Self Employed Pension 40 y/o thinking of NEST?

pault123

Alexland said:

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 said:

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/

Great thankyou, Vanguard looks very good, with lots of clear options to choose rather than managing it all yourself. This is now piquing my interest more than NEST.

The bit that worries me, say for example one day the pot reaches £200k, is that really a £115k loss hanging in the balance should the company fold? With the markets recently, and so many large companys folding, covid etc etc no company seems safe, and it would be an incredible amount of money year on year growing bigger, with all faith on the investment company to never get into trouble.

I'm probably overthinking it mind!

Alexland

Vanguard are one of the world's biggest asset managers and will keep client investments in a segregated nominee account which is not merged in with their own business money. They are owned by their US customers (a bit like a building society) so there is no pressure from shareholders to undertake excessively risky activities.
In some respects your money is safer in a segregated investment account than a high street bank which mixes up the money you deposit with their operating costs and the money they lend.
On the very rare occasions an established asset manager fails there is usually another market participant very keen to take over management of the segregated assets.

atush

pault123 said:

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.

No buffer, but over any 20 year plus period i know of you you would have never lost money ie worthless.  That is for those gambling all their money on single shares, instead of collective investments such as trackers or better yet multi asset funds (which hold other assets alongside shares such as cash, property, etc and if they hold shares they hold hundreds not just one).

Your older work colleagues just didnt understand their pensions, and may have had old pensions that were not protected like todays ones are. plus endowment pensions were sold when markets were high and rising, so many thought they would continue to do so.  But those who had been invested longer, or did their research knew that wasnt the case.

pault123

Great thanks, looks like i'll be signing up for this tomorrow

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

Albermarle

The bit that worries me, say for example one day the pot reaches £200k, is that really a £115k loss hanging in the balance should the company fold?

If a company like Vanguard was to go bust, then it would mean there would have to be a global financial meltdown on a scale that has never been seen before. By that point all your money in the bank would be worthless, you would have no job and no food and would probably be barricaded in your house fighting off looters.

Your pension would be the last thing on your mind.

pault123

Albermarle said:

The bit that worries me, say for example one day the pot reaches £200k, is that really a £115k loss hanging in the balance should the company fold?

If a company like Vanguard was to go bust, then it would mean there would have to be a global financial meltdown on a scale that has never been seen before. By that point all your money in the bank would be worthless, you would have no job and no food and would probably be barricaded in your house fighting off looters.

Your pension would be the last thing on your mind.

Thats the perspective I needed  

pault123

Signed up for the Life Strat 80!

I put retirement age as 65 as a random guess, can this be changed and is it of any real significance as you can draw off it at 55?

Albermarle

pault123 said:

Signed up for the Life Strat 80!

I put retirement age as 65 as a random guess, can this be changed and is it of any real significance as you can draw off it at 55?

The retirement age is of no great significance if you invested in VLS 80.
It is sometimes used when the pension provider gives you projections of your retirement income , but these are only guesses anyway.
If you were invested in one of their retirement funds , which derisk as you approach retirement age , then what age you put down is more significant.

pault123

Final question (probably) how easy can I change the 'Life Strat 80' to a 60 or 40 as I get nearer to retirement age?
Is it as simple as changing it online and they will then increase the bond holdings ratio.

Albermarle

Is it as simple as changing it online

Yes