Help get me started on a private pension!

suicidebob

I am currently enrolled in my employers scheme (NEST), and contribute 10% of salary. My employer contributes up to 4%, which I believe happens in the 4th or 5th year of membership.
I have an additional £300.00 to invest in a pension fund. I fully expect I will qualify for a full state pension should the current terms remain the same.
So, some questions:

1. Should I add this to my employers fund, or buy a separate pension? Is it a case of simplicity versus spreading the risk?

2. My previous boss (an FD), said a company pension was a waste of money, that the fees were ridiculous, that the state pension would be reduced by the amount of my private pension. I can’t find reference to this anywhere, so not sure if he was prophesising. Is the state pension ever likely to be means tested? Note, he wasn’t referring to my current scheme, just schemes in general.
3. If the state pension is £100 per week, and my private pension returns £100 per week, I get £200 per week in my hand, right?

4. Are there any similar investments for a basic rate tax payer than give the same tax relief benefits as a pension?

5. If it possible to get a full 100% lump sum upon retirement, and is this generally recommended?

6. Are stocks and shares, possibly an FTSE tracker, an alternative?

7. The pension fund is betting on paying me out less than I have invested, right? So if they get their numbers correct, they benefit and I suffer, meaning it’s more than likely I don’t get the full benefit of my pension pot?

8. I was looking at Virgin’s personal pension, ‘The UK’s simplest pension’. It looks nice and simple with an annual fee of 1%, and their calculation uses a return of 7%. Is this realistic for such a simple product?

Thanks all!

dunstonh

1. Should I add this to my employers fund, or buy a separate pension? Is it a case of simplicity versus spreading the risk?

The risk is on the investments. If you had 10 pensions all investing in the same area (say UK equity) then you are not really spreading risk.

2. My previous boss (an FD), said a company pension was a waste of money, that the fees were ridiculous, that the state pension would be reduced by the amount of my private pension. I can’t find reference to this anywhere, so not sure if he was prophesising. Is the state pension ever likely to be means tested? Note, he wasn’t referring to my current scheme, just schemes in general.

He was wrong on all fronts. Perhaps he was trying to persuade employees not to join a scheme that he would have to fund.

3. If the state pension is £100 per week, and my private pension returns £100 per week, I get £200 per week in my hand, right?

Gross yes. However, you need to remember tax is paid above your personal allowance.

4. Are there any similar investments for a basic rate tax payer than give the same tax relief benefits as a pension?

S&S ISAs have the same tax free growth but do not have tax relief on contributions. However, any income payable from them at the other end is tax free. There are other tax wrappers but pension and ISA are the main two for the average person to consider.

5. If it possible to get a full 100% lump sum upon retirement, and is this generally recommended?

It is possible historically but not now.

6. Are stocks and shares, possibly an FTSE tracker, an alternative?

You are mixing up the wrapper with the investment. A bit like comparing car and petrol. You can put a FTSE tracker in a pension or an ISA. You cant put a pension in a FTSE tracker. So, no, they are not an alternative in that respect.

7. The pension fund is betting on paying me out less than I have invested, right? So if they get their numbers correct, they benefit and I suffer, meaning it’s more than likely I don’t get the full benefit of my pension pot?

No. The pension is the accumulation phase of your planning. They want to make as much money for you as possible within their remit/objective. The accumulation stage has nothing to do with the decumulation phase (drawing the income).

8. I was looking at Virgin’s personal pension, ‘The UK’s simplest pension’. It looks nice and simple with an annual fee of 1%, and their calculation uses a return of 7%. Is this realistic for such a simple product?

Pretty much one of the worst pensions on the retail market. Really poor investment options (which encouarge bad quality investing) and more than double the cost of modern alternatives. 7% is realistic but you should note that 7% is the maximum that providers are allowed to use on projections. It doesnt really mean anything.

mania112

In your situation I would contribute only the minimum to NEST and the remaining to a Personal Pension.

