Choosing a Personal Pension

mageliken

I am 25 and one of two directors in a small business. I have made some small contributions to a teachers pension over the years, however I feel that it is time to start getting in place a pension that I can make more significant contributions too. I am also interested in this as my understanding is that the company can contribute to my personal pension whilst reducing its corporation tax liability.

My question is - how do I begin to compare available pension products? Despite searching, I've not been able to find a comparison website or similar for different personal pension products - am I looking for something that doesn't exist?

One option would be the SIPP route, which I'm not adverse too. It's then a question of which products to add in. I currently have some savings in Vanguard LifeStrategy 80 and 100 products in a S&S ISA - might these also be appropriate for a SIPP and are these already sufficiently diversified? The providers of the SIPPs I find are quite straightforward to compare, and so the question again would be to look at how I compose the SIPP.

I have looked at the NEST pensions and have been able to find out about their different products and levels of risk. What I'm not sure if it's possible to find out is how the products are made-up for the purposes of comparison?

Finally I could make voluntary contributions into my teachers pension, my understanding is that this probably isn't the best idea and I'm unsure as to whether or not the company could make these contributions. I'm not sure how I would go about comparing this against other options though?

Is there an argument for 'hedging bets' across a SIPP and a personal pension (I will already be doing this to a small extent with the teachers pension), or is it the case that if I'm choosing sufficiently diversified products that I end up 'meddling' with this balance?

What I can compare is cost which is a good starting point. I understand that past performance is not a good indicator, that diversification is good and that I want something to match my risk tolerance as I age closer to retirement.

Any thoughts or pointers would be greatly appreciated.

PensionsChamp

There are lots of pensions you can set up yourself online.

1. Choose one you can manage yourself easily

The best thing you can do to have a bigger pension is save more and start as soon as you can. So pick a pension that is easy for you to manage so you start soon and keep it going.

2. Keep the costs down

You will pay at least two lots of costs.

a. for the pension itself, the administration and the service you get

This will usually be a percentage of your fund value say 0.35% (could be more or less)
but there may be other charges on top so make sure you know what they all are.

b. the investments you choose to put your savings in

You can pay as little as 0.07% for a fund of leading stocks and shares based on an index e.g. the top 100 largest companies or if you want a professional fund manager to choose the winners for you then expect to pay at least 0.75%.

Is the extra money worth it? For most fund managers, the answer is no but some managers have a good record of beating the index

3. Service

Do you value telephone support? Do you need help in choosing which investments? Do you want to choose your own investments? Some e.g. NEST and NOW Pensions choose them for you but other providers require you to choose yourself but will offer you guidance to assist you.

Have a look online.

There was a table published online at the Telegraph which gives the main firms and their costs. I can't paste the link below but a search of "Do you have money in a SIPP" brings it up top after the sponsored links.

greenglide

So are you a teacher (full time?) and a company director?

Do you intend continuing in this dual role? If so the teachers pension scheme provides excellent benefits which are based on your salary, not how much as been paid in, how investments perform etc. You really need to read the TPS scheme booklet so you know what you will get from that so you can know what other provision you need?

mageliken

Thanks PensionsChamp - The table from the Telegraph article is really helpful.

greenglide - I only do a very small number of part-time hours as a teacher and I had actually incorrectly assumed it was based on contributions. My pensionable gross is around £5k/yr and I've been working there for three years now. I expect that I may be there for another two years at a similar sort of level. I've assumed that it is beneficial due to my employers contributions but also so insignificant that I've never paid much attention to it. What I have wondered is how voluntary contributions might work.

Just using NEST as an example, I can't seem to find information about how their products invest my money and so how do I go about making a decision about NEST vs. a SIPP for example where I do have information about individual funds? Of course, what I do know are the other factors PensionsChamp has mentioned.

dunstonh

Just using NEST as an example, I can't seem to find information about how their products invest my money and so how do I go about making a decision about NEST vs. a SIPP for example where I do have information about individual funds?

NEST has limited investment options. A SIPP is whole of market and can have around 30,000 investment options. You dont go with NEST if you are concerned about investment options. It is a basic option for people that dont really care what they have. Equally, the SIPP is at the other end of the scale. It is for experienced investors looking for investments that are not typically contained within a stakeholder pension or a personal pension.

xylophone

Are you employed by the company? If so, is auto
enrolment a consideration?

Had you considered independent financial advice?

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

mageliken

dunstonh - I think perhaps I fall somewhere in the middle, where I likely don't know enough to put together a robust SIPP however the idea of putting pension funds into a "black box" (NEST) is disconcerting.

Do I either take the stance that I don't know about SIPPs and therefore NEST is the best option as they must know what they're doing (my question then becomes how do you evaluate NEST against x for measures other than fees). Alternatively, I bite the bullet and get the smarts to put together a SIPP or finally as xylophone notes seek an IFA?

dunstonh

dunstonh - I think perhaps I fall somewhere in the middle, where I likely don't know enough to put together a robust SIPP however the idea of putting pension funds into a "black box" (NEST) is disconcerting.

Personal pensions are the middle group. They tend to offer the stakeholder fund range (often at lower cost than a stakeholder once you have more than £20k) as well as a key selection of the mainstream funds available to the wider market. Typically 100-500 funds. (excepts apply as some personal pensions look very much like SIPPs in fund coverage but dont offer direct investments via the london stock exchange).

Do I either take the stance that I don't know about SIPPs and therefore NEST is the best option as they must know what they're doing (my question then becomes how do you evaluate NEST against x for measures other than fees).

Nest has only been going a short time and has already suffered over £1 million in fraud. It has an initial charge on contributions (unlike most other providers). its annual charge is ok but when you factor that and the initial, its not great value for a basic option. Nest borrows money from the taxpayer to support it. Just in the last few weeks there have been questions asked whether it will ever be able to succeed on its currently charging levels and cease to be taxpayer supported. I am not a fan as you can tell.

I would suggest you look at the middle ground options of a stakeholder pension (still basic with 1-30 funds availble) but no initial charges and good pricing on small values and allows infrequent contributions or a personal pension with a bit more in fund selection, typically better priced on 20k plus values.

atush

Is the company you own/run a limited company?

You really dont want Nest, and you may not want a Sipp either. A personal pension could be the best idea but look at those and Sipps (try HL and Cavendish online). But depending on the amt you want to invest, using an IFA could be the way for you. If all the directors want to have pensions, the setting up costs can be born by the company and you would only pay one lot for all 3 of you (for the set up at least).

You can only put your teaching salary into the TPS, so carry on contributing but you will only get partial years if doing part time. It will still end up being a handy pension long term.

mageliken

dunstonh - Thanks, some interesting food for thought there. I had somewhat overlooked stakeholder pensions.

atush - Yes limited company with two directors. Somewhat ironically I'm content continuing to contribute to the TPS under the assumption that it will serve me well - perhaps partially because of my employer's contributions and the fact that I see my contributions as being fairly low.

I think I need to dig deeper to find out more about the pension products available and their respective fund options where applicable. If I can make a decision there, then the rest should be a straightforward cost comparison?

atush

Basically, funds- look at PPs. If wanting more unusual pension options such as single shares, then look at Sipps.

But either could be the cheapest option depending on the level of your contributions.