Keeping/contributing to pensions with low values

Hugh_Mungus

Hi all,

I have never really looked into my finances until recently(embarrassingly 30 years old), I have been a lurker for a few weeks, trying to learn to better myself for the future. Increasing my pension/investment knowledge from nil.

Just over a year ago I changed job, old job not earning a huge amount, £18k, and was paying the min contributions into a L&G auto enrol plan. That currently has £1625 in. It gained 7% last year, with zero contributions to it.

New job, £24,700 and for the past year or so I have also been paying the min contributions, plus 5.5% employer to a Scot Widow auto enrol plan. As of Oct, my contributions will increase to 5.5% to make 11% total with employer. Pot currently sits at just over 2k.

Moving in with the GF in Oct, so I will have an additional £700 per month(minus increased food bill, I did offer to pay rent/keep, but the agreement was I did the food shopping and cooking, which I am fine with) Is it worth it to start to add again to the L&G plan, or just increase my current firms plan(5.5% is the employer max for my years of service). The 7% growth quite nice to see in the L&G(I know that might not always be the case)

Is a pot with a small amount like that(L&G) worth keeping and contributing to or seeing to potential transfer it to my SW pot?

Thanks alot

Albermarle

I have never really looked into my finances until recently(embarrassingly 30 years old)

I am sure many people reach 70 without ever looking into them, so I wouldn't worry too much !

Is a pot with a small amount like that(L&G) worth keeping and contributing to or seeing to potential transfer it to my SW pot?

First point is it depends on how you make your contributions for your current workplace pension . If it is by salary sacrifice then you are better to make increased contributions by this route . This is because you pay reduced NI . If your contribution is 'Relief at Source' ( means it comes out of your net/after tax pay ) then it does not matter which pension you make extra contributions to
Second point is that you need to compare the details of the two pensions and what the money is invested in . This latter point is more important than the actual pension provider.
The L&G pension may have grown more because your money is invested in a higher risk fund than the SW one . This also means it could go down quicker.
In both pensions there will be the possibility of changing the funds ( normally you should have a online password etc )
Also you need to check the annual charges of both.
If in the end you do want to transfer the L& G one it is an easy process but would be good for you first to investigate each one ( as part of your finance learning process;)

Hugh_Mungus

Albermarle wrote: »

I am sure many people reach 70 without ever looking into them, so I wouldn't worry too much !

First point is it depends on how you make your contributions for your current workplace pension . If it is by salary sacrifice then you are better to make increased contributions by this route . This is because you pay reduced NI . If your contribution is 'Relief at Source' ( means it comes out of your net/after tax pay ) then it does not matter which pension you make extra contributions to
Second point is that you need to compare the details of the two pensions and what the money is invested in . This latter point is more important than the actual pension provider.
The L&G pension may have grown more because your money is invested in a higher risk fund than the SW one . This also means it could go down quicker.
In both pensions there will be the possibility of changing the funds ( normally you should have a online password etc )
Also you need to check the annual charges of both.
If in the end you do want to transfer the L& G one it is an easy process but would be good for you first to investigate each one ( as part of your finance learning process;)

Thanks alot for the reply. That makes sense, I believe my current auto enrol pension is by salary sacrifice(salary is deducted before the taxman takes his cut). So my pre taxed pay would be slightly lower, so overall some extra 'free money' for the future.

L&G is invested 100% in 'L&G PMC Multi-Asset 3'. Which took £0.22 and £3.03 for its charges.
SW is invested 100% in 'Pens Portfolio Two'. The website is not as user friendly(actually awful for me imo) as L&G and is quite difficult to find out where the costs for the fund are. It just says 'as a result of investment performance after charges have been made to the running of your policy'.

I will look to increase my current auto enrol plan as that seems abit of a no brainer.

Dazed_and_confused

Another possibility is that you are paying under a "net pay" arrangement.

This is where the pension is deducted before tax i.e. salary £30,000 less 10% pension = £27,000 taxable salary. But the National Insurance is calculated using your salary (the £30,000).

