Private pension for husband, advice needed

Pinkfooted_Goose

Hi all,

I have been reading this forum for a number of years to help me with various money matters but have never needed to post specific questions until my focus has come to pensions! I have been intending to set up a private pension for my husband for the past year (which he is happy with but I tend to look after anything financial so it is down to me to actually do it) however I am still procrastinating and thought it was time to ask some advice, if possible.

Some brief background information as I know it often helps: my husband is 44 and has one pension which we only became aware of last year when I requested our state pension forecasts. This has a current value of ~ £10 000 and has been going since he was 18 and apparently contracted out of the second state pension (I think). Anyway, he was totally unaware of this and although it was pleasant surprise we are aware that with his age, his current pension provision is pretty dire.

His work do not offer any contribution based pension so we have decided that a private pension would be best. I was thinking that a personal pension would be the better option (as oppose to a stakeholder, which I think I read in a post by dunstonh a few months ago was not a great option these days - apologies if I've got that wrong). I considered a SIPP but do not have the knowledge, currently (although I would like to learn more over the next couple of years), to manage one. So, we were thinking, personal pension, paying in between £80 and £120 per month (with tax-relief then added on top of that). I have used Cavendish for life assurance in the past and although I know pensions are a vastly different product, I was thinking of using them again. We cannot afford an IFA at the moment and after delaying over the last year in starting the pension I don't want to delay anymore and want to open one this month.

I just wondered if anyone had any opinion/ advice about whether a personal pension would seem to be the right option for him; whether Cavendish is an appropriate way to get one (I know it isn't perfect but is it ok?); and whether my thinking of risk spread is of the right proportions: I was thinking approx 25% high risk; 55% medium and 20% low, obviously reducing the risk as he approaches retirement age, probably 65. I have been looking at the Friends Life, Standard Life, or Aegon Scottish Equitable pensions as possible options - I'm not sure if there are any particular positives or negatives associated with any of these? I did read about a large fine paid a couple of years ago by the last company - I'm not sure if this is something that should affect my decision or not.

Just to add that I am 14 years younger than my husband and will be joining the Universities SAS in a year or so (I have just completed a PhD but am having our second (and last!) child before I return to work). We will pay as much as possible into this scheme as I am aware it is a very good one so my pension will be our main one in retirement and I will likely be working past my husband's retirement age so able to provide extra income then. I'm including this information because this is why we are only aiming for a relatively low pension income for him (~ £5000 per year would be perfect). Also, we will likely be able to contribute more to his pension once I return to work and our budget is not quite as tight as it will be for the next year or so.

Sorry for the long post, I just wanted to give as much detail as possible - please ask if there's anything I've left out. Apologies for any daft errors too - I am finding the whole pension thing quite overwhelming!

Any help would be much appreciated.

dunstonh

Some brief background information as I know it often helps: my husband is 44 and has one pension which we only became aware of last year when I requested our state pension forecasts. This has a current value of ~ £10 000 and has been going since he was 18 and apparently contracted out of the second state pension (I think). Anyway, he was totally unaware of this and although it was pleasant surprise we are aware that with his age, his current pension provision is pretty dire.

As that £10k pot effectively replaces state pension which is reduced due to the contracting out, it is fair to say that he has no personal provision and at age 44 there is a very dire position to be in. It is recoverable but only with sensible amounts of provision being made to reflect the very late start.

I was thinking that a personal pension would be the better option (as oppose to a stakeholder, which I think I read in a post by dunstonh a few months ago was not a great option these days - apologies if I've got that wrong).

You are right. Stakeholder has a niche market now.

We cannot afford an IFA at the moment and after delaying over the last year in starting the pension I don't want to delay anymore and want to open one this month.

You say you cannot afford one right now. However, recent research found that on average people using IFAs ended up with higher pension funds than those that do not. So, it may be that you cannot afford not to use one

At the end of the day, the cost of the IFA can be deducted from the pension or you can DIY to save that cost. As long as you are able to do what is needed, then DIY is fine.

whether my thinking of risk spread is of the right proportions: I was thinking approx 25% high risk; 55% medium and 20% low, obviously reducing the risk as he approaches retirement age, probably 65.

Based on your earlier comments, it is highly unlikely he will be able to retire at 65. He will almost certainly be reliant on the state pension. So, he should be preparing for age 68.

What basis have you used for picking those allocations?

I have been looking at the Friends Life, Standard Life, or Aegon Scottish Equitable pensions as possible options - I'm not sure if there are any particular positives or negatives associated with any of these? I did read about a large fine paid a couple of years ago by the last company - I'm not sure if this is something that should affect my decision or not.

