Newbie looking for some advice please - thank you

cima2015

Hi, I have been reading the forums for some time but this is my first post so please excuse me if I get anything wrong. I am starting to think about planning for my retirement (left it a little late!) and really would appreciate any views on what I should be doing. I read all the good informationon here but am a little lost. I am 49 years of age. I have paid off the mortgage on the family home (valued around £350k). I have around £150K cash across cash ISA’s and Santander 123 accounts. I have 5 separate private pensions with Royal London (comprises main policy, a transfer in, serps and compensation policies) which have a current combined value of £21K. I contacted Royal London recently and was told that these policies are now frozen as I have not paid anything in for 10 years but I can transfer them to another pension provider and the transfer value is £49K. I currently earn around £40K – 50K per annum.

I am very wary of private pensions but wonder whether I should be transferring the 49K to another provider and concentrate on paying more in – or maybe Royal London are good performers and I should leave the pensions with them. Are there any companies that are known as being good for pensions? I have been looking at stocks and shares ISA’s but am lost with the array of funds, etc. on offer and I do not have the knowledge to be able to pick funds, etc. I am also now wondering whether buy to let might be an option?I know that you should have a balanced mix of investments and know I have to do something. I am planning on seeing a financial adviser but I really would appreciate any recommendations or views from people like myself who do not have a company pension.

Sorry for the length of this but thank you so much.

xylophone

Does your current employer provide a pension scheme?

kidmugsy

cima2015 wrote: »

I have 5 separate private pensions with Royal London (comprises main policy, a transfer in, serps and compensation policies) which have a current combined value of £21K. I contacted Royal London recently and was told that these policies are now frozen as I have not paid anything in for 10 years but I can transfer them to another pension provider and the transfer value is £49K. I currently earn around £40K – 50K per annum.

How can they have a combined value of £21k and a transfer value of £49k? There's something you've not explained here. Also, tell us whether you are currently contributing to an occupational pension scheme, and if not, why not?

cima2015 wrote: »

I currently earn around £40K – 50K per annum.

The obvious first step is to contribute enough to a pension every year so that you avoid income tax at the higher rate.

cima2015 wrote: »

I am very wary of private pensions

Why?

cima2015

Hi, thank you for coming back.

Xylophone
My company do not offer a pension scheme

Kidmugsy
Notional personal fund value=21k, transfer value=49K. Not contributing to an occupational scheme as my company do not offer one.

Yes I have been paying some higher rate tax

I am wary of pensions because I felt they were a little inflexible and poor value in the past but now interest rates are so low I appreciate I probably now have this wrong

xylophone

My company do not offer a pension scheme

https://www.gov.uk/workplace-pensions

"‘Auto enrolment’
A new law means that every employer must automatically enrol workers into a workplace pension scheme if they:

are aged between 22 and State Pension age
earn more than £10,000 a year
work in the UK
This is called ‘automatic enrolment’."

When will your employer offer a scheme?

xylophone

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

https://www.hl.co.uk/free-guides/tax-relief may be worth a look.

https://www.gov.uk/transferring-your-pension/overview

https://www.unbiased.co.uk/

cima2015

Auto enrolment not due until Apr 2017

jamesd

cima2015 wrote: »

I am 49 years of age. ... I have around £150K cash across cash ISA’s and Santander 123 accounts. ... I currently earn around £40K – 50K per annum.

You can pay up to your earned income into a pension each tax year. Subject to a £40,000 a year cap on the gross amount, meaning after tax relief is added.

Say you were to have £40,000 of income all at basic rate and want to pay that much into a pension. You would pay in £32,000 net and the pension company would add £8,000 of tax relief from HMRC, some immediately, some in about a month when HMRC pays them the money.

Ignoring all investment growth, in six years you can take out 25% as a tax free lump sum. So £10,000 out tax free. That leaves £22,000 of your £32,000 tied up in the form of £30,000 still in the pension. 30,000 / 22,000 = 1.367 times the starting money. Assuming you pay basic rate income tax when you take this part out it'll still be worth 9.1% more than the £22,000.

