Monthly contribution or lump sum?

P933alilli

Hi, i'm increasing my contributions to my RL with profits to my maximum allowed of £2880 per year and i'm wondering if there is any benefit to putting it in as a lump sum or should i carry on with monthly payments? In my case monthly payments would increase to £240 per month?

Workerdrone

Well for my two ha'peth, if you have the £2880 sitting there I would say its better to put it in in one lump, you'll get the tax relief back in a couple of months then it has the rest of the year to grow. On the other hand of course if the markets take a dip, then drip feeding your £240 in every month would allow you to take advantage of pound cost averaging (potentially getting more units at a lower price)

It really is a flip of the coin

DT2001

https://moneyfacts.co.uk/investments-how-to-invest-your-money/guides/what-is-pound-cost-averaging/

The link above gives you the pros and cons of pound cost averaging - making monthly rather than one off payments. The answer to your question depends on your take on risk and the market.

Apart from the timing issue the only other things that might be relevant is if by investing a lump sum it takes you into a lower charging band or you have to complete more paperwork (I have to do a risk questionnaire every time I invest a lump sum).

dunstonh

Statistically, phasing results in lower returns in the majority of periods compared to a single premium.    You wont know in advance which method is best.   Just that statistically, its more likely to be single premium.

Alexland

Short term market movements are too unpredictable so I suggest just making the contributions as soon as the money is available to you. On average it's not good to hold money back from the markets because they tend to go up.

Albermarle

Or as a half way house add a lump sum every 4 months ( as an example)

P933alilli

Thanks, i think ive decided to carry on with monthly payments!
Another question i have is about fees! The fees are given on my statement each year but how do i work out the % fees paid? Are the fees based on a percentage of the pot value at the start of the year? Or a percentage of the increase in value of the pot compared to last years total including or minus anything ive paid in? My fees include a) the policy fee and b) a management fee  estimate based on managing policies shared between all customers!   

Thanks!

MX5huggy

The fees are calculated daily every day (maybe only working days) they take the value of the pension that day and calculate the fee due that day then add them all up.

You can’t really calculate it yourself. As an estimate of the percentage you could take the value today or the day the fees were due  and use that as fund value. But they should be telling you the fee percentage. 

dunstonh

Another question i have is about fees! The fees are given on my statement each year but how do i work out the % fees paid?

Most pensions nowadays are explicit about what they charge in their documentation.  Legacy plans built in a different era can be harder to find out.

Another question i have is about fees! The fees are given on my statement each year but how do i work out the % fees paid?

It varies with the plan/provider.  Some charge 1/365th of the daily value.  Some charge 1/12th each month.  Some use a combination depending on what the fee is (i.e. fund being 1/365th but product maybe something else).

P933alilli

Thanks, i'm hoping me upping my contributions wont result in increased fees!

barnstar2077

From a statistical point of view, lump sums will come up trumps most of the time.  If markets didn't rise in general then we wouldn't bother investing in them.