Stakeholder vs SIPP for disposable income

Nitram29

Hi Folks,

Ive read through a lot of posts over the last few months on this forum and it’s been helpful in educating me in general pension knowledge. I am looking for some thoughts on my specific situation and I understand this is not financial advice.

Given my luck the company I work for closed entrance to it’s DB scheme six months before I joined back in 97 so my pension is all DC. I joined their DC pension scheme right away contributing 3% and employer paid in 6% of my salary which was not great at the time of joining. When I could afford it I upped the contribution but I’ve tried to balance enjoying life now and planning for the future.

Fast forward 20 years and a lot of blood, sweat (and dodging bullets on resource actions) and I now have a pot of 175K, aged 46 so still have time to build and I am now in a good place with the rest of my finances. Mortgage will be paid in 5 years and no other liabilities.

That 175K pot is with L&G in a stakeholder pension, I have been increasing my contributions over the last few years as I pay off my debts and they are taken as a salary sacrifice. Employer does not increase their contributions beyond the 3%. Total going into my pot each month is now 650 pounds per month.

I have a S&S ISA which I’m building towards a pot which I could draw on should I want to go early or use to give me flexibility of when I start using the pension.

The question I am trying to answer is I now have another 300 per month disposable income and am in a quandary if paying it into the Stakeholder is the best way to use it. It would be salary sacrifice so thats good but I’m also considering taking out a SIPP, boosting my ISA or a combination of all three.

Is the potential benefit of starting a second SIPP pension worth it? As I see it there would be a set of account charges but maybe a better return than a Stakeholder.

Thanks in advance for any comments, Martin.

bigadaj

The first thing to say is that it sounds as if you are overpaying your mortgage, if so that's unlikely to be the best value cours of action.

In relation to the stakeholder then they are quite old fashioned, nothing obviously wrong with them but ther are better options. If it's an employer scheme then check what the fees are, stakeholders are limited to maximum 1% which is quite high but your employer may have negotiated a lower figure.

A personal pension or sipp gives you more options and can be cheaper, targeting 0.5% total fees is a reasonable action, and the difference between a sipp and pp isn't significant for most basic investors, you can often hold the same funds and investments in either.

You don't say what your current salary is, if it's basic rate then the salary sacrifice is a big boost which would push towards extra savings into the employer pension.

Nitram29

Thanks for the reply,

I am overpaying the mortgage but just at a hundred pounds extra per month for the last few years, I took it 17 years ago so it is reaching its natural end in 5 years. Earnings are 48k snd I have more free money now to try to boost my chances of a decent retirement.

You make a good point about the charges on the stakeholder, the salary sacrifice is pointing me towards pumping more into the company pension and then perhaps any extra going into the ISA for now. A SIPP might still be an option but I'll get the charges and do a side by side comparison which should help make the options a little clearer.

Cheers.