27 years old - Pension advice needed!

Trinitrotoluene

Hi everyone,

I'm currently 27 and earning £27k a year. My employer last year enrolled me onto a "Group Stakeholder Pension Scheme". They put in 1k a year. Looking at the paperwork my funds are invested in Glob Eqty Idx Trk (Lifestyle). I have no idea what the hell that is.

That would be the first year anything has gone into any pension for me, after reading my annual report from HSBC I realise now that if I continue like I am and don't change immediately I will have an annual income of about £2k a year when I retire so I clearly need to make some changes. I am happy to retire on around £1300 a month at 65-70. My knowledge on pensions is shocking though and I have some basic questions:

1) Do I stick on the pension I am with with my workplace, or do I go elsewhere?

2) The auto enrolment for the pension coming up with the work place pension, am I better on that? Will I automatically get enrolled even though I am on a workplace pension? As much as I look I can't find any kind of forecast calculator for the workplace pension.

3) What happens to my pension if I die before I retire (or a few years after I retire)?

4) What happens to my pension (say I stick with HSBC) and HSBC goes boom?

5) Can my work force me onto the HSBC pension?

6) My partner has her own pension, how does this factor into mine? Does it at all are they two separate entities (I'm talking in terms of tax etc)

7) All the pension calculators I have tried (Money advice service/HSBC) do they all include what I am entitled to in regards to a state pension?

I genuinely have no idea where to start, what I want is something that is safe and secure. I don't want to be taking risks on something that will be important. I realise that leaving this even for a few years will seriously impact on my final salary when I retire. That's why I'm ready to start putting money into something now so I am prepared, the question is what. Do I wait for auto enrolment? Do I invest in my work pension (HSBC)?

Any advice would be so gratefully appreciated.

xylophone

For someone of your age, the question of state pension provision is somewhat difficult at the moment, as apparently changes are planned.
http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/index.htm
http://www.thisismoney.co.uk/money/pensions/article-2205411/140-week-state-pension-welfare-reforms-track.html

It appears that your company already have some sort of scheme in place - presumably there is nothing to prevent your making additional contributions to it or to another pension scheme of your choice.

http://www.direct.gov.uk/en/Pensionsandretirementplanning/Companyandpersonalpensions/Startingacompanyorpersonalpension/DG_183722

Your partner's pension is hers and should not have any impact on yours unless at some stage, when you are pensioners, you need state benefits ,when your household income may be assessed - but this is so far in the future who knows?

What happens when you die depends on the kind of pension you have set up - there might be a spouse pension for example.

You might find it helpful to speak to an independent financial adviser.
http://www.icl-ifa.co.uk/2012/09/unbiased-independent-restricted-advice/

jamesd

Trinitrotoluene wrote: »

Looking at the paperwork my funds are invested in Glob Eqty Idx Trk (Lifestyle). I have no idea what the hell that is.

It's a global equity (share) index tracker fund with lifestyling. This means that it is trying to track the performance of companies worldwide and not use any human skill to try to do better than just following the herd. The lifestyling means that when you get close to the retirement age you specified when setting it up, or rthe default age, the money will be switched to other investments that tend to move up and down less. This lifestyling is useful for people who will buy an annuity to provide their retirement income.

1. They are adding money and the investment option is at least half decent, with more options probably available if you look for them. So best to be in this scheme.
2. Auto-enrollment is a requirement for employers to enroll people who are not already enrolled and to pay in a minimum percentage of salary. Yours is paying in more than the minimum requirement already so you'd be worse off if they switched to the minimum requirement.
3. The pension scheme trustees look at the expression of wishes form you sent in and pay out the money as you described. If you didn't do that then they decide who gets the money, based on your will or relationships.
4. Not a lot. Rules require that the money be held independently of the pension company, so someone else would take over providing access to it.
5. No. You can choose not to take the extra pay into the pension if you want, and just lose it instead.
6. They are separate.
7. Pension calculators normally completely ignore the state pensions.

Trinitrotoluene wrote: »

what I want is something that is safe and secure. I don't want to be taking risks on something that will be important.

It's too important not to take investment risk. The ups and downs are the price you pay to get better average growth. You're in a fund that is a good choice.

Trinitrotoluene wrote: »

Do I wait for auto enrolment? Do I invest in my work pension (HSBC)?

No. Yes, unless you can get the same investments at lower cost somewhere else.

Linton

Agree with all Jamesd says. It looks a reasonable scheme with the employer making a sensible contribution and the investment is a good default. Once you become familiar with investing you may want to change it a bit, but no problems if you dont.

The only thing not covered is how much do you contribute. At the moment I would suggest as much as you feel you can. The pension calculators will tell you how much you need to contribute to meet your retirement aim. Paying a higher amount when you are relatively young has a disproportionate benefit because the longer time over which compound interest can work.

You are concerned about risk. Here we are talking about volatility not about the chance of losing everything. If a global tracker collapses your pension would be the least of your and the worlds troubles as this would indicate a world wide catastrophe.

You should look on large drops in value as a good thing as this will enable you to buy more pension units at a lower price. Volatility only becomes a problem near to when you retire as you dont want a credit crunch to have caused a 50% drop in your pension when its too late to do anything about it. This is where lifestyling comes in - from around 5 or more years before retirement it steadily reduces your investment in the tracker and moves the money into safe but lower performing investments such as bonds and cash.

jamesd

Say you were to take a very safe choice and put the money into cash inside a pension. Long term growth for cash has been 1% over RPI inflation. For the main UK stock market it's been a bit over 5% over RPI inflation. Lets see what happens after 30 years:

£1000 cash from the first year is worth £1,347.85.
£1000 in a UK market tracker is worth £4,321.94.

Really bad UK stock market crashes tend to cause a value drop of 40-50% so if you did that without any lifestyling and were really unlucky you'd still have almost twice as much of the first year money left with the stock market tracker as with the cash option. The gains are less with each following year but you can see why it's so much better to accept the ups and downs to get the better long term performance.

The lifestyling protects you from that 40-50% down if you're unlucky case. It gradually switches the money into things that move down by only 10-15% in a bad year and that tend to move up when stock markets move down.