Self Employed Pension 40 y/o thinking of NEST?

pault123

Evening guys, 

Recently left full time PAYE employment, and only have 1 year of auto enrolled pension with Now pensions so a very small pot. (Along with a standard government pension from 22 years of various NI contributions PAYE employment.)

I'm now 40 y/o Self Employed and thinking of putting aside £300 a month, which would be the most I could afford. 

After lots of googling NEST keeps coming up, do these figures sound right?
1.8% contribution charge on £3600 per year savings = £64.80 charge p/ year
0.3% management charge = £10.80 a year, obviously this will increase each year

Do these figures sound correct and reasonable? I don't want to be taking investment risks, just making a solid start on putting some money away, with a company that is trustworthy. 

Am I also right in saying the government adds an extra £25 per £100 I pay into my pension so this will increase the pot? Or is this tax break only claimed through my self assessment so in fact I reduce my tax bill by £75 a month instead?

Dazed_and_C0nfused

If it is "relief at source" then you will get £25 added to the pension fund and it would only impact your Self Assessment bill if you were a higher rate payer (or intermediate rate if Scottish resident).

When you say government pension do you mean the State Pension or a DB pension from a government employer?

pault123

Thanks for the reply. 

Government pension just being the state pension, so not really sufficient for me in later life. 

I've just been doing some more research and NEST don't look too good on Trustpilot, where as Pension Bee look much better, although lots of talk of Capital is at risk with Pension Bee, so still uncertain!

Dazed_and_C0nfused

Capital is going to be at risk with any pension (investment).

Unless you are just going to hold it in cash.  But then inflation would erode its value.

tacpot12

NEST is certainly trustworthy, but the contribution charge is excessive, but you could open a SIPP with any number numbers of providers and pay less. NEST makes sense if your employer is contributing into your pension as their contribution more than covers the contribution charge, but if it is just yourself paying in, you are better off with a different provider. The NEST funds are ok.

I would recommend that you invest the money you put in your pension to avoid the loss of purchasing power caused by inflation, which will be substantial over 15-20 years. The value of your investments will change over time, but you can chose when you sell them - just don't sell them when the markets have crashed. 

£300/month is a good amount to start with, but you should try to increase this when you can. You should also check your state pension entitlement and make up any missing years while you can do so (there is a six year time limit).  

Dazed_and_C0nfused

You should also check your state pension entitlement and make up any missing years while you can do so (there is a six year time limit).  

As the op is only 40 I agree they should check their State Pension entitlement but only need to consider the need to make up any missing years.

If they intend to work/be self employed for the required number of years to reach £175.20 then it may be wasted money to immediately pay for missing years.

Particularly as being self employed allows voluntary contributions to be made for c£160 at the moment.

pault123

Dazed_and_C0nfused said:

Capital is going to be at risk with any pension (investment).

Unless you are just going to hold it in cash.  But then inflation would erode its value.

Is there a buffer or any protection at all, £300 p/month would be a lot for me to invest then in 20 years find out its worthless and i'd have been better in a savings account. Or is the money at risk only the profit money thats generated from investments performing well?

I'm trying to not get stung down the line, I had a lot of older work colleagues in my previous job whose endowment policies went wrong, and they ended up working past retirement.

pault123

tacpot12 said:

NEST is certainly trustworthy, but the contribution charge is excessive, but you could open a SIPP with any number numbers of providers and pay less. NEST makes sense if your employer is contributing into your pension as their contribution more than covers the contribution charge, but if it is just yourself paying in, you are better off with a different provider. The NEST funds are ok.

I would recommend that you invest the money you put in your pension to avoid the loss of purchasing power caused by inflation, which will be substantial over 15-20 years. The value of your investments will change over time, but you can chose when you sell them - just don't sell them when the markets have crashed. 

£300/month is a good amount to start with, but you should try to increase this when you can. You should also check your state pension entitlement and make up any missing years while you can do so (there is a six year time limit).  

.Dazed_and_C0nfused said:

You should also check your state pension entitlement and make up any missing years while you can do so (there is a six year time limit).  

As the op is only 40 I agree they should check their State Pension entitlement but only need to consider the need to make up any missing years.

If they intend to work/be self employed for the required number of years to reach £175.20 then it may be wasted money to immediately pay for missing years.

