Which of two existing pensions to pay into

wary

I have two personal pensions with different companies that I can still contribute to (& others that I can't). One was set up around 2001 and has virtually all of my contributions to date. The other was set up in 2007 and holds comparatively minimal contributions.

I'm keen to start ramping up contributions but want to decide which one to concentrate on, or indeed whether a new pension policy would be in order, although I'd be loathed to set up yet another one. Therefore I would appreciate any steer on the kind of factors/parameters that I should be looking at.

I'm presuming that I should be able to get most of the details from the companies themselves such as fees, commission ... But I'm not sure about performance figures, or attributes of the pension that may be relevant ... I'm willing to do much of the donkey work myself, partly to cut down on IFA advice but primarily because I want to start taking a more active interest in them and to understand more about pensions.

I'm happy to pay for IFA advice if need be, once I've got as far as I can. Whilst I trust my current IFA's integrity, they do receive commission on one policy but not the other and so I'd have to question their impartiality with such advice, so I guess it would have to be another IFA.

My wife, 7 years my junior, has virtually nothing in the way of a pension and so is also going to be reliant on my meagre pension, if that's of relevance when deciding what to go for?

jem16

wary wrote: »

My wife, 7 years my junior, has virtually nothing in the way of a pension and so is also going to be reliant on my meagre pension, if that's of relevance when deciding what to go for?

The way to go, first of all, would be to find out exactly how much your pensions will provide for you and decide what you want to have in retirement.

You and your wife should both aim to have around £10k in pension provision so that you can both utilise your tax-free allowances to the full - this includes the state pension. At the moment it doesn't sound like your wife has this and you may end up top heavy and pay more tax than need be as a result. It's really better to plan as a couple.

After this £10k it can be better, in the absence of employer contributions, to use S&S ISAs to provide tax-free income.

jem16

Having seen you other thread where you mention being a higher rate taxpayer this will also have a bearing on plans.

If you are a higher rate taxpayer now but only a basic rate taxpayer in retirement it makes sense to use a pension now. In which case after the £10k amount already mentioned you want to think about the next ceiling of £22,900 where you starte to lose some of the increased personal allowance that you get at age 65.

wary

jem16 wrote: »

You and your wife should both aim to have around £10k in pension provision so that you can both utilise your tax-free allowances to the full - this includes the state pension. At the moment it doesn't sound like your wife has this and you may end up top heavy and pay more tax than need be as a result. It's really better to plan as a couple.

Thanks Jem for the info. Is there any way that my pension or pension contributions can be somehow split between my wife & I so that our retirement income is more even split? (Some kind of joint pension similar to a joint bank account.) Or is this wishful thinking?

jem16

You can't have a joint pension.

However there is nothing stopping you contributing to your wife's pension, although tax relief will be at her rate not yours. If she is not working you can still contribute £3600 and earn basic rate tax relief.

wary

jem16 wrote: »

However there is nothing stopping you contributing to your wife's pension, although tax relief will be at her rate not yours. If she is not working you can still contribute £3600 and earn basic rate tax relief.

Thanks. She's officially the secretary of my company but is not on the payroll. Can my company make pension contributions into her pot hence avoiding corporation tax?

jem16

If she is not on the payroll I wouldn't think so. However I don't know - I'm sure someone else would be able to answer that.

wary

Thanks Jem16 for the advice; ramping up my wife's contributions is certainly something that I'll seriously look at.

The main thrust of my original question is how I can decide which of my existing policies I should concentrate on in terms of future contributions, or indeed whether I should set up yet another one. I would appreciate any steer on the kind of factors/parameters/attributes that I should be looking at, and how much emphasis I should put on the individual company and its past performance. In my case they are Aviva (main one, opened in 2001) & Friends Provident (opened 2007), if that's of relevance?

jem16

wary wrote: »

and how much emphasis I should put on the individual company and its past performance. In my case they are Aviva (main one, opened in 2001) & Friends Provident (opened 2007), if that's of relevance?

The company that you have the pension with is only the provider of the tax wrapper. It's not that wrapper that decides performance but the investment funds available within.

You need to decide on an investment strategy, choose funds and then see which provider will offer those funds.

Are you able to do that or would it not be better to seek advice from an IFA for both you and your wife?

wary

jem16 wrote: »

The company that you have the pension with is only the provider of the tax wrapper. It's not that wrapper that decides performance but the investment funds available within.

You need to decide on an investment strategy, choose funds and then see which provider will offer those funds.

Are you able to do that or would it not be better to seek advice from an IFA for both you and your wife?

I will be visiting my IFA soon, and following your advice I'll involve my wife too. It's just that I want to get a better understanding of pensions and do some research first, not just to reduce IFA fees but more importantly to enable me to have a more intelligible conversation on pensions.

Thanks for highlighting that the company is just a provider of the tax wrapper, and it's really all about the investment funds. This may be a matter of fact to some but for someone attempting to get to grips for the first time, it all helps to gain an understanding.

I'm a little confused though as aren't the investment funds chosen by the individual company's fund managers, in which case presumably some companies have a better track record than others in their ability to invest wisely? If so, surely this would be something to take into account when chosing a company? There would be other factors to take into account too such as fees & commission, but I guess these will be minimal compared to getting the choice of fund right? In terms of the pension being just a tax wrapper for investments, again don't some of these wrappers vary in terms of whether they're stakeholder, stakeholder friendly ...?

dunstonh

I'm a little confused though as aren't the investment funds chosen by the individual company's fund managers

No. Fund managers control the assets within the fund. Some funds exist where they have a fund manager controlling the asset allocation that invests into other funds within their range. However, the IFA or you select the funds (tied advisers are mostly not allowed to).

In terms of the pension being just a tax wrapper for investments, again don't some of these wrappers vary in terms of whether they're stakeholder, stakeholder friendly ...?

Stakeholder or stakeholder friendly usually means compromising on the investment options. That isnt necessarily a bad thing if you are focusing on fees/charges rather than investment potential. However, those compromises will often mean you wont have access to emerging markets or specialist areas and the investment choice will be more generic than specific. e.g. you wont be able to invest in special situation/recovery funds but will only have generic UK growth funds or UK tracker funds (UK used only as example).

For some people that will be fine. For others it will not be. Where you want to compromise is a personal decision. Cheapest or best. The two dont go hand in hand.