Pensions... Help?

jj_5

Hi guys,

just looking for some help really, I'm 23 and have just recently joined a company who have their own pension scheme, is it always wise to pay into these.. I have been advised it is and have actually signed up to it was just looking to get some feedback on whether it was a wise move or not.

The pension is through hargreaves and landsdowne and I've opted for 2% contributions. I earn £17,500 as a base salary with bonuses which make my expected earnings around £30k

I also have debts at the moment (around 3k on a student loan) and wondered if that comes into play atall?

And the default fund I was told was the Schroder managed balance (class H).

Hope this all makes sense and hope you can help!

Shimrod

Does the company make contributions into the pension fund as well? There are two rules of thumb to bear in mind:
1) Pay in at least enough to get the maximum contribution from the company
2) Your pension contributions (including company contribution) as a percentage of income should be 1/2 your age at time of starting (so for you 11.5%). This would give enough funds (in theory) to provide 2/3rds of your income in retirement.

I'll leave it for others to comment on the performance of the Schroder's fund, but what other funds are available?

JoeCrystal

Shimrod wrote: »

Does the company make contributions into the pension fund as well? There are two rules of thumb to bear in mind:
1) Pay in at least enough to get the maximum contribution from the company
2) Your pension contributions (including company contribution) as a percentage of income should be 1/2 your age at time of starting (so for you 11.5%). This would give enough funds (in theory) to provide 2/3rds of your income in retirement.

I'll leave it for others to comment on the performance of the Schroder's fund, but what other funds are available?

Huh? I thought it is usually 20% to 25% of your earnings though working life in order to provide 2/3 of your final salary in retirement.

That 2% worked out as £29.16 per month on £17,500 or £50 per month on £30,000. Both looked very low to me. I mean, often mentioned minimum payment into private personal pension scheme schemes is often £100 per month.

Here is link to Pension calculator, have a play with it to see what is good amount to pay. http://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

But I do strongly agree with 1st point, make sure you get maximum Employer's contribution!

Cheers

Joe

Dominic9

Looking at Hargreaves Lansdown Schroder managed balance (class H) fund, it has a TER of 0.96%.

But, it invests mostly in other managed funds. The two largest funds it holds have TERs of 1.67% and 1.7%.

Does that mean the effective TER paid when investing in the default fund is really in the region of 2.6% (crudely assuming that all the funds it invests in have TERs of 1.67%)?

dunstonh

Fund of funds get discounts over the retail TER. Often they use the institutional or clean class version.

Dominic9

Fund of funds get discounts over the retail TER. Often they use the institutional or clean class version.

Looking at the investments of the fund-of-funds, on Trustnet it seems the TER on institutional offering of the biggest individual fund is 0.95% (compared to the retail version at 1.67%).

So that would mean the effective TER would be 1.9% (0.96% for fund-of-funds, and 0.95% for individual funds - again, with crude assumption that all the funds the fund-of-funds invests in have institutional TERs of 0.95%).

Would that sound about right?

atush

I agree with post 2. Invest at least the amt you need to to get the Maximum employers contribs. So that could mean investing mroe than 2%, and yes you should when starting a pension invest a min of half your age in % terms. But these are mins, you can invest more.

But I do think paying off debt, and saving outside a pension for more short terms goals are important too- things like a house/flat deposit, marriage, family etc as these savings would be needed earlier than age 55.

If I were you, I would attempt to live on my base salary and save the variable rest into short and longer term savings/pensions.

Richard_DandR

As all the funds within are Schroder Funds, the fee on the underlying funds will be rebated back to the Fund of Funds.

See page 17 of the accounts - link below.

http://www.schroders.com/staticfiles/Schroders/Funds/SIL%20-%20Unit%20Trusts/Managed%20Balanced%20Fund/English/SIL-Managed-Balanced-Fund-FRA.pdf

jj_5

Thanks for the replies guys

The employers do make contributions but not for the first year (I get a back-dated payment when a year's service has passed).

As far as I can tell the employers match what I put in (although would need to check this up).

I understand most of what you all say what is a TER though?

11.5% seems a lot of you're salary to give up aswell

atush

But you wouldn't pay that much.

Your employer's contribs, and basic rate tax relief would count as well to make that %.

whatever you do, put in enough to get their max. It is what we like to call 'free' money and not taking it is like taking a pay cut really.

Richard_DandR

jj_5 wrote: »

Thanks for the replies guys

The employers do make contributions but not for the first year (I get a back-dated payment when a year's service has passed).

As far as I can tell the employers match what I put in (although would need to check this up).

I understand most of what you all say what is a TER though?

11.5% seems a lot of you're salary to give up aswell

Total Expense Ratio - the cost of running the fund expressed as a percentage of the fund size. FSA rules set out which costs are included.