Cheap Pensions

SpeedSouth

Hi,

Last year following some posts on here and meeting briefly with a couple of IFA's we opened a SIPP for the missus.

She's 31, and not working so we are capped at present to £3600 gross. At present this is going into Best Invest on VLS 80 (Although thinking it should probably be 100 given the time involved). It was the lowest platform cost at the time.

I'm wondering though would a stakeholder be better suited? I don't want to pick and choose funds hence the VLS, but want I will want to happen at some point is the risk scaled back. My understanding with a Stakeholder is this will happen automatically as my workplace one does.

With the SIPP I assume I'd need to sell the funds and pick for example a VLS40 as she gets closer to example. Is this possible within BestInvest?

The small annoyance at present is I have to manually purchase the funds when the tax relief is applied. With a stakeholder I guess this would be invested automatically?

To transfer out of BestInvest is only £25 so as long as I wouldn't be charged to transfer in too heavily I can accept that.

I'm not really asking for advice just if my assumptions are mostly correct. For the time being with so long to go we can make the most of the low charges against the account I think.

dunstonh

I'm wondering though would a stakeholder be better suited?

That is going to the opposite extreme of a SIPP (both SIPP and stakeholder are the niche option at either end). Stakeholders are largely obsolete nowadays (although still have a very small window of use)

I don't want to pick and choose funds hence the VLS, but want I will want to happen at some point is the risk scaled back. My understanding with a Stakeholder is this will happen automatically as my workplace one does.

Lifetstyling is out of fashion. Indeed, many providers have been pulling that option as it no longer fits with the pension income options that the majority will be using.

With the SIPP I assume I'd need to sell the funds and pick for example a VLS40 as she gets closer to example. Is this possible within BestInvest?

yes

The small annoyance at present is I have to manually purchase the funds when the tax relief is applied. With a stakeholder I guess this would be invested automatically?

Cheap providers tend to not prefund tax relief. Its a cost to the provider that can run into millions and they dont have the margins for it. The larger providers do.

SpeedSouth

Thanks a lot...

dunstonh wrote: »

That is going to the opposite extreme of a SIPP (both SIPP and stakeholder are the niche option at either end). Stakeholders are largely obsolete nowadays (although still have a very small window of use)

Right OK so I've missed something there then.. What are the options in-between to us?

dunstonh wrote: »

Lifetstyling is out of fashion. Indeed, many providers have been pulling that option as it no longer fits with the pension income options that the majority will be using.

Is that technically not what I'd be doing by changing to VLS40 though?

You say it's based on pension income, this assumes in the past it would have been to purchase an annuity but as draw-down becomes popular you still want the enough "risky" funds to provide a better income?

My knowledge here really starts to dwindle and given I have 30 years to learn it not really an something to concern me. For now I'm just looking for the cheapest way to accumulate the wealth.

dunstonh wrote: »

Cheap providers tend to not prefund tax relief. Its a cost to the provider that can run into millions and they dont have the margins for it. The larger providers do.

Like I said not really an issue, and as you say that makes sense.

dunstonh

Right OK so I've missed something there then.. What are the options in-between to us?

Personal pensions are the middle ground. They tend to offer the stakeholder fund range (where the provider has a stakeholder as well - most no longer do so and have pulled out). They also offer a selection of external funds and tend to have better charges than stakeholder.

Is that technically not what I'd be doing by changing to VLS40 though?

Yes. If you cycled manually through 80, 60, 40, 20 then you would be doing a manual form of lifestyling.

You say it's based on pension income, this assumes in the past it would have been to purchase an annuity but as draw-down becomes popular you still want the enough "risky" funds to provide a better income?

With annuity, you were effectively encashing the fund on a given date. Whenever that is going to happen, you should reduce your risk as you get closer to that point. With income drawdown, you are going to remain invested for another 20-30 years. You may well tweak the portfolio to suit an income paying strategy and you may reduce your risk a little but you will still be invested.

Like I said not really an issue, and as you say that makes sense.

It is an issue in some respects as pre-funding is worth around 0.1% a year. So, when looking at charges, it is worth adding on 0.1% to their charge if they do not pre fund when comparing to one that does.

zagfles

The trouble with a lot of personal pensions is that they either insist you go via an adviser, which will cost in advice fees, or they charge you more if you don't.

One way round this is to use a broker like Cavendish:

http://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/

grey_gym_sock

adam81 wrote: »

To transfer out of BestInvest is only £25 so as long as I wouldn't be charged to transfer in too heavily I can accept that.

are you sure it's only £25? there appear to be several applicable charges, according to p. 6 of http://www.bestinvest.co.uk/media/488456/keyfacts%20non-advised.pdf

SpeedSouth

grey_gym_sock wrote: »

are you sure it's only £25? there appear to be several applicable charges, according to p. 6 of http://www.bestinvest.co.uk/media/488456/keyfacts%20non-advised.pdf

My reading of that document which I had found was the SIPP was only liable to the £25.

I was thinking I would avoid closure fee if I simply left it open?

SpeedSouth

zagfles wrote: »

The trouble with a lot of personal pensions is that they either insist you go via an adviser, which will cost in advice fees, or they charge you more if you don't.

One way round this is to use a broker like Cavendish:

http://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/

A look at the rates applied to those at present with the small amounts involved the % are still less with BestInvest. So maybe for the time being at least best to leave it in BestInvest until the pot is larger.

Looking at the fund options as well I'd require a lot more research into the funds I wanted to invest in with a lot seeming to charge additional %...

SpeedSouth

dunstonh wrote: »

It is an issue in some respects as pre-funding is worth around 0.1% a year. So, when looking at charges, it is worth adding on 0.1% to their charge if they do not pre fund when comparing to one that does.

Your saying the 0.1% is the effective charge for the relief cash not be investing straight away are you? So I guess if you rarely invest this money the 0.1% only increases?

grey_gym_sock

adam81 wrote: »

My reading of that document which I had found was the SIPP was only liable to the £25.

that's per asset transferred.

there's also "transfer out" - £75 in cash, or £125 in specie.

I was thinking I would avoid closure fee if I simply left it open?

and account closure ... yes, that might work - but is there a minimum balance you have to leave, otherwise they'll insist on closing the account and taking the charge? (i have no idea, but HL do something like that.)

Playing_with_Fire_2

For lifestyling: you could avoid some of the transaction costs for buying/selling if you directed new money towards VLS20, or a bond fund. You would need a calculator to figure out the % that you wanted. This would also mean you could have a SIPP that was equivalent to VLS 54.6, if you felt the need.

The question is how much time you want to put into this. By setting up the Best Invest SIPP and deciding on VLS80, you've done the vast majority of the work you will need to do for the next decade or so. You don't need to decide right now if lifestyling is right for you - to my mind, unless you are buying an annuity there is no need.

Have a look at the regular investments page - with some you can set up a regular investment that will invest if there is cash in the account and do nothing if there isn't - this could take care of having to go back in and reinvest the tax back (I agree this is a pain).