All of those are fine. Dont worry about fines. The FSA dishes them out all over the place. Its often harder to find a provider that hasnt had some enforcement action. Nothing has happened to any of those or the other top level providers.

Just to add that I am 14 years younger than my husband and will be joining the Universities SAS in a year or so (I have just completed a PhD but am having our second (and last!) child before I return to work). We will pay as much as possible into this scheme as I am aware it is a very good one so my pension will be our main one in retirement

It may be better for the pension to be in your name as this is the case to provide you some balance and tax efficiency.

xylophone

As that £10k pot effectively replaces state pension

Not precisely - see http://www.which.co.uk/news/2012/04/60-second-guide-to-contracting-out--282615/
"protected rights" - rules now relaxed see http://www.ft.com/cms/s/0/2737fc1c-4d80-11e1-b96c-00144feabdc0.html#axzz26vtDYuTZ

http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008

His work do not offer any contribution based pension

Might have to change - see http://www.pensionsadvisoryservice.org.uk/future-pension-reforms/automatic-enrolment

Pinkfooted_Goose

Hi dunstonh,

Thanks very much for your reply, I was hoping you would respond. In answer to your questions (sorry I'm not sure how to quote yet):

- r.e. the IFA, I would like to use one as I'm not under the illusion that I could do a better job myself - my pension knowledge (especially the more detailed info in relation to specific funds, etc.) is low at the moment. It is just the cost of the initial setting up of the pension - as I mentioned, we will be living on my husband's wage until I return to work and so our budget is tight for a year or so. While we do have savings set aside for anything unexpected which comes up I would rather leave those for emergencies. I would be happy to pay an ongoing fee to an IFA deducted from the pension, it is just the initial set-up cost I feel we can't afford at the moment. To avoid delaying starting the pension I thought I could start one and then in a year or so when we have two wages coming in again, go to an IFA then for pension monitoring - although I'm not even sure if this is possible! I am imagining fee of around £500 for initial advice and setting up the pension, does this sound about right?

- he would be happy to retire later than 65 and, at present is in good health and enjoys his job. So, all being well, that would not be a problem. If my wage at that stage is high enought then he may be able to retire, we can live off my income for a few years and leave his personal pension to grow until he is perhaps 70 or so.

- I picked the risk allocations fairly randomly (I know, probably not a good idea) and what seemed to be a sensible spread based on things I have read and considering the length of time until drawing the pension.

Thanks for the confirmation of personal pension over stakeholder and also the comment about the fines - it helps a lot to know.

I just have one question if that's ok? Why do you suggest putting the pension in my name? It's probably obvious but I don't understand why this would be better in terms of balance or tax efficiency.

Thanks again - much appreciated. And yes, unfortunately I think the shift you made from pretty dire to very dire is justified for the situation!

Pinkfooted_Goose

Thanks xylophone - I will have a read of the links you posted. I have a feeling I read somewhere that contracting back in at his current age (44) is a good time to do it if you have been contracted out. I need to read more about it, but, as I mentioned, he wasn't even aware he had been contracted out, or contributing to a pension for the last 26 years.

R.e. the compulsory contributory pensions, I am aware of them but as it may be a year or two before his employer has to do this, and given his age, I am anxious not to delay. We already have for a year so I am planning to sort this out this month, or before I know it another few months will have passed.

jem16

Pinkfooted_Goose wrote: »

It is just the cost of the initial setting up of the pension - as I mentioned, we will be living on my husband's wage until I return to work and so our budget is tight for a year or so. While we do have savings set aside for anything unexpected which comes up I would rather leave those for emergencies. I would be happy to pay an ongoing fee to an IFA deducted from the pension, it is just the initial set-up cost I feel we can't afford at the moment.

The initial cost of setting it up can come from the product if you wish. It doesn't have to be paid by cheque.

I just have one question if that's ok? Why do you suggest putting the pension in my name? It's probably obvious but I don't understand why this would be better in terms of balance or tax efficiency.

I'm a bit confused with this too. Normally dunstonh says to think of retirement planning jointly so that you each have a pension to use up your tax-free allowances. You having both the USS pension plus a private pension doesn't fit in with that. Perhaps dunstonh has misread or there is something we habe both missed?

Pinkfooted_Goose wrote: »

Thanks xylophone - I will have a read of the links you posted. I have a feeling I read somewhere that contracting back in at his current age (44) is a good time to do it if you have been contracted out. I need to read more about it, but, as I mentioned, he wasn't even aware he had been contracted out, or contributing to a pension for the last 26 years.

