Pension Advice

adman_21

Hi,

I have been doing a fair bit of reading on this forum about different things and decided to ask for some advice. I am 29, currently working in a FT Job and have at the moment not made any pension provisions.

I am now in a position pretty much to start properly planning it and earn enough to contribute, i am aware that i should probably have started about 5 years ago but i am willing to take a look now. My company dont offer me a contributory scheme so i need to look privately.

I have taken a look and could potentially afford something like 350-450 per month from my current salary without it making a major difference. In terms of when i would like to look at retiring ideally 55 but realisticly it will depend on my career etc... so call it 60 for now.

At the moment i am a lower rate tax payer just but that will change hopefully in the next year. I have no debt other than student loan and am just currently taking on a joint mortgage with partner and will be overpaying on that too once it all goes through. No kids - yet.....

I would say i am quite good with my money, i budget and live well within my means. I own my car, dont have any other monthly payments other than rent/soon to be mortgage and have a modest amount saved just incase.

Basically my question is having looked on here the general consensus seems to be that using an IFA is probably the best way to maximise my gain with a pension - am i right in thinking this is the way i should go. Reading some of the other posts it would seem that they can help you to setup a private pension with a very low management charge (0.3% in some cases).

My other option would be to look at something like cavendish online or potentially a SIPP although the latter may be a bit too involved and i would rather not learn the hardway.

So given my current situation should i be looking specifically at any particular providers/funds?

thanks in advance

middlepuss

Do you want to go to an IFA for advice on what to invest in (UK equities, emerging markets, which shares, which funds, etc) or do you want to go to someone who will set up the pension for you? Or both?

Setting up a SIPP is now very easy actually. Have a look at the Hargreaves Lansdown website for example. Once set up, you put your monthly cash in then decide what fund(s) to invest it in then ring HL or do it online. Simple.

As a higher rate taxpayer SIPPs are good, particularly if you will be a basic rate taxpayer once you retire.

Also look at putting money into an ISA. One adantage is you can get the money out whenever you want.

But main decision is not so much the admin mechanics or wrapper (SIPP, ISA) but which shares/unit trusts/etc you want to invest your money in.

lisyloo

In terms of when i would like to look at retiring ideally 55 but realisticly it will depend on my career etc... so call it 60 for now.

I think your expectations are WAY out and you'd need to put a lot more in to retire at 55, but it does depend on how much you want to live on.
So you might like to look at gettting some forecasts so that at least you can set your expectations.

the general consensus seems to be that using an IFA is probably the best way to maximise my gain with a pension - am i right in thinking this is the way i should go

If you don't know anything about investing money then you either need to use the services of a professional or learn yourself.
You can learn yourself and many people would start out with a "virtual" portfolio (no real money) and experiment.
Depends whether you want to do that really.
Personally I'm not really inclined that way so let I let my advisors manage it.

i would rather not learn the hardway.

You can learn without risking any money.
There are many tools that will let you put in your investments, so all you do is pretend and see how you get on.

The first decision you really need to m ake is whether you are going to manage your own investments or let someone else do it.
I have someone else do it and they send me a report monthly advising switches (or not). I just have to accept their advice (or not).

Our ISAs and SIPP are with Novia, but they just execute buy/sell instructions. It's the advice that's the important bit.

If you want to do it yourself then I would perhaps save in a cash ISA short term and practise with virtual tools until you are confident.

adman_21

Thanks for the quick response, I would probably need to speak to an IFA about both. I would also do my homework on any funds before i decided to go with them.

I will take a look at the Hargreaves Lansdown website and maybe do a little bit more investigation into a SIPP. I do think this would be a good option although i still think potentially i would need some advice about the investing side of it.

In terms of ISA - i already run one and thats what my savings are sitting in currently although i only have a cash isa not a Stocks and Shares one. I am sure i read somewhere that it would be more beneficial for me at the minute to pay into an ISA until my salary goes above the 40% threshold and then potentially move the money into a pension as i would get the tax relief on it.

I have always been a little sceptical of Pensions but like other posts i have read the tax relif really is not to be missed, guess i am just trying to weigh up all my options before i actually decide.

thanks again for the reply though.

jem16

middlepuss wrote: »

As a higher rate taxpayer SIPPs are good, particularly if you will be a basic rate taxpayer once you retire.

