Paying lump sum into pension - what would you do

d4v34

Hi all,
I'm just curious as to what people would do in my situation.

I normally drip feed my maximum tax free pension contribution throughout the year £3333 per month to dilute any major changes in the market. I understand that this works to my disadvantage if the market moves upwards.

Unfortunately this year I've not had the opportunity to drip feed and I'm going to have to put a lump sum or multiple large lump sums to get the £40,000 in before the end of the financial year.

What woud you do:

• Get the maximum lump sum in as soon as possible, it's time in the market not timing the market.
• The market is is very high at the moment so divide the lump sum into several smaller but still considerable lump sums, say 4 x £10k?

Thanks

jamesd

Depends on the market but there is no inherent link between paying money into a pension and investing it so you can pay in when convenient.

AnotherJoe

d4v34 wrote: »

Hi all,
I'm just curious as to what people would do in my situation.

I normally drip feed my maximum tax free pension contribution throughout the year £3333 per month to dilute any major changes in the market. I understand that this works to my disadvantage if the market moves upwards.

Unfortunately this year I've not had the opportunity to drip feed and I'm going to have to put a lump sum or multiple large lump sums to get the £40,000 in before the end of the financial year.

What would you do:

• Get the maximum lump sum in as soon as possible, it's time in the market not timing the market.
• The market is is very high at the moment so divide the lump sum into several smaller but still considerable lump sums, say 4 x £10k?

Thanks

If you look at it logically, on average, the market moves upwards. If it didnt, you wouldn't invest in it

So, the odds are in favour of putting the money in when you can. Over a lifetime of trickle feeding, you will significant lose out. With your amounts, you will really significant lose out if you are holding back money you could invest up to a year earlier.

You say "The market is is very high at the moment". Well, I'd first ask "which market" but if you never invested at a market high, again statistically, you'd lose out, because since on average and in the long term, the market rises, there must and will be times when you are putting money in when its at a high point.

simonfitba

Studies have shown historically a lump sum is a better bet (slightly). But given your short time frame until April 5, it really won't matter much in the long run.

Do what makes you feel more comfortable.

d4v34

Thanks everyone.

It's not the case that I withhold the sums, the reason I drip feed is that I pay it monthly as I earn, it's the most I can pay in per month.

This financial year has been slightly different and I now find myself with the lump sum to invest.

I guess I'll just be pragmatic about it and just pay it in.

Thanks

RickyB2000

You could just hold it as cash in the pension and drip feed into investments over time (assuming pension lets you hold cash). This removes timing when you put the cash in. But as others say if your horizon is long enough it probably doesn't matter.

TeeDubbs

I have the same issue. I'll be paying in a lump sum prior to April 5th but don't want to put it all in my pension fund as it can go down as well as up. What I'd like to do is put it in a low risk fund and then drip feed into the main fund monthly to protect from fluctuations. The problem I have is I've no idea how to find / research low risk funds with my pension provider. Any advice most welcome.

RickyB2000

What do you mean by 'safe'? Cash is safe (short term), why not leave as cash? Assuming your safe is ensuring the capital is not reduced while you are drip feeding in.

jamesd

Uninvested cash and money market funds are the safest end for short term use.

LXdaddy

TeeDubbs wrote: »

I have the same issue. I'll be paying in a lump sum prior to April 5th but don't want to put it all in my pension fund as it can go down as well as up. What I'd like to do is put it in a low risk fund and then drip feed into the main fund monthly to protect from fluctuations. The problem I have is I've no idea how to find / research low risk funds with my pension provider. Any advice most welcome.

But CAN pay the lump sum into your pension but hold some of it in cash or moneymarket fund and then move it into other funds on whatever timescale you like.