Cheapest Sipp: build yourself a low cost DIY pension article

RedMonty

cloud_dog wrote: »

[why not NEST] As dunstonh says.

So you would suggest I stick with NEST? There seems to be a poor opinion of them in general, eg this thread https://forums.moneysavingexpert.com/discussion/5779465/nest-pensions-higher-risk-fund#13 with several contributions from dunsonh and others.

I'm quite comfortable with risk, and seeing my Vanguard ISAs briefly fall in the recent wobble over Xmas was no problem for me as it was clearly a short term thing.

1. I will be making quite high extra contributions, and NEST's 1.8% initial charge is a bit to swallow. It was suggested in the thread above that NEST wins on charges if you stay with them 10 years or more. I don't plan to stay with my new employers that long.

2. I already have my Vanguard ISAs and share portfolio laid out in a satisfactory risk profile. With NEST, whichever fund I chose for my pot is all or nothing e.g. to keep it simple I can't put 60% in NEST low risk and 40% in NEST high risk. The whole pot has to go in one fund, which doesn't make me a happy camper.

Ignoring the opting out (why would you?), the specifics for each scheme can differ slightly, and the devil is in the detail. You need to check with the company. Even so, don't assume. Verify.

Thank you. I will.

If you are a BRT payer, and if SS isn't an option currently then you may want to consider utilising a LISA for longer-term / retirement planning instead of a pension. Obviously if SS becomes available or you become a HRT payer then pension wins hands down.

Thank you for the compliment - I'm rather over the 40-year age limit for LISA! House is well on the way to being paid off, so not a lot of other options for savings.

SS is definitely possible with the new company, so my initial plan is to catch up on my pension by doing about 50% SS for a year or two, using part of my other savings to support any shortfall in living costs. (Shouldn't need it but they're there if needed.)

I see the question for me will be: is paying pension - including company contributions & SS - into a non-NEST SIPP sufficiently worth it for me to put the effort into persuading the Board to allow it? I Without SS, probably not worth the bother, but with my 50% SS it becomes a more difficult question as the early years become more important to the overall outcome.

Is there's an alternative way of splitting the payments between NEST and SIPP that still captures the company pension contribution / optional employer NI contribution benefits? I'm not sure what that could be.

jamesd

RedMonty wrote: »

So you would suggest I stick with NEST?

NEST are very expensive for someone expecting to be with them for only a few years. The big deal is them taking 1.8% of all money paid into the account on top of the 0.3% annual charge. With you anticipating say £24k over two years that's £432 initial.

Even so, if you must use NEST to get the benefit of 12% employee NI salary sacrifice, do. Less use at 2% unless you're getting some of the employer NI saving on top.

If you will be a higher rate tax payer try to make your total contributions in as few months as possible. NI is calculated for individual pay periods so sacrificing deeply into the basic rate range maximises the amount on which you save 12% instead of 2%.

While NEST has no truly good long term investment options you can ultimately solve that by transferring out. NEST doesn't allow transfers out while contributions are still being made. Temporarily stopping them or waiting until you change job are two workarounds.

bowlhead99

RedMonty wrote: »

1. I will be making quite high extra contributions, and NEST's 1.8% initial charge is a bit to swallow. It was suggested in the thread above that NEST wins on charges if you stay with them 10 years or more. I don't plan to stay with my new employers that long.

As Jamesd says, the charge is high if it is only buying you investment management/ fund admin services for a couple of years, so using them for investment management / fund admin on the money for a decade or more is more cost effective.

You don't need to stay with your employers that long, you just keep using the product that long. Presumably you have more than ten years to live. You are not looking to draw out the money as a retiree within the next ten years, right? With NEST the deal is that it costs to set up each contribution but then becomes cheap ongoing to run.

2. I already have my Vanguard ISAs and share portfolio laid out in a satisfactory risk profile. With NEST, whichever fund I chose for my pot is all or nothing e.g. to keep it simple I can't put 60% in NEST low risk and 40% in NEST high risk. The whole pot has to go in one fund, which doesn't make me a happy camper.

Your ISA may have a different investment objective to your pension so it doesn't need to have the exact same plan.