As are personal pensions and stakeholder pensions.

SIPPs are good if you want to use the extra features that a SIPP offers, such as the ability to invest in areas not available within PP or stakeholders. If just using funds a SIPP is more expensive.

At age 29 a multi charged personal pension would probably be the best option, particularly starting off from scratch. If I remember correctly the pensions offered by Cavendish are all mono charged. An IFA would be a good bet if you don't have the knowledge to DIY.

jem16

adman_21 wrote: »

In terms of ISA - i already run one and thats what my savings are sitting in currently although i only have a cash isa not a Stocks and Shares one.

S&S ISA is really what should be used for long term retirement planning.

I am sure i read somewhere that it would be more beneficial for me at the minute to pay into an ISA until my salary goes above the 40% threshold and then potentially move the money into a pension as i would get the tax relief on it.

In the absence of an employer contribution then yes using a S&S ISA is a good idea.

In reality though using a mixture is best. At the moment over 65s have almost £10k tax-free allowance. You should aim to have pension provision (including state pension) to use up that tax-free allowance. Anything above that should come from ISA provision.

However in the case of 40% taxpayer who will be a basic rate taxpayer in retierment the pension is best.

middlepuss

adman_21 wrote: »

I am sure i read somewhere that it would be more beneficial for me at the minute to pay into an ISA until my salary goes above the 40% threshold and then potentially move the money into a pension as i would get the tax relief on it.

That strikes me as a very good idea indeed. But remember, if in any given year you pay 40% tax on only £5000 of your income, then you can only transfer £5000 into your SIPP and get 40% tax relief on it.

adman_21 wrote: »

I have always been a little sceptical of Pensions but like other posts i have read the tax relif really is not to be missed, guess i am just trying to weigh up all my options before i actually decide.

Scepticism about pensions probably results from many old style pnesion schemes that were diabolical. Look upon a SIPP as simply you investing your savings and getting tax relief.

Also, if you invest directly in a unit trust you might pay 5% initial charge. But if you invest in that same unit trust inside a H-L SIPP H-L will probably rebate the initial charge to you. So not only do you get a tax benefit, your SIPP can lower your costs too.

And some IFAs may even be able to set you up a SIPP with even lower costs.

jem16

middlepuss wrote: »

Also, if you invest directly in a unit trust you might pay 5% initial charge and 1.5% annual charges

If you are talking about the same DIY channel - with HL there would be no initial charge as it's usually rebated and 1.25%amc.

But if you invest in that same unit trust inside a H-L SIPP you will almost certainly pay no initial charge and you'll probablu get a bit of the amc rebated too.

HL's SIPP does not rebate the amc so it will be 1.5%

adman_21

Jem16 thats all very useful information thanks a lot.

middlepuss

jem16 wrote: »

SIPPs are good if you want to use the extra features that a SIPP offers, such as the ability to invest in areas not available within PP or stakeholders. If just using funds a SIPP is more expensive.

You say "If just using funds a SIPP is more expensive". What are you comparing with what?

I'm just about to move a stakeholder held with a unit trust provider to Hargreaves Lansdown SIPP because the charges with HL are lower.

lisyloo

I would also do my homework on any funds before i decided to go with them.

This is easy to say but there are about 50,000 investing options, so you need to do a lot of research.

I am sure i read somewhere that it would be more beneficial for me at the minute to pay into an ISA until my salary goes above the 40% threshold and then potentially move the money into a pension as i would get the tax relief on it.

Pensions give you tax relief at your current rate.
If you are a basic rate tax payer you'll get 20% tax relief but you'll pay 20% income tax in retirement on your pension (except the 25% tax free lump sum, personal allowances and any lower tax bands in place at the time). So pensions are still beneficial at basic rate.
They work really well at higher rate, as you get 40% tax relief but will probably only pay 20% in retirement. This is a good benefit.
The big downside is no access to your money until you retire.
There are still tax benefits at basic rate e.g. the tax free lump sum, but not a much as at the higher rate.

S&S ISA is really what should be used for long term retirement planning.

Agreed.
I was only suggesting cash, if you want to do your own investment management and want to play around first with a virtual porfolio.

In reality though using a mixture is best

You need a mix. A pension, long term investment, savings with short term access.
This gives you the access you need, some capital safety as well as better returns.
Getting the balance right is the tricky bit.