Hargreaves Lansdown & buying additiona/extra/other funds?

jem16

K_P83 wrote: »

but i still don't see how a S&S ISA approach is better - due to the 20% loss each month (by which i mean there's no 20% injection in a S&S ISA).
I understand the pros & cons of each, i just don't understand why the ISA is better for me. Yes i know i have no employer contributions & i'm 20% not 40%, but at the same time, i've shown i can manage money well. I don't piddle it away.

Think of it this way. The pension tax relief is mostly deferred tax in the case of a basic rate taxpayer with no employer contribution. You get 20% tax relief now but come retirement you will have to pay 20% tax on anything over your personal allowance, so it simply balances out. If we were to assume the £140pw state pension that's being talked about and a £10k personal allowance, you would only have around £2720 tax-free.

The main advantage is the 25% tax-free lump sum plus what's left of your personal allowance. That's what you would plan for pension income.

In your case NEST will eventually(hopefully) happen and you will get some employer contribution. That's where you will gain.

dunstonh

The main reason is that you cant move a pension into an ISA. However, you can move an iSA into a pension. So, as you dont know what is happening in future, the ISA gives you flexibility that the pension does not.

The counter argument is that you cant look on the pension as a fall back and gets you used to paying a proper bill. Taking all your money out of the ISA when you are 35 to buy a bigger property may well be attractive as an option at the time (and that temptation will be there). However, you wont thank yourself for doing it when you retire.

Nine_Lives

Thanks jem

dunstonh - there's little chance of that & plus, i can assure you i wont be tempted. I'm assuming you're just talking in general & not to my specific case? I'm 28 now, 29 later in the year, & we're looking to move out in 2013. We have approx £40k in savings right now & we're aiming for minimum £48k, which would be a 40% deposit.

We should meet these targets.

If not, then we simply save on until we do, OR, i ask my mum if i can take a loan of some of the money she's received through my dad dying. She knows i'm not the type to "do one" & that i will repay in full. It's better than taking a loan from anywhere else - where there's interest to pay also.

That would be last resort though. I'm disciplined enough to not dip into the retirement fund.

If kids come into the equation, then i can see that being the ONLY thing that throws everything upside down.

jamesd

K_P83 wrote: »

I still can't help but think i'm missing out on £25 per month tax relief

You are short term but it's available waiting for you whenever you want to use pension contributions and collect it. Now just happens not to be the best time because you'll get a better deal by waiting - at least some employer matching when auto-enrolment comes in.

So long as you're investing the money as you would in a pension that means you're not really losing anything. If the investments grow you just get 25% added to the after-growth amount whenever/ifever you move the money into a pension. So, no reason to lose the flexibility that you may well need for property purchase and no loss from not using the pension.

The advice of the IFA is good IMO.

NEST may not be the option your employer chooses for auto-enrollment. NEST is a particular pension scheme and one that comes with a ban on moving money out to others that I'm not keen on. It'll also have a limited range of investments but the details aren't yet known so it's not really possible to comment on the range much yet. Your employer can use any scheme that matches some minimum requirements and supports auto-enrolling of employees. My personal view is that something other than NEST is likely to beat NEST.

Nine_Lives

Thanks for your view on the pension vs ISA in my case James.

Along with what jem & dunstonh said earlier, i understand the IFAs decision better now.

jamesd wrote: »

NEST may not be the option your employer chooses for auto-enrollment. NEST is a particular pension scheme and one that comes with a ban on moving money out to others that I'm not keen on. It'll also have a limited range of investments but the details aren't yet known so it's not really possible to comment on the range much yet. Your employer can use any scheme that matches some minimum requirements and supports auto-enrolling of employees. My personal view is that something other than NEST is likely to beat NEST.

I know you say my employer may not opt for NEST, but i can assure you that they will opt for the bare minimum!

If opting for "something else" required any sort of thought (& thought = time & time = money) then it wont be done, simple. They wont be interested in helping the employee one bit, i can 99.9% assure you on that. If it's not making them money then they're not interested & that's the bottom line.

So i will be put into whatever is the default setting.

My question would be: is it likely to even be worth it?

To expand on that...

Right now i can select whatever fund i feel like. I can have 1 or i can have 1 thousand, it doesn't matter.

When NEST comes into play, who decides what money is invested where? What if it all gets lumped in something at the highest or lowest end of the risk scaled - neither would suit me.

But while that's a negative to NEST (i'm just guessing that that is how it may work), the positive would be getting 3% from my employer. "owt is better than nowt".
But while it's free money & free money is good, what if it's lumped somewhere that earns sweet FA? Who makes that decision?

jem16

K_P83 wrote: »

When NEST comes into play, who decides what money is invested where? What if it all gets lumped in something at the highest or lowest end of the risk scaled - neither would suit me.

There seems to be something called Nest's Retirement Date Funds - 46 of them - where your money will be invested unless you choose one of Nest's Additional Funds.

http://www.nestpensions.org.uk/schemeweb/NestWeb/public/NESTforSavers/contents/managing-your-pot.html

jamesd

Of the NEST funds the one that seems most worth having is the NEST Higher Risk fund. Which is pretty poor because it looks to be just a balanced managed fund, the sort of grotty catch-all that is default for most retirement plans. The Sharia fund is potentially more interesting because it's prohibited from having the non-share investments that a balanced managed fund uses, so it may have a better global range of equity investments than the Higher Risk fund.

I'm unimpressed and I'd avoid using any of the NEST funds unless I had no choice. I'm not sure it'll be worth paying into NEST even with the employer contribution given the poor range of available investments. Except for people who just don't care about investments and want to stick the money in and forget about it and accept not doing very well. At the moment my inclination given the combination of poor funds and a ban on moving money to something different is to say don't use NEST even if an employer offers it as the only pension scheme. Use a personal pension instead to get a decent range of investments that'll probably end up beating the NEST ones over time even without the employer part.

There will be some competitors to NEST around that may be cheaper and easier for your employer to use and also better for you with good investment choices by the time it matters to you.

NEST seems to be cementing its role as the thing to choose for employers who don't care about their employees and want them to opt out of the pension.

margaretclare

Well, it's of academic interest to me, but I would never never never invest in anything with the 'sharia' label!!!

jamesd

It has these restrictions:

"The fund will not invest in companies that are involved in the following areas:
alcohol
tobacco
financial services
pornography
weapons
pork products
gambling
leisure/media.
The fund also avoids companies that receive or pay a large amount of interest."

At least some of those appear to coincide with what you're after. My interest is just the ban on interest-producing investments.

margaretclare

I don't knowingly invest in tobacco, pornography or gambling. I've done pretty well with ethical funds like Kames. Sharia is a little different from that, though, and I had probably better not say what I think.