Particularly as being self employed allows voluntary contributions to be made for c£160 at the moment.

The management, research and time needed for a SIPP put me off, knowing how quickly markets can crash too, hence I was looking for safer territory of a personal pension with lower risk.

Thanks for the tip on checking state pension i'll see how the figure is looking. Wasn't aware you could top it up so also useful info

Brynsam

pault123 said:

tacpot12 said:

NEST is certainly trustworthy, but the contribution charge is excessive, but you could open a SIPP with any number numbers of providers and pay less. NEST makes sense if your employer is contributing into your pension as their contribution more than covers the contribution charge, but if it is just yourself paying in, you are better off with a different provider. The NEST funds are ok.

I would recommend that you invest the money you put in your pension to avoid the loss of purchasing power caused by inflation, which will be substantial over 15-20 years. The value of your investments will change over time, but you can chose when you sell them - just don't sell them when the markets have crashed. 

£300/month is a good amount to start with, but you should try to increase this when you can. You should also check your state pension entitlement and make up any missing years while you can do so (there is a six year time limit).  

.Dazed_and_C0nfused said:

You should also check your state pension entitlement and make up any missing years while you can do so (there is a six year time limit).  

As the op is only 40 I agree they should check their State Pension entitlement but only need to consider the need to make up any missing years.

If they intend to work/be self employed for the required number of years to reach £175.20 then it may be wasted money to immediately pay for missing years.

Particularly as being self employed allows voluntary contributions to be made for c£160 at the moment.

The management, research and time needed for a SIPP put me off, knowing how quickly markets can crash too, hence I was looking for safer territory of a personal pension with lower risk.

Thanks for the tip on checking state pension i'll see how the figure is looking. Wasn't aware you could top it up so also useful info

A stakeholder pension sounds as if it might be right up your street. The Prudential is open for new business and I think Standard Life is, too, if you do a bit of googling.

Remember that it isn't the pension you are in (SIPP, stakeholder, NEST or whatever), it is the funds you pick within the scheme that carry various levels of risk.

Alexland

It's a shame you didn't consider this before turning 40 as a S&S Lifetime ISA could have been more efficient (same 25% uplift as basic rate tax relief but no tax on withdrawal).

Anyway in terms of pensions there is no difference in risk between a stakeholder, personal pension or SIPP they are just tax wrappers in which you can make investment choices. Ok there might be some investment choices in a SIPP that are very exotic and high risk but just don't chose them and stick to well a diversified multi asset fund.

It is very important that your retirement money is invested in the stock market as otherwise the return on cash is so very poor (below inflation) the spending power would go down each year as the price of goods/services increase. If you are 40 then you have 20-30 years of accumulation to ride out the ups and downs of the markets so nothing to worry about although you might want to slightly reduce risk in the 5-10 years before starting to draw income.

For your age and the amount you are talking about it's worth considering a Vanguard SIPP invested in something like their LifeStrategy 80 fund which would cost a total of 0.37% pa (0.15% platform plus 0.22% fund management).

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/personal-pension-account

https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds

Albermarle

Is there a buffer or any protection at all, £300 p/month would be a lot for me to invest then in 20 years find out its worthless and i'd have been better in a savings account. Or is the money at risk only the profit money thats generated from investments performing well?

You can claim up to £85K compensation if you lose money due to fraud or maladministration by the pension provider. If you stick to mainstream pension providers the chance of this happening is anyway approx. zero .

Regarding the investments within the pension, where your money actually is invested , the same fraud compensation applies to some types of investments such as funds , but in reality it will never happen if you stick to mainstream investments.

However if the value of your investments goes down due to a downturn in the markets , there is no comeback .I think this is the bit you are worrying about ? and if you invest in one company share it is possible that your investment could go down to zero . 

However if you invest in the kind of funds mentioned by Alexland above , or the funds offered by Nest , then the chance of them going down to zero is zero ( barring maybe world thermonuclear war) . A drop of say 30 % over a short period would be a maximum .

 Now the good part .If you hold on to these types of investments for many years , the historical statistics are very much in your favour that you will see a good average level of growth . If you hold them over 10 years or more , the chance that you will lose money is very small, and the chance that you will make a healthy return is very high .

So in fact it is more risky to your financial health not to invest , than to invest. 

https://monevator.com/investing-for-beginners-why-do-we-invest/