You should be able to tell from your payslip which type of contribution it is.

Don't forget net pay means you are paying the pension contribution. Salary sacrifice means you pay nothing, your employer is making the pension contribution.

Hugh_Mungus

Dazed_and_confused wrote: »

Another possibility is that you are paying under a "net pay" arrangement.

This is where the pension is deducted before tax i.e. salary £30,000 less 10% pension = £27,000 taxable salary. But the National Insurance is calculated using your salary (the £30,000).

You should be able to tell from your payslip which type of contribution it is.

Don't forget net pay means you are paying the pension contribution. Salary sacrifice means you pay nothing, your employer is making the pension contribution.

Thanks for that. I actually think this is what I have. When I started, my salary was 24k/2k per month, but reduced to £1950ph with my min contributions I was making.

Dazed_and_confused

If your National Insurance was calculated on £2k then it sounds like Net Pay.

If calculated on £1,950 then salary sacrifice - that is why salary sacrifice is often seen as the most favourable option.

With salary sacrifice your employer makes the pension contribution so you lose out on pension tax relief. But you have a lower taxable and NIC'able salary so save tax and NIC instead.

Marcon

Dazed_and_confused wrote: »

With salary sacrifice your employer makes the pension contribution so you lose out on pension tax relief. But you have a lower taxable and NIC'able salary so save tax and NIC instead.

Bit misleading to say 'you lose out' - the net result is actually in the employee's favour.

Albermarle

L&G is invested 100% in 'L&G PMC Multi-Asset 3'. Which took £0.22 and £3.03 for its charges.
SW is invested 100% in 'Pens Portfolio Two'. The website is not as user friendly(actually awful for me imo) as L&G and is quite difficult to find out where the costs for the fund are

Both funds are similar medium risk multi asset funds . They will have been the default choice as you probably did not specifically choose them ( like most people) For a younger person it is better to be in a higher risk/higher potential growth fund as you have many years to ride out volatility in the markets .
Probably best to transfer the SW one to your current workplace L&G one . Then on L& G website see what choice of funds are available . It may be as simple as changing to Multi asset 4 instead of 3.

Prism

Hugh_Mungus wrote: »

SW is invested 100% in 'Pens Portfolio Two'. The website is not as user friendly(actually awful for me imo) as L&G and is quite difficult to find out where the costs for the fund are. It just says 'as a result of investment performance after charges have been made to the running of your policy'.

After you log in go to the policy benefits page and the annual management charge is listed at the top. For example, my wife's is 0.39%.

There is no additional charge for that fund

Hugh_Mungus

Dazed_and_confused wrote: »

If your National Insurance was calculated on £2k then it sounds like Net Pay.

If calculated on £1,950 then salary sacrifice - that is why salary sacrifice is often seen as the most favourable option.

With salary sacrifice your employer makes the pension contribution so you lose out on pension tax relief. But you have a lower taxable and NIC'able salary so save tax and NIC instead.

Thanks for the reply. Initial payslip showed 2k salary, then deductions of pension etc. I cant fully remember what my payslip looks like... I have never looked at them outside of work, usually click to them through the internal links.

I dont think it is salary sacrifice. Part of the 'my pensions' part of the internal site is 'I pay x, and my firm pays x'

Hugh_Mungus

Albermarle wrote: »

Both funds are similar medium risk multi asset funds . They will have been the default choice as you probably did not specifically choose them ( like most people) For a younger person it is better to be in a higher risk/higher potential growth fund as you have many years to ride out volatility in the markets .
Probably best to transfer the SW one to your current workplace L&G one . Then on L& G website see what choice of funds are available . It may be as simple as changing to Multi asset 4 instead of 3.

The SW one is my 'current' firms policy company. L&G is my old company when I worked in my previous job/sector, that I am not currently contributing to. That's the pain because the SW site is really poor usability wise. L&G is find to use and navigate round.

You're right they are the default funds that I was put on. I take it aged 30, with 35-40 years to go, would be long haul, so could chance a higher risk/reward fund?

Thanks