Presumably the pension(s) will be used to provide you a retirement income over perhaps 40-60 years from now (if you are 45-50 now - you mentioned being half way through your working life); and the contributions you are making to this particular pension is only part of your total pension contribution because you reckon you will be changing jobs every couple of years.

You have mentioned you are tolerant of risk etc, and not the type of person to be worried about short term swings in value. So, you would be OK with either the 'higher risk' fund (which is a balanced managed fund - as of the last factsheet, the higher risk fund was a little over 70% in equities with the remainder in bonds, property and commodities) or the Sharia fund (100% global equities). You do not need to micromanage it to some exact preferred volatility level. It's a long term investment for which you are already playing catchup by starting later in life, and if you are looking to maximise your pension returns for a multi-decade period, you probably don't need to seek out something lower risk than what they call 'high risk' at 70% equity.

Once you have left the employer, if you later want to roll it into an overall bigger pot with other pension money by transferring it out somewhere, you could do that ; although you might be OK staying with them for some considerable time thereafter, given they will be cheap to hold at only 0.3% all-in.

SS is definitely possible with the new company, so my initial plan is to catch up on my pension by doing about 50% SS for a year or two, using part of my other savings to support any shortfall in living costs. (Shouldn't need it but they're there if needed.)

Firstly, when someone asked about whether you would definitely be able to use salary sacrifice, you said they had probably never heard of it. Now you say it is definitely possible.

This 'definitely possible to do it' is your assumption because it is a small company and you are senior [although you are not a highrolling £50k a year salary senior, as you have mentioned only being a basic rate taxpayer, so we don't know where you sit in the food chain...]

Small companies with ambitions to grow do not necessarily want to set a precedent of offering salary sacrifice arrangement where someone effectively rewrites their employment contract to get paid X salary and Y pension (the latter including some negotiated element of Z employer NI saving from taking a lower salary). But you are right they might go for it. It's not something they have to do, but if they are happy to pay their external accountant to make a funny arrangement just for you, then it's fine.

If SS is important to you, you may be better just telling them up front that you want an (e.g.) 50% lower salary and much higher pension as a condition of starting working for them, so they can internally clear that arrangement before you start. Rather than getting there and then trying to change the system from within once they have already papered your employment contract and then need to create a variation to it (which in a small company might be a job for their external HR consultant or external lawyer rather than their external accountant).

I see the question for me will be: is paying pension - including company contributions & SS - into a non-NEST SIPP sufficiently worth it for me to put the effort into persuading the Board to allow it? I Without SS, probably not worth the bother, but with my 50% SS it becomes a more difficult question as the early years become more important to the overall outcome.

You are going to be persuading the board or someone senior that your employment contract should be rewritten to allow your salary to be massively lowered and pension contributions increased while maintaining a notional headline salary (to be used for future salary increases and other salary-related matters like death-in-service benefits, annual bonuses, the figure that they tell your mortgage company you earn when you want to remortgage with another provider who wants proof of earnings, etc etc.). And you mention that you suspect that they have never heard of this, and it may be a negotiation as it has been with your family member elsewhere.

So, it sounds like you are going to be pitching someone an idea and asking them (board level) to sanction it. In that context it doesn't seem like it would hurt to also say that you would like the pension contributions to be made to an entirely different pension provider to what the other employees use, because it's only a bit more admin and you are willing to spend some time with the external accountant on the paperwork and administration (rather than getting on with your own day job). If they are a small and flexible company they might be fine for you to have this special extra treatment for your unique position within the company without offering the arrangement to other more junior members of staff.

Is there's an alternative way of splitting the payments between NEST and SIPP that still captures the company pension contribution / optional employer NI contribution benefits? I'm not sure what that could be.

Ultimately if you want to get the company to pay contributions you will have to accept them paying those contributions into whatever scheme they are happy paying into. The easiest for them is to just do for you what they do for everyone else in their auto-enrollment scheme (NEST). And you can then make private contributions yourself to another scheme (e.g. a SIPP) from your own pocket.

