their investment went down. Not a trap I'd want to fall into at all. You're not wasting your time writing all the posts you do you know! I chose those as they are well known and tried and tested, as funds to begin with. Higher risk is fine by me, given the timescale (30 years!) and the fact that seeing big drops wouldn't worry me. I've followed JFO as a fund recently, and was impressed as the manager moved out of equities and into safer instruments like government debt, and then back into equities in recent months, so thought that having a flexible fund like that with an active manager on my wavelength could work nicely!

Like I say thanks for your thoughts, I hope I've responded clearly!

Masomnia

EdInvestor wrote: »

In the absence of any free money from an employer, it would be better to save and invest in a stocks and shares ISA (same funds are available).Wrapper is much more flexible, which makes sense at your age.If you later want to put the money into a pension and have a job, you can get tax relief on the whole lot, not just £3,600 a year. If you need to use it for a deposit on a property, then it's available, which it isn't in a SIPP.

The cheapest way is to use a discount broker such as www.h-l.co.uk

Cheers Ed, that's exactly what I need to weigh up really. The tax relief of the ISA is really tempting at the moment, as I'll get more units, shares, whatever else, for the money I get added on. Just the flexibility...

dunstonh

I remember all that debacle in the news fairly recently about one of Standard Life's pension funds, as well as the news every day about company pensions, final salary schemes with widening deficits, unreliable state pensions. I suppose I want something that I have more control over.

The problem with std life was their published material did not match the true risk of the fund. Independent research and reporting sites showed the correct risk but it was Std's marketing of it that was wrong.

Final salary failures really do impact on a small minority of people (per pension held). It gets far more media coverage than it ought to and that does more damage than good as the media never reports on pension issues correctly.

I remember the same happening on here with Blackrock's Absolute Alpha fund, people rushing in and then complaining when their investment went down.

Same with Arch Cru. Both very good examples of fashion investing and lack of research.

I've followed JFO as a fund recently, and was impressed as the manager moved out of equities and into safer instruments like government debt, and then back into equities in recent months, so thought that having a flexible fund like that with an active manager on my wavelength could work nicely!

I've got it myself in my own portfolio. Although I prefer to spread specialist funds around wider due to their significant volatility. Great funds to have in a re balancing portfolio

Debt_Free_Chick

You don't need a SIPP in order to invest in the funds you've listed. Most decent personal pension plans give you access to very many funds managed by "external" investment managers i.e. managers other than the one you choose to provide the personal pension tax wrapper.

However, you need a firm handle on investing in funds (and/or picking your own stocks/shares, for that matter) - that is, you can't avoid "the market". You can't blame BR Absolute Alpha for losing money, if stock markets were falling. (Arguably, it shouldn't have lost money, given it's target, but it still invests in "equities and equity-related securities").

If you invest, expect the value of your investments to fall from time to time. But aim for an overall return over the life of the investments.

Finally - you will get "free money" in the form of the tax credit that will be paid, in addition to your own (net) contribution. But if you don't pay tax, your contribution is limited to £3,600 LESS the basic rate of tax relief so that's £2,880 in the current tax year.

EdInvestor

Masomnia wrote: »

Cheers Ed, that's exactly what I need to weigh up really. The tax relief of the ISA is really tempting at the moment, as I'll get more units, shares, whatever else, for the money I get added on. Just the flexibility...

I guess you mean pension rather than ISA.Do remember that this extra money you apparently get from the tax relief is an illusion, because it is clawed back when you pay tax on the pension income when you retire.The tax is just deferred it is not free money.

It is possible to get an advantage from tax relief - eg if you get the relief @40% and pay income tax in retirement @20%, (which is why pensions are so popular among high rate taxpayers)or if your total pension income (incl state pension) is limited to the personal over 65 tax allowance of around 9-10k and thus you pay no tax.

At the present neither of these would seem likely to apply to you.