Final reassurance before 1st pension

Ellie78

Hi everyone.
Just looking for a little reassurance i think before I finally take the plunge and set up my first pension.

I've been reading as much as I think is relevant to my circumstances on the MSE site and here on the forum, as well as other sources and I'm settled on the Aviva Stakeholder pension via Cavendish with one mixed asset fund for now until I build up my pot.

I'm self employed (sole trader for the past 8+ years) with no other pension from previous employment. My main source of income is due to end in 4 years time and it's doubtful I'll be able to carry on in the same line of work after that point as I work for one person in a specialised field who's coming up to retirement. Both sources of income are sporadic in that some months I can receive £1,000 and others £5,000. So the flexibility to reduce or stop payments if necessary is important.

I'm 40 and missed the cut off for a LISA so that isn't an option.

I have no debts, have maximised my bank accounts to get the best interest rates and have approx. £25,000 in savings spread across those accounts. Me and my OH have been making OPs on the mortgage the past couple of months but I need to get a pension up and running asap.

Would I be better off investing a large lump sum into the pension now or feeding it in gradually per month? Does it make a difference? I need to keep some aside for my tax bill and an emergency fund but £10,000 lump sum wouldn't be unfeasible.

If I've missed anything glaringly obvious please let me know. I have brain ache from trying to understand it all.

Thanks in advance.

cfw1994

Ellie78 wrote: »

Would I be better off investing a large lump sum into the pension now or feeding it in gradually per month? Does it make a difference? I need to keep some aside for my tax bill and an emergency fund but £10,000 lump sum wouldn't be unfeasible.

I am certain others will be along with more helpful words.

Just on the topic of depositing a lump sum or not: there is no simple answer.

Statistically, I believe it was more likely to be better if you put in one lump.....I recall seeing this being better around ⅔ of the time.....
.....but *personally*, I prefer to drip-feed things in - if markets took a 20% dive early on, you smooth that out instead of losing 20% of value....but ⅔'s of the time, I'm likely to be losing out.....

Good luck with the deliberations!

Albermarle

As above, drip feeding seems like the safer choice but statistics show that just putting the lump sum is better, the majority of the time.
However you have to consider how you personally would feel/react if you put in £10K and a month later it was only £8K . If you think you might panic and take the £8K out , then this is the worst thing to do .
If you think this is how you might react than better to put in £2.5K quarterly ( as an example)
Also be sure you do not add more to your pension than your earnings in a tax year , as you can not claim tax relief on contributions above eligible earnings.

Ellie78

cfw1994 wrote: »

Just on the topic of depositing a lump sum or not: there is no simple answer.
Good luck with the deliberations!

I suspected as much, nothing is ever simple! Thank you.

Albermarle wrote: »

As above, drip feeding seems like the safer choice but statistics show that just putting the lump sum is better, the majority of the time.
However you have to consider how you personally would feel/react if you put in £10K and a month later it was only £8K . If you think you might panic and take the £8K out , then this is the worst thing to do .
If you think this is how you might react than better to put in £2.5K quarterly ( as an example)
Also be sure you do not add more to your pension than your earnings in a tax year , as you can not claim tax relief on contributions above eligible earnings.

Whatever I decide to do with the lump sum I probably wouldn't even look at again for at least a year and even then would probably leave well alone! I know I have to stay focussed on the long term. Thanks.

Ellie78

Quick follow up question -

The fund options available to me via the Stakeholder Aviva pension are limited but what are people's thoughts on these two as a well rounded pair of funds?

Black Rock Overseas Equity Tracker
Black Rock 15+ years Gilt UK tracker

I can't see a better multi asset fund to use (there are 3 other Global Equity Index Trackers but these are split 70/30, 60/40 and 50/50 UK/Rest of World which seems way too high).

I want passive funds and as far as I can tell these two are and would make a solid foundation to start with? Am I wrong?

kev2009

Can't comment on the funds as i'm not that knowledgeable on pensions, i have mine in my works default fund. However, with regards to your initial deposit, when I opened a private pension just before i was 25 and started to make contributions each month, my adviser said to me until you have around 10k in the fund, it wont start making that much and I started mine with 0 and made the mistake of choosing a fixed amount each month and then never increased it. I later transferred it into my company pension as the fund didn't seem to be making that much and i figured better to have it all in one place and let it make more in general. Plus would be easier come retirement having just the 1 pension.

Kev

atush

cfw1994 wrote: »

I am certain others will be along with more helpful words.

Just on the topic of depositing a lump sum or not: there is no simple answer.

Statistically, I believe it was more likely to be better if you put in one lump.....I recall seeing this being better around ⅔ of the time.....
.....but *personally*, I prefer to drip-feed things in - if markets took a 20% dive early on, you smooth that out instead of losing 20% of value....but ⅔'s of the time, I'm likely to be losing out.....

Good luck with the deliberations!

This is correct.

However, you need to judge yourself how you would feel should a major correction occur just after investing your lump sum. If this would horrify you, then drip feed 1K per month over 10 months etc. But be assured that markets will rise after a fall. My father died a few months before Black monday (oct 1987). And my mother invested his life insurance just before. It was a great shock for her, and for us children to watch her, to see the value of this money drop so significantly. But it did recover.

This is something you need to think about.

atush

Ellie78 wrote: »

I suspected as much, nothing is ever simple! Thank you.



Whatever I decide to do with the lump sum I probably wouldn't even look at again for at least a year and even then would probably leave well alone! I know I have to stay focussed on the long term. Thanks.

You say this now, but i am convinced you would look. So determine in advance what you would do. If you would panic and sell- then dont invest the lump sum.

My mother did well in the end as she didnt panic sell. She let it ride.

Ellie78

atush wrote: »

You say this now, but i am convinced you would look. So determine in advance what you would do. If you would panic and sell- then dont invest the lump sum.

My mother did well in the end as she didnt panic sell. She let it ride.

Yes "look" was the wrong word to use, I would definitely look! But when all of the advice I've read says hands off and I'd be stupid not to listen to that!

This is 20+ year investment for me so there's absolutely no point me messing with it when I'm so inexperienced.

Ellie78

Hi. Back again!

After a lot of to and fro I think a SIPP is probably a better idea than a Stakeholder as it gives me far more choice on my investments. I'll open an ISA at the same time, to access pre pension.

I'm going to stick with Cavendish for the SIPP because of the low fees. Possibly go to Vanguard direct for their ISA. I'm thinking one low cost multi asset fund in each place, to keep things as simple as possible.

Either Fidelity multi asset allocator (0.22% + 0.25% platform fee) or HSBC Global Strategy (0.19% + 0.25% platform fee) for the SIPP and Vanguard Life Strategy 60/80 (0.22% + 0.15% platform fee) for the ISA.
I could have VG in the SIPP but it's cheaper in the ISA direct and I'm guessing there's not much point having the same fund in both the SIPP and ISA??

Totally stuck in analysis paralysis now and just want to get on with it! Just need to make a decision one way or another.

Marcon

kev2009 wrote: »

when I opened a private pension just before i was 25 and started to make contributions each month, my adviser said to me until you have around 10k in the fund, it wont start making that much

I wonder if you opened your private pension some considerable time ago, when you were charged a minimum monthly fee regardless of how much was in your fund? Nowadays charges are almost invariably an annual management charge based on a %age of the value of your fund, so the %age increase in the fund is the same whatever the value.