Self employed pension

drummer_666

Hello,

I'm 32 and have no pension - other than aaround £1k in one from an old part time job (a whooping £1/week pension from that i think!)

I'm self employed - run my own gardening business.

I think I've decided I need to pay around £6,000/year to build a pot that should (alongside the state pension) give me a retirement salary of around £18k.

My take home pay varies throughout the season, but I am planning on a direct debit of around £400/month and then add in extra through the peak earning months. I will need to be able to change this amount in the future without being penalised

I looked into pensions last year, but it's so baffling that I'm not at all sure what the best choice is, so I haven't done anything. I now know I need to do something, even if it might not be the best thing.... just get something started!

So... I was going to just use NEST. But I've now read some bad things about them, saying I'll basically get a pretty poor return on my investment with them, compared to other options.

I've now seen Lifetime ISA's which can be stocks or shares or cash, which the government pays 25% extra in per year. I can pay in 4k a year. Obviously no tax relief there that pensions provide, but the money isn't taxed, whereas pension salary is taxed, so it might be a similar end result...

I'm really not sure if it's worth putting 4k into a LISA & 2k into a pension for the next 18 years and the full 6k into a pension for the remaining years. Though not many highstreet banks offer LISA unless it's for first time buyers, and there's been some bad write ups too

Any insight would be greatly appreciated. I really do know time is running out, the longer I leave it the more I need to pay in each month

dunstonh

My take home pay varies throughout the season, but I am planning on a standing order of around £400/month and then add in extra through the peak earning months. I will need to be able to change this amount in the future without being penalised

Most providers want direct debit. Standing order is only really accepted by stakeholder pensions.

So... I was going to just use NEST. But I've now read some bad things about them, saying I'll basically get a pretty poor return on my investment with them, compared to other options.

Nothing to do with returns. Nest were set up to enable small firms to have an auto-enrolment scheme pension available to them as the big providers were not interested in the bottom end of the market. Nest were not set up to handle individual pensions. Although they now do it, it is not cost effective. Indeed, using a local IFA would be cheaper.

I'm really not sure if it's worth putting 4k into a LISA & 2k into a pension for the next 18 years and the full 6k into a pension for the remaining years.

Why not?

Though not many highstreet banks offer LISA unless it's for first time buyers, and there's been some bad write ups too

You wouldnt use a bank for the LISA anyway. That is not the type of LISA you would want.

You need to do something. So, get on and do it. Either do a bit better on the research or get an IFA in to do it all for you.

xylophone

whooping £1/week pension

Caught a cold?:)

I'm self employed - run my own gardening business.

Self employed or employed by your own limited company?

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company?ast=vnb7l9

See also

https://forums.moneysavingexpert.com/discussion/comment/75095962#Comment_75095962

drummer_666

xylophone wrote: »

Caught a cold?:)

Self employed or employed by your own limited company?

Self employed, sole trader

xylophone

You may find the second link of interest - have a read and come back.

drummer_666

thanks for your reply - ok DD not Standing Order, slip of the tongue as my customers pay me standing order.

dunstonh wrote: »

Nothing to do with returns. Nest were not set up to handle individual pensions. Although they now do it, it is not cost effective. Indeed, using a local IFA would be cheaper.

If it's not to do with returns, why would an IFA be cheaper? Is it because NEST have bad/low risk investment choices?

dunstonh wrote: »

Why not?

I'm not sure if LISA would be a better financial reward than a pension. I think they would be similar, but I can't quite understand which has the edge

drummer_666

xylophone wrote: »

You may find the second link of interest - have a read and come back.

thank you, I've read the thread and all the links that you posted in it. It is however, mostly about the SIPP, which I had swayed away from. Having looked into it further, I think a personal or
stakeholder pension is the better choice for me (probably the personal pension).

I really just want to do my research now, chose somewhere, set up my DD and then forget about it, other than some months paying extra. At least for a few years, and then spend some more time looking into it again.

