Workplace vs Private Pension

pm1329

Hi,

I've just started a new job in which I'll be auto-enrolled to the government scheme on my next pay.

At my previous job, I paid in 7%, whilst my employer paid in 11%.
My current employer only pays 2% which means I'll be increasing my monthly contributions to bring this up around 14-15% in total.

However, I was wondering how much control you have over the funds that the government scheme is paid into? My previous pension allowed for this to be done regularly.
I was considering just paying the minimum into the government scheme & opening a private pension & paying the rest into that.

Any advice on this?
TIA

Linton

It is certainly worth looking at investing some of your pension contributions into a private pension. My advice is:

1) Pay sufficient into your employers pension to get the maximum benefit
2) For the rest of the money make a decision based on the +'s and -'s of each option in terms of costs and range of investment opportunities.

Other options....
a) It may be sensible for you to put some of your money into an S&S ISA, your or a spouses.
+ increased flexibility
+ tax free withdrawal, if you have too much money in a pension you may have difficulty withdrawing it all during your retirement at basic tax rate.
- if you are saving for your children's inheritance, pensions can be much better than ISAs.
b) under some circumstances it could be worthwhile putting the money into a spouses pension.

Alexland

Congrats on having a realistic view of minimum pension contributions.

You wil get some control with NEST see their website but the high initial fee takes decades to pay back in lower ongoing charges. The main reason to pay more than the matched level into an employer scheme is if you were getting salary sacrifice NI savings or for the automatic higher rate tax savings.

So assuming you are basic rate (or willing to do self assesment to reclaim higher rate tax) and not getting salary sacrifice with NEST then paying into a private scheme would be fine. You might want to move across any old schemes into the new private pension but beware of giving up any valuable scheme benefits.

Alex

dunstonh

I've just started a new job in which I'll be auto-enrolled to the government scheme on my next pay.

By Government scheme, do you mean a public sector scheme? If it is, which one is it?

If it is not a public sector scheme, then it has nothing to do with the Government.

pm1329

It's the NEST pension scheme I'll be auto-enrolled into so I won't be gaining any benefits per-say apart from the tax relief.

I am a higher rate tax payer (40%) so that's what was swaying me more towards getting a private pension to keep the tax relief with having more control over where my money is invested (I've been looking at Charles Stanley which seems fool proof).

An S&S ISA is something I have considered but I don't feel confident enough with investments in that I don't feel I would get as much benefit out of this as I can.

BLB53

Just to be aware the percentages increase to 5% from 2018 and then to 8% in April 2019.

Linton

pm1329 wrote: »

It's the NEST pension scheme I'll be auto-enrolled into so I won't be gaining any benefits per-say apart from the tax relief.

I am a higher rate tax payer (40%) so that's what was swaying me more towards getting a private pension to keep the tax relief with having more control over where my money is invested (I've been looking at Charles Stanley which seems fool proof).

An S&S ISA is something I have considered but I don't feel confident enough with investments in that I don't feel I would get as much benefit out of this as I can.

You get the tax relief for any type of pension though the mechanics are different. The key benefit of the NEST pension is the employer's contribution. It is small at the moment but is steadily increasing.

A private pension is as much linked to investments as an S&S ISA. Almost anything you can put in one you can also put in the other. Apart from the tax treatment and flexibility of access they are similar. People like Charles Stanley provide both.

atush

pm1329 wrote: »

It's the NEST pension scheme I'll be auto-enrolled into so I won't be gaining any benefits per-say apart from the tax relief.

I am a higher rate tax payer (40%) so that's what was swaying me more towards getting a private pension to keep the tax relief with having more control over where my money is invested (I've been looking at Charles Stanley which seems fool proof).

An S&S ISA is something I have considered but I don't feel confident enough with investments in that I don't feel I would get as much benefit out of this as I can.

A S&S isa has mostly the same investment choices as a pension?

Alexland

Yes some SIPP pensions even have more choice than an ISA. However it is possible to get both ISAs and pensions with extremely limited choices too.

dunstonh

It's the NEST pension scheme I'll be auto-enrolled into so I won't be gaining any benefits per-say apart from the tax relief.

That is an auto-enrolment scheme. It is not a Govt pension scheme.

An S&S ISA is something I have considered but I don't feel confident enough with investments in that I don't feel I would get as much benefit out of this as I can.

Pensions and ISAs can share the same investment options. However, as a higher rate taxpayer, its likely that pension is best unless you are going to be a higher rate taxpayer in retirement as well.

NEST would be your easiest option. It probably wont be the best option but there is limited scope to do anything wrong with NEST.

TheShape

If the OP had a previous workplace scheme, is this not likely to now be a personal pension?

I imagine it would be sensible to check how this is invested, the fees, whether it could/should be transferred to another provider and perhaps restart contributions to it.