SIPP Portfolio Appraisal

Thrugelmir

barnstar2077 said:

Thrugelmir said:

barnstar2077 said:

I personally would just use the VLS 80, but at the least I would remove the target retirement,

Target retirement funds are a useful way of rebalancing a portfolio without thought. I'm far from convinced that many of those who approach retirement with a high equity exposure are prepared for the potential pitfalls. That such an aggressive portfolio exposes them too. 

I agree, but as the OP is 37, I don't think they have to worry just yet.

Balanced diversified portfolio's are timeless. 

ex-pat_scot

You are really asking the wrong questions, or at least with the wrong focus.
Frankly, for a £100k salary, you are rather behind where your peers are in terms of overall savings at this point.
But - you have 20 years (minimum) to make amends, before you can access pension funds.
A couple of general thoughts, some of which echo earlier posters:
- you are contributing far too little, even when upping to £800 pm.  You ought to be taking full advantage of all matching from employer, not just minimum levels.  Check if you are contributing under salary sacrifice, and whether the employer will add the saved employer NICs on your contributions.
- your selection is a bit of a mess. What's your attitude to risk? WHat's your overall exposure to equities, forex, bonds, cash etc?
You ought to simplify into a low cost vehicle wherever possible. This is easier in your SIPP, but you may be constrained by your current employer scheme provider.
My solution is global low cost equity tracker. VWRL fund. If you are a little more cautious, then go for LS80 or 60. Remember you have a minimum of 20 years of investment before you can access the funds, so you ought to be aggressive in your investment strategy. Time is on your side here.
Other low cost global trackers are available.
In general, Vanguard IS your investment strategy, not PART OF your investment strategy. Select your equity / bond ratio (based on your risk appetite) and lob all your funds into VLS100 / 80/ 60 etc.
- how much to invest? You are currently investing £500pm, ie approx 6% of your gross salary. That's way too little. All of your contributions will benefit from 40% (42% if under sal sac) tax relief, so it's a very efficient approach.
From a tax perspective, you have to work hard to avoid the £100,000 - £125,000 tax trap, with its effective 62% tax rate. It is also the cutoff for other things like childcare vouchers etc.
- what about limits?  There are two. You can contribute up to £40,000 each year Annual Allowance into your pension. Given you have a minimum of 20 years before access, if you were to do this then you'd have £800,000 of contributions, plus investment growth and your current SIPP and employer pension.  That will take you well into the second limit - the Lifetime Allowance. At present it is £1.073m (and frozen for 5 years).
- what other savings?  Whilst the pension is the tax-efficient savings vehicle (subject to LTA consideration), you ought to be also looking at opening a LISA before you are 40, and taking full advantage of it. You have a £20,000 PA limit on ISA contribution as well.
- how much do you need at the moment? You'/ll be taking home pretty much £5,000 per month net.  That's not too shabby, and you will need to forego some of this to make better provision for your long term financial security.  How much is up to you, but I'd suggest looking at an additional £1000 ish net per month into the pension, which would give approx £1,600 pm gross into the pension (+£19,000 pa into the pension). You might think this unrealistic, but your future self will not thank you for skimping now in your current fortunate circumstance.

There are lots of other considerations - emergency savings, mortgages, family commitments, spouse pension arrangements etc etc. The above is just a general start.

barnstar2077

Thrugelmir said:

barnstar2077 said:

Thrugelmir said:

barnstar2077 said:

I personally would just use the VLS 80, but at the least I would remove the target retirement,

Target retirement funds are a useful way of rebalancing a portfolio without thought. I'm far from convinced that many of those who approach retirement with a high equity exposure are prepared for the potential pitfalls. That such an aggressive portfolio exposes them too. 

I agree, but as the OP is 37, I don't think they have to worry just yet.

Balanced diversified portfolio's are timeless. 

Don't argue with me when I am agreeing with you! :  )

ex-pat_scot

And this popped up on my radar.
Investing made simpler | The Escape Artist
Please take a read. 
“One final word.  If you are struggling to start, you can keep it simple with a single global equities tracker fund (such as VWRL: the The Vanguard All World ETF or a LifeStrategy Fund in the UK)…Remember, there is no single right answer in investing.  So don’t sweat the small stuff obsessing about micro differences between different Vanguard products. The most important thing is to get started.”

kidmugsy

Albermarle said:

Every One Pound in , only costs you 60p , so can you not just add more than around One thousand Pounds a month to take maximum advantage of the very generous tax relief for 40% taxpayers ? Most likely this perk will not last forever.

Agreed.  The next general election is due in about three years time.

Indeed his target might even be to get his taxable income down to £50k for a few years if he feels he can afford it.  He probably has plenty carry forward available.  Or if he finds that too ambitious he could await a pay rise and then make an effort to avoid the effective 60% tax band. He might also want to find out whether his employment pension is paid by salary sacrifice because if so it might be remunerative to use that rather than SIPP contributions.

Also, the poster is under 40.  In his shoes I'd open a stocks-and-shares LISA for a small sum so that if pensions tax relief is cut back in a few years time he'll have a second channel open for saving tax-efficiently for his old age.  

MJC1983

Guys sorry for the very late reply here been having some family issues and have not been online at all recently, thanks for all the comments very very helpful. Quite a lot to think about. Many thanks for all the guidance, really appreciate it. 

bostonerimus

I think this is an all too common sort of portfolio. It has probably developed organically over the years without much of a strategy, other than buying what's popular, and so there is a great deal of overlap. I would cull the smaller funds and come up with a portfolio of no more than 4 funds...that will get the OP to think about allocation.

arbster

MJC1983 said:

Have approximately £12k in my workplace pension, where myself and my employer contribute the minimum amounts.

This is the most urgent thing to address, unless by "minimum amount" you mean you're contributing the minimum required to get the maximum available employer contribution. The employer contribution free money and you should contribute so as to receive as much as possible of that money. If they match up to 10% you should put in 10%. If they match up to 20% you should try to hit that number, even to the detriment of your SIPP or other long-term savings.

MJC1983

Hi Guys, 

Just coming back on this. Firstly, many thanks for all the replies and assistance provided. It is really greatly appreciated. I have taken stock and done the following:

• increased my monthly contributions to my SIPP to £1,250 per month (gross);
• there is now £76k in my SIPP which is made up of the following Vanguard Life Strategy 100 (81%); Fundsmith Equity (12%) and Polar Capital Technology Trust (7%)
• there is £16k in my work place pension. My employer will only contribute the statutory minimum;
• my salary has increased to £115k to enable higher SIPP contributions but we currently have 2 children in nursery which is a £1,500 per month outgoing. 

I am looking to retire on at least an annual income of £40k. Am I on the right track? I will be 40 next year and I am still worried that I am significantly behind on my pension contributions largely due to my 30s being used to save for a house and never working for an employer with decent pension contributions.

Thanks in advance!

Albermarle

A rule of thumb is that to generate a long term income safely , you should take no more than 4% from your pot each year.
So for £40K ( increasing each year with inflation )you need a pot of around One Million Pounds.
So with less than £100K at age 40 you need to start putting more in, especially being a higher rate taxpayer  pension contributions are treated very generously.

As you will have two state pensions at some point, then you can maybe increase the draw rate before receiving them and drop it afterwards, so the target will drop to less than a Million.