Auto-enrolment and pension advice for a novice

popsta1973

Hi I am a little confused and need some advice as my best options. My partner and I both 49 have been enrolled in the basic auto enrol People Pension recently. The company pay a capped 5% of our wage into the pension. It will probably equate to £95k pot when he reaches 67 and mine will be probably £20k. I have a final salary pension from previous job that has about £270,000 in the pot. I understand I can't do anything with this. My partner has a RAF pension that he is getting at present due to taking redundancy and this goes up at 55.  Would be roughly £900 a month. My partner has received inheritance of £100k, do we do a SIPP, ISA or invest in the peoples pension with the money? We were thinking of property purchase as a second income but don't want the hassle of being landlords.  We have 17 years left on the mortgage and are making overpayments as and when we can but we are unsure of the best way to go forward. Have been looking at investment companies but it's a minefield and in uncertain times I'm not sure about Stocks and Shares and aren't keen on all the fees that go with it.  Has anyone got experience of retirement planning, should I seek the help of an IFA just for ideas? 

grumiofoundation

Have you worked out how much income you will need in retirement and projected what you will get as you stand? That will help you decide what to do.

Investing in BTL property is, as you said is quite a lot of work, and potentially extremely emotionally/financially draining. Especially since with only 100k you are likely looking at a relatively cheap property (assuming buying without mortgage). 

Investing in stocks and shares, whether within pension of Stocks and Shares ISA is likely to be the ‘best’ option. Pension is likely to be most tax efficient, especially if either of you are higher rate tax payers. The fees involved in investing in stocks  should not be that high  (if you don’t use an expensive provider - less than 1% each year if investing in low-cost funds*). 

How much and what you ‘should’ invest would depend on when you would want to access the money and your attitude to risk. How would you feel example if your investment dropped 20% very quickly - if you think you would panic and sell, thereby crystallising the loss, you would need to invest at a lower risk level (Which will likely five much lower returns over a longer time period). 

Whether you decide to invest yourself or get someone to advise you make sure you do some reading to understand the https://monevator.com/the-investing-basics/

One way of the best ways to reduce your risk is diversification. Spreading your investments. This means avoiding investing in individual companies but investing in funds that invest in a large number of companies, in different Countries, sectors and different asseT classes (stocks, bonds, property). A general rule is more stocks = higher risk, higher return. If you want to see less volatility you have a higher % of bonds. 

*Some providers that offer simple, low cost diversified multi-asset funds are vanguard (commonly ‘recommended’ on forum), legal and general, blackrock, HSBC. https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/why-it-is-so-important-to-diversify

Depending on the interest rate of the mortgage if may be worth using a lump of this to pay that off and then use the savings elsewhere (whether pensions, ISAs, savings). This gives you a “guaranteed return”, although this is ‘likely’ to be lower than you would get by investing (obviously investing comes with risk as investments can go down). 

Probably best to re-post your question in the main pensions board, as you will probably get more (and more knowledgable) answers. 

grumiofoundation

To add to the above - whatever you end up doing don’t opt out of the autoenrolment pension - this is throwing away free money (Employer contributions).

Albermarle

I have a final salary pension from previous job that has about £270,000 in the pot.

You have no pot in a final salary pension .

What you have is entitlement to a guaranteed income when you retire , until you die ,  probably linked to inflation ( very important point this ).

You should have some idea of what this income will be for your retirement planning .

I presume you have been offered £270K to buy you out of the scheme , a so called Cash Equivalent Transfer Value , but this does not mean there is a pot of £270 K allocated to you. This figure can also change over the years .

Your auto enrolment pensions do have a specific pot of money but offer no guaranteed income . That is why final salary schemes are generally better and cost the employer a lot more .

MallyGirl

I will move this to the main board as this sub-board is rarely visited.

crv1963

popsta1973 said:

Hi I am a little confused and need some advice as my best options. My partner and I both 49 have been enrolled in the basic auto enrol People Pension recently. The company pay a capped 5% of our wage into the pension. It will probably equate to £95k pot when he reaches 67 and mine will be probably £20k. I have a final salary pension from previous job that has about £270,000 in the pot. I understand I can't do anything with this. My partner has a RAF pension that he is getting at present due to taking redundancy and this goes up at 55.  Would be roughly £900 a month. My partner has received inheritance of £100k, do we do a SIPP, ISA or invest in the peoples pension with the money? We were thinking of property purchase as a second income but don't want the hassle of being landlords.  We have 17 years left on the mortgage and are making overpayments as and when we can but we are unsure of the best way to go forward. Have been looking at investment companies but it's a minefield and in uncertain times I'm not sure about Stocks and Shares and aren't keen on all the fees that go with it.  Has anyone got experience of retirement planning, should I seek the help of an IFA just for ideas? 

Just thoughts not advice!
1) Don't drop out of the auto-enrolled pension you are getting free money from employer and Govt.
2) What amount is your Final Salary (DB) Pension due to pay you and when/ what age? 

I'd play with your figures- how much retirement income are you hoping to get? Then at what age- do you want to retire earlier than 67? It is important to know what pays out and when. Eg- Your partner will have his RAF Pension, his DC pension and SP at 67, you should have your DB and DC pension and SP at 67, so work out how much all this is at 67 and then work out if it is enough, more than enough for your needs. If more than enough work out if you can go earlier- if that is what you want.

Our planning looked at what we had and when it pays out, then what else we needed to save. I have a DB recently started payment, we used part of the Tax Free Lump Sum to clear the mortgage this month- possibly not the most financially wise thing to do but the "peace of mind" element played a big part. We are using savings for "age proofing" the home. Saving into a new pension- a pot that will be run down at a rate equal to my SP so my income from stopping work will be even from that point until death- DB+ DC pension then DB+ SP for me. Saving into a SIPP for Mrs CRV- to draw down to zero from when she stops working to SPA- aiming for 9k pa.

3) Inheritance- use that to fill gaps in you pension saving? Use it to reduce the mortgage term? 

Play with your figures, post some of your ideas and get some feedback here (or elsewhere) which is what made our ideas start to come to fruition I got some excellent suggestions/ criticism and we moved from a vague "we want to go at 55" to a plan for me to go before 60- a realistic target and Mrs CRV to go at 57.

dunstonh

It will probably equate to £95k pot when he reaches 67 and mine will be probably £20k.

It probably wont.  Projections are synthetic and give an example.  They include a deduction for inflation to give you today's spending power. Not future money value.    So, "probably" it will be higher than that.