Medium vs long-term savings and investments

Alexland

mullygrubber said:

I wasn't aware that all these other options for pensions existed. I think I'll have to do some more reading on these. Would I be right in saying the likes of stakeholder, master trust pensions etc. aren't that commonly used?

A stakeholder pension would probably give you no benefit and a master trust is a type of workplace pension with very low charges.

Also, without doing any research, 'unwrapped investments' instinctively sounds worse than an S&S ISA. I guess you only use this if you are ridiculously wealthy and exceed the annual £20k threshold?

Correct most people don't need unwrapped investments while they still have remaining ISA allowance.

I am still a little baffled by the value of a S&S Lifetime ISA though. It seems that higher rate tax relief and the employer contributions outweighs the government top-up so this probably isn't a good option.

You would only consider using a S&S Lifetime ISA if you had already put enough into your pension to avoid paying higher rate tax and get max employer matching. We already have lots in pensions (and I contribute enough to avoid higher rate tax and child benefit clawback) so are using our S&S Lifetime ISAs (and 25% government bonuses) to invest for house deposits for our kids when we are 60+ and they are 20+.

BananaRepublic

The stakeholder pension was introduced by Mr T. Blair and co, and was designed to have low charges and other good features. I had one from my then employer, the range of funds was mediocre and the charges were high compared to my SIPP. I believe they were quite popular. I think they were easy for employers to set up, without the usual need to talk to shiny suited people. You should look into them but I think you can do better. 

Oh, and transfers can be quick. I recently transferred an Aviva personal pension to a SIPP, it took a couple of days, I was surprised. 

aroominyork

Alexland said:

But of course the FSCS protection on a SIPP is limited to £85k. 

You are suggesting there is risk holding more than £85k in one fund, or one investment manager, or one platform, or one something. Please clarify. I thought the only risk where £85k is relevant is holding uninvested cash on a platform. 

Alexland

Well a workplace pension and it's funds may have 100% FSCS protection so by transferring a lump sum into a SIPP and investing in standard uninsured OEIC funds your protection from internal fraud etc is limited to £85k per platform or fund manager. Just something for the OP to consider.

mullygrubber

Alexland said:

You would only consider using a S&S Lifetime ISA if you had already put enough into your pension to avoid paying higher rate tax and get max employer matching. We already have lots in pensions (and I contribute enough to avoid higher rate tax and child benefit clawback) so are using our S&S Lifetime ISAs (and 25% government bonuses) to invest for house deposits for our kids when we are 60+ and they are 20+.

What do you mean by putting enough into your pension to avoid paying higher rate tax? I have already maxed out the employer contribution and I am a higher rate tax payer. Do you mean contributing even more into your person to take advantage of the relief (i.e. the higher rate tax relief means it's effectively free money from the government if you are willing to forego having money in your pocket today). 

On the Lifetime ISA front, that is a smart idea!

BananaRepublic said:

The stakeholder pension was introduced by Mr T. Blair and co, and was designed to have low charges and other good features. I had one from my then employer, the range of funds was mediocre and the charges were high compared to my SIPP. I believe they were quite popular. I think they were easy for employers to set up, without the usual need to talk to shiny suited people. You should look into them but I think you can do better. 

Oh, and transfers can be quick. I recently transferred an Aviva personal pension to a SIPP, it took a couple of days, I was surprised. 

Understood - thanks! Good to hear that the transfers are painless. Did you transfer out your whole pension out to a SIPP?

Thrugelmir

mullygrubber said:

The purpose of this is just to lock in better returns than savings accounts, beat inflation and maybe to help with any future house purchase or major life events. 

Investments carry risk warnings for good reason. Anything that carries a guaranteed locked in return will be priced accordingly. For no other reason than other investors will buy up what's on offer. Only ever invest what you can afford to lose. Select the right place to put your money that helps you achieve each particular objective. 

Alexland

mullygrubber said:

What do you mean by putting enough into your pension to avoid paying higher rate tax? I have already maxed out the employer contribution and I am a higher rate tax payer. Do you mean contributing even more into your person to take advantage of the relief (i.e. the higher rate tax relief means it's effectively free money from the government if you are willing to forego having money in your pocket today). 

Yes consider making extra pension contributions to defer all the higher rate income until retirement saving higher rate tax (+NI) now and later taking 25% tax free and only paying basic rate on the rest that you draw above your personal allowance in retirement.
If you are a very high earner be aware of limits on the pension contributions from the annual allowance, tapering and carry forward allowance.
For pro efficiency you can take advantage of NI being calculated weekly and concentrate the extra contributions over a few months to save 12% NI on some of it. Your employer still needs to pay at least minimum wage during months of high pension contribution and you probably still want to pay enough NI each week to grow your state pension entitlement.

BananaRepublic

mullygrubber said:
Did you transfer out your whole pension out to a SIPP?

I only had £7,000 in that pension, and yes I transferred the lot. I have over the years transferred each pension over when leaving the employer. 

BananaRepublic

Alexland said:

Well a workplace pension and it's funds may have 100% FSCS protection so by transferring a lump sum into a SIPP and investing in standard uninsured OEIC funds your protection from internal fraud etc is limited to £85k per platform or fund manager. Just something for the OP to consider.

I don’t understand the point you are making. Are you saying that between them receiving the money, and them buying shares in a fund, the money could be stolen? Or they could secretly sell your fund and scarper with the money? It is an interesting scenario. My guess is that it would be very hard for an employee to do this, and get away with it. I would hope that security is very high. One fear would be state sponsored hacking, using sophisticated cyber hacking tools. 

Of course if the SIPP provider goes bust, you still own the funds. 

Alexland

BananaRepublic said:

I don’t understand the point you are making. 

Yes if the platform or fund manager go bust the account cash and assets should still be safe in the client nominee accounts for someone else to take over management.
However in the unlikely event the money was stolen, the assets were never purchased, etc and it affected enough customers that the platform or fund manager was unable to compensate then you would need FSCS to payout but it could be more limited if you transfered into a product with less FSCS protection (eg moving from a product with unlimited protection to one with only £85k protection) or even no FSCS protection (eg ETFs).
It's just a risk for the OP to consider as part of their decision making. It doesn't stop us having SIPP accounts that exceed £85k and investing in ETFs and ITs with no protection.