Company pension AND stakeholder pension?

Lizbie

Sorry if this has been asked a thousand times before, but I can't find a similar thread!

I am 34 (expecting to work until my sixties) and am currently paying 6% of my salary - about £175/month - into my company's (non-final salary) pension scheme. This is the maximum amount that the company will match.

If I want to increase my pension saving, initially by about £50/month but I'm hoping to increase that, am I really better off upping the company scheme contribution, or is there no good reason not to strike out on my own with a stakeholder pension?

I should have about 30 years to run before retirement, so don't mind a bit of risk.

Thanks for any advice!

dunstonh

am I really better off upping the company scheme contribution, or is there no good reason not to strike out on my own with a stakeholder pension?

stakeholder pensions are generally a basic option with a limited investment choice. Typically on par with most company schemes to be honest. So, what would you gain from using a stakeholder over the money purchase occ scheme?

Are you married? Is your spouse pension provision up to scratch? Maybe the contribution is best going their way? Is an S&S ISA a better option?

Lizbie

No, not married!

To be honest for a few reasons I'm not very attracted to the S&S ISA route - it's definitely a bigger pension fund I'm looking to build up (slowly!) right now, I'm just not sure what the best route to get there is.

Loughton_Monkey

I personally wouldn't rule out Stakeholders. I have one with Scottish Widows and they have funds of several stripes. Charges are much less that more traditional pension plans.

Having said that, the bulk of your money is going into the company scheme, and in principle I don't see why you shouldn't put it in there. Have they got a good deal? How many funds do they have, and what bid/offer spread - or upfront charge do they charge you?

jamesd

What investments are you currently using? What are the annual charges for them in the company scheme?

Lizbie

We're in the Shipbuilding Industries Pension Scheme (sorry I'm not allowed to post a link). I'm afraid I don't have the details of their charges to hand, but they've recently changed their funds to:

Core passive funds:
Global Equities BGI Global Equity 50:50 Index
UK Equities BGI UK Equity Index
Fixed Interest Gilts BGI Over 15 Years UK Gilt Index
Index-Linked Gilts BGI Over 5 Years Index-Linked Index
Active managed funds:
Global Equities Standard Life Pension International One
Newton International Growth
Corporate Bonds Standard Life Pension Corporate Bond One
Property Standard Life Pension Property One
Absolute Return Schroder Diversified Growth
Cash Standard Life Managed Cash

From what I've seen, some of the Stakeholder pensions available (I'm thinking of Aviva and Scottish Equitable) offer quite a range of funds, though not enough to confuse me utterly: I guess I like the idea of playing around to a degree with which funds I choose, but I'm not ready to go hardcore on it! However, I'm prepared to be persuaded that sticking with the company scheme for my extra contributions is a better idea all round.

Again, thanks for all advice.

dunstonh

From what I've seen, some of the Stakeholder pensions available (I'm thinking of Aviva and Scottish Equitable) offer quite a range of funds,

The better stakeholders tend to over around 25-50 funds. However, to put that in perspective, the best personal pensions tend to offer over 1000. The funds on most stakeholders are internal funds in the core sectors but nothing in the satellite sectors (i.e. you get N America, Europe etc but you wont get specialist, Emerging Markets, Smaller Cos, Mid caps etc). The stakeholder fund range will look similar to the funds listed in the works scheme.

I would look at costs as the works scheme may be cheaper.

jamesd

Having looked at the site I don't see any indication of costs and it's necessary to know the AMC and TER of the funds before it's possible to properly compare with buying similar funds outside the scheme. I suggest that you contact Hymans Robertson to seek this information. I'm assuming that you are not a VT employee and hence would be using the new SIPS Money Purchase Plan.

You might also ask what the rules are for transferring money out of the scheme, since it could be a convenient way to get the contributions taken before making periodic lump sum transfers to a scheme that offers more options.

I'm not impressed by either of the lifestyle options and wouldn't use either. Option 1 is the default and "uses the BGI Global Equity 50:50 Index fund until 10 years from retirement, at which point it switches assets into an equally weighted blend of the BGI Over 15 Years UK Gilts Index fund and the Standard Life Pension Corporate Bond One fund, alongside the Standard Life Managed Cash fund, the aim being to have 75% of assets invested in bonds and 25% in cash at retirement". That has too much UK investment and not enough global or emerging market investment for my taste and switches wholesale into low growth investments too early for my taste also, particularly for anyone considering using income drawdown. The other one is worse unless you're close to buying an annuity already.

Still, if the costs are low enough, the BGI Global Equity 50:50 Index fund might be a decent choice for £50 a month. But given your age I'd really be more interested in using something more racy like Aberdeen Emerging Markets with this portion while it's only £50 a month with the remaining £350 a month going into relatively lower risk funds.

If the price is right, using the BGI Global Equity 50:50 Index fund within this scheme and contributing elsewhere, also transferring some of the money to the other pension, could be a useful way to get low costs for a core 50:50 UK:developed world fund, leaving you managing the more diverse parts of the investments somewhere else. I do something like this with my own work pension plan.

Cautious_Investor_3

dunstonh wrote: »

Maybe the contribution is best going their way? Is an S&S ISA a better option?

I'd agree, an ISA would give you other options in the future. Yes, you don't get tax relief on contributions but when you come to access the investment you could take a tax free income (it sounds as though you will be a tax payer in retirement, therefore a tax free income from an ISA might be attractive). Furthermore you will be able to access the money in the ISA independently from the main scheme which could offer greater flexibility in years to come.

Retirement is not all about pensions, it's about building up assets sufficient to give you an independent income at some point in the future, an ISA could be the perfect partner to your work scheme.

The Cautious Investor

Lizbie

Thanks for all your help so far. I think I'm still inclined to go down the pension route, as I didn't start till I was 29 and feel I have some catching up to do.

Yes, it is the VT Plan - seemed I failed to spot that we're different!

I've managed to dig up the Plan details, as of this June.

There is an administration charge of £48pa; it also says "investment charges are deducted at source in respect of the overseas equities and two of the five UK equity managers; these amout to approximately 0.4% for those invested in the SIPS Equity fund."

The SIPS Equity fund (for "younger members": I think I'm still classified as one!) is 60% UK, 40% overseas (which is made up of 14% US, 14% Europe, 6% Japan and 6% Pacific Basin).

Other options available are a Bond Fund (75% fixed interest securities, 25% index-linked gilts), an over-15 year Conventional Gilt Index Fund, the Clerical Medical with-profits fund and the Legal & General Cash Fund.

Do these all sound as uninspiring as I think?!

Lizbie

dunstonh wrote: »

The better stakeholders tend to over around 25-50 funds. However, to put that in perspective, the best personal pensions tend to offer over 1000.

I take your point, but actually I'd rather have 25 or 50 to choose from than 1000!