I see the thread mentions Vanguard and that it's a decent low cost, simple option. But it's not actually a pension is it? Although they have a Target Retirement Fund. I also can't see the difference between the Target Retirement Fund and the LifeStrategy Fund - esp if I chose the same 80 Equity 20 Bond set up. As these aren't pensions, I presume I would not get my tax relief here? If that is the case I'd dismiss these in favour ofpension/Lifetime ISA

thank you for the reading material

xylophone

I'm not sure if LISA would be a better financial reward than a pension. I think they would be similar, but I can't quite understand which has the edge

https://www.gov.uk/lifetime-isa

https://www.moneyadviceservice.org.uk/en/articles/pensions-for-the-self-employed

It is currently possible to access a personal pension from age 55 and to contribute to it up to age 75.

You have a choice of DIY (but you need to read round and educate yourself on the options) or taking advice from an Independent Financial Adviser.

You could input your postcode below and tick confirmed independent and pensions and retirement
when the menu comes up on the left hand side.


https://adviserbook.co.uk/

drummer_666

thanks again. I have actually just clicked through from an article on this site and put my postcode in for a free 30 min IFA online chat

I found more info on LISA too. I think it would be a good option for me alongside a pension. The only real downfall I can see is that if I stop my business / get injured or ill etc, then if I have too much in my LISA savings I won't be entitled to any government benefits. However, from what I understand, I could withdraw all of my LISA money for a 6% fee and add it as a bulk payment into my pension

I've also decided to get both a stocks and shares LISA and a cash LISA. It looks as though I can only open (and potentially invest) into one in each year, in which case I'll invest into the stocks and shares one to begin with

Thank you so much for taking the time to respond to me

dunstonh

If it's not to do with returns, why would an IFA be cheaper? Is it because NEST have bad/low risk investment choices?

Nest take 1.8% of each contribution and charge 0.3% p.a.
On a simple pension arrange (comparable with NEST) an IFA would probably cost around £500 (which can be collected via the pension over 12 months - therefore giving tax relief on the fee) and cost around 0.28% p.a.

So, the IFA would have that initial hit in year one but not after that. Whereas NEST is 1.8% of every contribution.

I'm not sure if LISA would be a better financial reward than a pension. I think they would be similar, but I can't quite understand which has the edge

The returns would be identical as you can use the same funds in both. It is just the tax handling and maturity process that is different. A mix and match is almost certainly going to be the best option (state pension and individual pension using up your personal allowance in retirement with LISA paying its income tax free).

Having looked into it further, I think a personal or
stakeholder pension is the better choice for me (probably the personal pension).

A DIY stakeholder would be about 0.6% p.a. The DIY market doesnt offer personal pensions. They are only available via IFAs.

I see the thread mentions Vanguard and that it's a decent low cost, simple option. But it's not actually a pension is it?

Vanguard is a fund house. It offers investment funds. You can hold their funds (like other fund houses) on SIPPs.

Although they have a Target Retirement Fund. I also can't see the difference between the Target Retirement Fund and the LifeStrategy Fund - esp if I chose the same 80 Equity 20 Bond set up.

The Target Retirement fund is a niche fund which would not be suitable for most people. It tends to start off at a higher risk level than the average consumer, starts derisking very early and ends up lower risk than the average consumer. If you happen to fit the derisking profile and dont mind paying more then fair enough.

As these aren't pensions, I presume I would not get my tax relief here?

Think of a pension is a cup. Vanguard's funds are like the liquid you put in the cup. Every pension going has investment funds available to it. SIPPs are whole of market for investment funds. Stakeholder pensions have about 20 funds. NEST has about 5. So, you have a pension AND in the pension you have investment funds.

xylophone

Vanguard does not currently offer a SIPP (but may do in future).

It is possible to buy Vanguard Funds within a personal pension.

As these aren't pensions, I presume I would not get my tax relief here?

You contribute cash to your pension and the provider claims the tax relief.

Your contribution and the tax relief are used to buy the investments of your choice.

Do read this

https://monevator.com/category/investing/passive-investing-investing/