You can forget about reading up on it. As of April this year contracting out has been abolished except for final salary pensions. So he has been contracted back in anyway.

dunstonh

xylophone wrote: »

Not precisely - see http://www.which.co.uk/news/2012/04/60-second-guide-to-contracting-out--282615/
"protected rights" - rules now relaxed see http://www.ft.com/cms/s/0/2737fc1c-4d80-11e1-b96c-00144feabdc0.html#axzz26vtDYuTZ

http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008


Might have to change - see http://www.pensionsadvisoryservice.org.uk/future-pension-reforms/automatic-enrolment

Contracting out was generally regarded as cost neutral. So, if you get £10pm on a contracted out pension (protected rights as it would have been) then chances are you were getting £10pm less on the additional state pension.

You could get back more or you could get back less. Future legislation could change things but as it stands, you shouldnt really treat ex protected rights as personal provision as you have reduced your state pension provision.

dunstonh

I'm a bit confused with this too. Normally dunstonh says to think of retirement planning jointly so that you each have a pension to use up your tax-free allowances. You having both the USS pension plus a private pension doesn't fit in with that. Perhaps dunstonh has misread or there is something we habe both missed?

Apologies. I did misread. I read it as he will have access to it. Not you. So, dump that suggestion that it is in your time.

When it comes to starting a pension from scratch and with a monthly regular premium, dont waste your time thinking about sector allocations. Until you get to around £10,000 in value, it really doesnt make a lot of difference. If you want to get into the habit and learn then it will provide time for you to learn and understand for when the fund does get high enough but apart from that you may as well be in a decent mixed asset portfolio fund.

Lets say you have £2000 in the pension. lets say two options have a 2% difference in return over the year. That is £40. It isnt going to make a difference in the long term. However, £10,000 with a 2% difference is £200. Now you are starting to get to noticeable amounts. The time and effort you will need to put in with small amounts if you start building your own allocation just isnt worth it. Especially if you get it wrong rather than right.

Pinkfooted_Goose

Hi jem16,

Thanks for the advice about the contracting out finishing - now you mention it I think I had read that somewhere but it seems it didn't stick in my mind. It should have done really as it is directly relevant to my husband, but thanks for alerting me to it!

Thanks also for the comment about the IFA initial fee. I think it may be worth my contacting a couple of local IFAs and asking about their fees - it could be that it is something we can manage.

I like the idea of learning enough to be able to sort it out myself and select the most appropriate funds, etc. but I'm not sure how realistic this is at the moment - I'm guessing it takes a long time to really get to grips with investing and I don't want to delay the start of the pension. Plus, it's a pretty important thing to get right so I don't want to be making any stupid decisions due to my lack of knowledge.

Thanks for the help

Pinkfooted_Goose

dunstonh wrote: »

Apologies. I did misread. I read it as he will have access to it. Not you. So, dump that suggestion that it is in your time.

When it comes to starting a pension from scratch and with a monthly regular premium, dont waste your time thinking about sector allocations. Until you get to around £10,000 in value, it really doesnt make a lot of difference. If you want to get into the habit and learn then it will provide time for you to learn and understand for when the fund does get high enough but apart from that you may as well be in a decent mixed asset portfolio fund.

Lets say you have £2000 in the pension. lets say two options have a 2% difference in return over the year. That is £40. It isnt going to make a difference in the long term. However, £10,000 with a 2% difference is £200. Now you are starting to get to noticeable amounts. The time and effort you will need to put in with small amounts if you start building your own allocation just isnt worth it. Especially if you get it wrong rather than right.

Thanks for the clarification r.e. the having the pension in my husband's name

That rest is very good to know - thank you. I do want to learn and, despite initially finding it all quite confusing, I think with a lot of reading round over a couple of years I could get a better knowledge. This is one thing I was thinking, that the longer I faff around worrying about specifics the greater the delay in starting the pension which is ultimately more negative in the long run. So if I start it, start paying in, and then learn as much as I can while the amount builds up then I can make sure it is performing as well as possible. And, if I don't feel confident even in a year or two and the amounts begin to rise then it will definitely be IFA time.

Thanks again dunstonh, I feel a lot clearer about things than I did this morning and more confident to get on and actually apply for the pension. I have to say too that this board has been great over the last few months in making me see how important pensions/ retirement planning are. It sounds daft but I really just didn't realise and it was only by chance I started reading the board and it suddenly hit home home. I keep wishing it had sunk in 10+ years ago. At least it is getting sorted now - better late than never I guess!

xylophone

Thanks for the advice about the contracting out finishing - now you mention it I think I had read that somewhere but it seems it didn't stick in my mind. It should have done really as it is directly relevant to my husband, but thanks for alerting me to it!

Explained in links I gave you in post 3

additional state pension.

(post 7)

But you did not specify additional state pension..