Search 'Cavendish Online' if you aren't willing to use the services of an IFA.

grey_gym_sock

suicidebob wrote: »

7. The pension fund is betting on paying me out less than I have invested, right? So if they get their numbers correct, they benefit and I suffer, meaning it’s more than likely I don’t get the full benefit of my pension pot?

that is more like how a defined benefit scheme works. you have a defined contribution scheme. which means that the pot of investments is your pot, and the only way the pension company makes money is by deducting fees from it.

when you eventually draw the pension, if you choose to buy an annuity, then your are swapping the pot of investments for an annual income, which is effectively a bet on how long you'll live. but you don't have to buy an annuity at all nowadays. and anyway, that comes later.

suicidebob

dunstonh wrote: »

You are mixing up the wrapper with the investment. A bit like comparing car and petrol. You can put a FTSE tracker in a pension or an ISA. You cant put a pension in a FTSE tracker. So, no, they are not an alternative in that respect.

No. The pension is the accumulation phase of your planning. They want to make as much money for you as possible within their remit/objective. The accumulation stage has nothing to do with the decumulation phase (drawing the income).

Point 1, I meant is a stocks and shares investment a complement to a pension scheme.
For example, if I was thinking of opening up an account online with a broker, putting in £100 a month of my £300 for a few years and just seeing how it performed in comparison to my pension? I would probably chose something low risk, I believe an FTSE-tracked investment would come into this category? I'm really not sure on fees / growth and how tax relief would impact my overall investment, or if it's a no-brainer to lump it all in a pension?

Point 2, thanks for the clarification. So, at the end of my pension, I have a lump of money, then I need to bet on the best way of withdrawing this? Whether it be over 10 years, 20 years, remainder of my lifetime etc? Any scheme I choose will give me the flexibility to sort this as part out at the decumulation phase?

suicidebob

mania112 wrote: »

In your situation I would contribute only the minimum to NEST and the remaining to a Personal Pension.

Search 'Cavendish Online' if you aren't willing to use the services of an IFA.

Why only the minimum to NEST?

Had a quick look at Cavendish, looks interesting, and will spend a bit of time reading! Thanks

dunstonh

Point 1, I meant is a stocks and shares investment a complement to a pension scheme.
For example, if I was thinking of opening up an account online with a broker, putting in £100 a month of my £300 for a few years and just seeing how it performed in comparison to my pension? I would probably chose something low risk, I believe an FTSE-tracked investment would come into this category? I'm really not sure on fees / growth and how tax relief would impact my overall investment, or if it's a no-brainer to lump it all in a pension?

If you put the same stocks & shares investment in a pension, ISA or held it unwrapped then the investment returns would be the same. The only difference would taxation and maturity process. (charges can be the same nowadays too).

A FTSE tracker is high risk in isolation of other investments.

atush

Only the min in NEST to get the max employers contributions (ie Free Money) as Nest is one of the worst pensions out there (maybe worse than Virgin lol).

Point 1, you can invest in stocks and shares and funds outside a pension if you want to- but they dont get an automatic uplift like a pension does. So, if you put 80 into a pension (or 800) the givt lifts it up to 100 (or 1000) with tax relief.

If you do invest outside a pension (which is more flexible than a pension) then use your S&S isa allowance.

suicidebob

dunstonh wrote: »

If you put the same stocks & shares investment in a pension, ISA or held it unwrapped then the investment returns would be the same. The only difference would taxation and maturity process. (charges can be the same nowadays too).

A FTSE tracker is high risk in isolation of other investments.

So unwrapped would reap the same benefit, less the basic rate tax relief?

I'm getting the impression there isn't as many investment options as I first thought, and it's basically just choosing the risk strategy, then working out how to pay the least fees. Is this what it boils down to?

suicidebob

atush wrote: »

Only the min in NEST to get the max employers contributions (ie Free Money) as Nest is one of the worst pensions out there (maybe worse than Virgin lol).

Point 1, you can invest in stocks and shares and funds outside a pension if you want to- but they dont get an automatic uplift like a pension does. So, if you put 80 into a pension (or 800) the givt lifts it up to 100 (or 1000) with tax relief.

If you do invest outside a pension (which is more flexible than a pension) then use your S&S isa allowance.

Can you give me any more info on NEST, and why my employer would chose that scheme in particular? When you say worst, do you mean in terms of growth?

NEST gives me the option of investing in higher risk funds, lower risk, sharia funds etc. How do you work out NEST's higher risk fund performs worse than someone else's higher risk fund? Why would my employer screw me over my choosing NEST??

atush

The NEST is not flexible in that you cannot transfer your pension. The charges aren't the lowest, and they don't have the best range of funds.

So unwrapped would reap the same benefit,

No, unwrapped has no benefits as the income and the growth are taxed.

Only wrapped has benefits above and beyond fund performance.