Starting a pension at 41?

HarryM1

I know I've left this later in life than is ideal, but hopefully not too late, I'm now 41 and looking to start a pension. I've read quite a lot of posts on this forum and started to read up on pensions in general and have a few questions.

I'm self employed and whilst income varies and I don't know what the future may hold, I'm currently earning around 40k/y. I have no pension, £25k in a cash ISA and a little bit less in the bank and no other assets of note due to previously low income. I will however qualify for a full state pension at 68 once 17 more years of NI has been paid in (I forget the exact value but a touch over £160/w).

I can comfortably afford to save £1000/m into a pension at this time and for at least a few years to come (but who knows what the future may hold work wise). Using the NEST calculator, and assuming my situation remains stable and I can save for the next 27 years, they estimate (incl tax relief and fund growth) £323k saved, £80.7k tax relief and £136k fund growth for a total value of £540k with 135k (25%) lump sum and 20k/y or 12k/y inflation linked. Which including state pension would mean 20-28k/y depending. Do those figures sound realistic?

My first and most important question is, if I want to just get started saving for a pension right now. Is there any down side to just opening a NEST pension and contributing £1000/m? Then I can allow myself a little longer to read into all the various other pension options and perhaps transfer from NEST to one of those when I'm better informed? Rather than continue to have no pension and be stuck in perpetual research.

The downsides I can see currently is they charge 1.8% fee for each contribution (more than some others) and an annual 0.3% on total pension value (less than many others), fund growth compared to others I'm not sure on yet (but with free transfers out would this matter for the immediate term?) and you cannot access that money until at least 55 (pretty much the same as others and ideally I wont touch it until 68 anyway). They do offer free transfers to/from other providers so I don't believe I'd be locked into them?

My second question is that as I also intend to open a shares ISA and feed spare income into that over the next 27 years too, at which point does it become more economical to reduce pension contributions and invest in stocks and shares ISA? As you can take out tax free from ISA (but pay upfront tax on income) vs pension which is taxed as income on payout but provides 20% tax relief and is also offset by the 11k/y tax free allowance.


Thanks.

xylophone

Why NEST?

https://forums.moneysavingexpert.com/discussion/comment/75049267#Comment_75049267

dunstonh

s there any down side to just opening a NEST pension and contributing £1000/m?

Its an auto-enrolment pension scheme which you do not need. They do make their pension available to others but it will be more expensive than using an IFA. NEST is not a provider you would typically think of using unless its about auto-enrolment. Paying more for a DIY option is not ideal.

The 0.3x% range for annual is fine. That is the ballpark for simple schemes. It is the 1.8% on each contribution that is expensive.

Nest can be a pain on admin when transferring out as they use an old-fashioned method that most other providers no longer use.

and you cannot access that money until at least 55 (pretty much the same as others and ideally I wont touch it until 68 anyway).

Pension legislation is the same for all pensions.

My second question is that as I also intend to open a shares ISA and feed spare income into that over the next 27 years too, at which point does it become more economical to reduce pension contributions and invest in stocks and shares ISA?

Pension beats S&S ISA assuming you want the money out after age 55 and will be a basic rate taxpayer at the time.

As you are looking at ISA and pension, then an investment platform would likely be the best option for both.

atush

Are you a limitedd company or truely self employed? I'd start a sipp or PP onnline asap. Use a global equity fund or a global mixed asset fund (incl equities and other assets like bonds).

Better to start a pension at 41 than to work until you die.

HarryM1

Yes I'm self employed not a limited company.

HarryM1

Its an auto-enrolment pension scheme which you do not need. They do make their pension available to others but it will be more expensive than using an IFA. NEST is not a provider you would typically think of using unless its about auto-enrolment. Paying more for a DIY option is not ideal.

By DIY option are you referring to a SIPP? I'm not sure I want to jump into a self managed pension at the moment as my knowledge of this is far too little, the risk would be too high that I mismanage it.



As you mention the 1.8% contribution fee for NEST isn't ideal, although the hands off management is appealing. Beyond NEST and from what I've read so far, my options appear to be a stakeholder based pension or a SIPP?



There's also the "easy pension" standard life offer (as a new user I can't link to it unfortunately) which appears to have a limited amount of options to select between based on risk and the rest is managed for you. Not sure which category that really fits into, although the transfer option to a "DIY" pension sounds like a SIPP?

That is perhaps along the lines of what I'd like for getting off the ground with a pension although not necessarily with standard life.

Whilst longer term I may have the confidence to manage my own pension via a SIPP, that is certainly not the case right now. My concern is if I delay starting a pension any longer I will fall too far behind on building up any real value. Ideally I'd like a pension I can start contributing to now that is mostly hands off management but allows me to either reduce/stop contributions and open a separate SIPP later, or transfer (ideally without cost) to a SIPP later if I ever do feel confident in my ability to self manage.


Thank you all for your opinions so far :beer:

JoeCrystal

Why don't you see an IFA about the options? When I saw my IFA twice over almost the last two years, I paid £300 fees for both times and I got a good personal pension scheme, now with RL.

HarryM1

Yes I am planning to speak with an IFA. I would like to have a basic idea of my options prior to any meeting though, so that I can better explain what I'm looking for and understand the advice I've received a few recommendations for IFAs from friends/relatives, but have yet to look into them.

AlanP_2

If you organise it yourself it is DIY, so NEST is one option, although very expensive as pointed out (it is isn't aimed at individual investors so not structured / priced to appeal to them).

Other options are a Personal Pension or SIPP as mentioned.

A simple Multi-Asset fund investment (example ranges would be Vanguard LifeStrategy, HSBC Global Strategy, L&G Multi-Index, BlackRock Consensus) in a cheap pension wrapper from Cavendish Funds Network would get you started.

Have a look at DIY Pensions by Edwards to start raising your level of knowledge - https://www.amazon.co.uk/DIY-Pensions-Simple-Retirement-Planning-ebook/dp/B00B7QN8XM

The Monevator website is also a useful source of information particularly their "starting out" primer articles.

Albermarle

The main problem with investing in NEST and transferring it out later is you will have paid 1.8% going in and then moving to a provider who will have a higher annual charge . So not a good option at all.
I would not rush into anything . You can keep the £1000 p month in a savings account and then open up a new pension with a lump sum.
The standard life pension is a personal pension. There are some subtle differences between personal, stakeholder pensions and SIPPS but I would not worry too much about that at this stage.
If you do not go to an IFA , this Standard Life Easy Options was the one I was going to suggest. Only four fund options I think. They each have a different balance between risk and return but in the end that will always be your choice. However the normal thing is to go for a higher risk/reward fund in the earlier years and then medium/lower risk later when you get nearer retirement.

atush

By DIY option are you referring to a SIPP? I'm not sure I want to jump into a self managed pension at the moment as my knowledge of this is far too little, the risk would be too high that I mismanage it.

Which is why I ad others suggested a global equity or multi asset fund, hard to go wrong with these really.