However, you want those big contributions which come from yourself to be as tax efficient as possible - which means that instead of paying them from your bank account into a pension, you have to convince them that you should accept lower salary (thus paying lower national insurance deductions because you are getting paid less) in exchange for them paying you a bigger pension contribution instead. Then with your pension needs sorted (because the employer is funding your contributions in lieu of giving you a big salary), you don't need to make private contributions yourself, you can instead live off the money that you would have otherwise contributed to the pension scheme out of your own pocket.

Some sort of hybrid between the two ideas (e.g. negotiate for some element of your headline pay to be salary sacrificed into a different SIPP, and then stay in the auto-enrollment scheme as standard to get your normal entitlement on your revised lower salary via NEST) is possible in theory - but if there is one thing that good small companies are averse to, it's creating convoluted solutions which create extra admin, because admin is a killer when you have few employees and want those employees to be engaged in productive work, while also minimising the costs of outside consultants, accountants etc.

You have heard that some employers 'give away' a portion of the employers NI which they save when they lower someone's salary through salary sacrifice. However, a lot of employers don't, because it can be a PITA to deal with paperwork (HR / employment law contract stuff, accounting and payments stuff), so the sweetener for them is that they'll save a few grand of employer NI money if you take a lower salary, which they can use to defray that cost and hassle.

dadsgoneshopping

I have a very small SIPP with BEST INVEST. Due to the £130 charge they have introduced, I want to transfer out, probably to AJ Bell. Has anyone transfered from BestInvest, to AJ bell or any other? Is it quick and easy? Are there any charges?

Kendall80

I am transferring a SIPP from Bestinvest to Youinvest also. For the same reasons as you. I also find the BestInvest website a little 'clunky' and the customer service a little on the slow side. Added to that a fund sell that took 2-3 weeks to complete recently.


I sent off my documents to Ajbell 2 days ago. The transfer is already showing as in progress on the website which is encouraging. I did sell all investments to cash to hopefully hasten the process. Impressed with both their website and communication so far.

deeleys

Hi All

Some help needed please. I left a job with an Aegon company group pension plan with 55k in it. Aegon have asked me what I want to do with it. I’m nearly aged 50 and would like to start drawing down at 55 or soon after. What’s the best thing to do with it? Low fees would be good. I don’t want to take any high risks with it. I don’t want to transfer to my new company pension because I have to have an annuity with that one.

Thanks
Steve

ScoobyZ

deeleys wrote: »

Hi All

Some help needed please. I left a job with an Aegon company group pension plan with 55k in it. Aegon have asked me what I want to do with it. I’m nearly aged 50 and would like to start drawing down at 55 or soon after. What’s the best thing to do with it? Low fees would be good. I don’t want to take any high risks with it. I don’t want to transfer to my new company pension because I have to have an annuity with that one.

Thanks
Steve

New Vanguard SIPP?:

https://forums.moneysavingexpert.com/discussion/6077072/vanguard-sipp-announced

Something like a lifestrategy 20?

https://www.thisismoney.co.uk/money/diyinvesting/article-7756519/A-Vanguard-LifeStrategy-fund-make-pension-investing-cheap-easy.html

AlanP_2

deeleys wrote: »

Hi All

Some help needed please. I left a job with an Aegon company group pension plan with 55k in it. Aegon have asked me what I want to do with it. I’m nearly aged 50 and would like to start drawing down at 55 or soon after. What’s the best thing to do with it? Low fees would be good. I don’t want to take any high risks with it. I don’t want to transfer to my new company pension because I have to have an annuity with that one.

Thanks
Steve

Your employer's provider can't force you to have an annuity.

They may not offer an alternative so you would need to transfer it so that you could use drawdown.

Given that you are not going to access it for at least 5 years does that matter?

Employer schemes often have reduced fees so could be more cost effective.

SonOf

I’m nearly aged 50 and would like to start drawing down at 55 or soon after. What’s the best thing to do with it?

Wait until you are closer to 55 as the best options today will not be the best option in 5 years time.

I don’t want to transfer to my new company pension because I have to have an annuity with that one.

That will not be correct. Whilst a scheme may not offer drawdown, this does not mean you have to buy an annuity. You should be able to transfer it to scheme that facilitates drawdown.

deeleys

Thanks for the information. I will speak to the company pension scheme to see what their charges are and transfer fees and see if it is better value than the Vanguard SIPP.