Of course there are many investments you can use inside a pension and you wouldn't really just leave it making nothing.

Royal London is a pension provider. The investments held within the pension are what perform, not the company that you hold them with. For most pension investments you can hold them in any of hundreds of different pension providers.

There are some investments called with profits funds. For those the pension provider of the old fashioned type does matter because their with profits fund may only be open to their customers. With profits funds have largely lost favour in recent years due to their lack of transparency and few people now choose to put new money into this type of investment.

When picking funds to invest in one of the key things you need to do at the start is decide what overall level of drop you could handle emotionally in a bad year. for context, the main UK stock market is expected to drop by about 20% two or three times a decade and by 45% or so once or twice a decade. Meanwhile it's delivered a hair over 5% plus inflation in average growth over the last hundred plus years. The up time make up for the down times. But you have to be able to stomach the down ones without selling out near the bottom when all the news is doom and gloom. That's the time to be buying, not selling.

For a complete beginner who likes income and has the sort of money you have I'm inclined to suggest to you a combination of Vanguard or another global tracker fund or ETF and the Invesco Perpetual Distribution fund, income version. The global fund has up and down potential similar to the UK stock market, the Distribution fund about half that. The Distribution fund pays regular monthly income in the form of interest, tax free inside a S&S ISA or pension (some providers will just pay you with the tax rebate included, others will pay it when HMRC pays them about a month later). Use more of the Distribution fund if you want lower ups and downs, less if you want more long term growth potential. Meanwhile seeing the regular income will probably help to reassure you that your money is doing something.

Added to those two you might consider 10% each in an emerging markets fund, say Aberdeen Emerging Markets, and 10% in a commercial property fund. The EM fund could drop by around twice the UK market in a really bad year and holds things that the global tracker doesn't hold much of. The commercial property one about the same as the IP Distribution fund, but it adds a diversified source of income.

A mediumish risk mixture then might be:

40% Vanguard Global tracker
30% IP Distribution
10% Aberdeen Emerging markets
20% a commercial property fund

For more long term growth potential you might instead use:

70% Vanguard Global tracker
10% IP Distribution
10% Aberdeen Emerging markets
10% a commercial property fund

This would have bigger drops short term than the other mixture, to get the higher long term growth potential. This is the sort of thing that is more appropriate for your relatively young age given your long term investment horizon, assuming you're not planning to retire at 55 or so but closer to state pension age.

There are many variations on this theme for constructing investment mixtures and any IFA you might use is likely to suggest something different.

jamesd

cima2015 wrote: »

I am wary of pensions because I felt they were a little inflexible and poor value in the past but now interest rates are so low I appreciate I probably now have this wrong

In a modern personal pension you can hold any of around ten thousand different funds. The SIPP variant adds all of the shares available on most of the world's major stock markets, commercial buildings, even with a mortgage of up to 50% of the pension pot value, and a range of other things. They are hugely flexible investment tools and the main limitation today is the ability of people to understand and use the huge range of choices available to them. That's why I've been very specific in some of the choices I mentioned: to cut the amount of work you will need to do to get started with a reasonably decent mixture so you don't initially get lost in all of the choice.

cima2015

Hi JamesD - thank you so much for the information. Yes I guess I am concerned too that I put in my 40K and then see it lose value because I don't understand all the funds and options. I guess it is straight pension if one wants an easy life and minimum input or a SIPP if one is prepared to learn and try and get better growth. Thank you again - most helpful

jimitheheart

Hello all like a few posts I have read I took out a choices pension with
GRE in 1989 opted out of serps made 1 payment and after all these years though
I wonder if its still live, it was and I have 14k fund in it what should I do with it ?.
I am now 48 and the penion will pay very little when am 50 which was the age put down to retire. sorry if this post is in the wrong place any help would be great.