Looking to start a pension - advice needed

Bimbly

bpk101 said:

what are the pro's and con's of going directly through the Vanguard platform vs. say the Fidelity platform?

I believe it's cheaper going Vanguard direct - but check the charges.

Also check if Fidelity will charge you to transfer out if you decide to move to the IFA idea.

If you go Vanguard direct, you are restricted to their funds. Which is great if that's all you want - and good for a "set and forget" option. If you decide you want other funds later on, Fidelity will be able to offer them. Although, as said previously, you could always just transfer to Fidelity later if you decide that's what you want to do. Personally, I like the "set and forget" option as it prevents me from fiddling with it.

I believe Vanguard's initial investment minimum is £500. You could do that now to set it up before April, then make regular contributions (min £100/month) from April. Then it's done. Or, as you say, wait until April.

bpk101

Out of interest... here are some projected fund values the IFA gave me based on 3 potential amounts of monthly contribution. It would be good to get some thoughts on how accurate the figures seem, online calculators i've used give wildly varying results.

I have made the following assumptions: 

• Investment growth of 6% per year which would imply a risk profile of a 5 or 6 out of 10
• You are a sole trader, and as such will get 20% tax relief added on all pension contributions (ie a £1250 contribution will cost you £1000)

In terms of the numbers 

• £500 per month (equals £625pcm) @6% growth for 20 years = £284,778
• £750 per month (equals £937.50pcm) @6% growth for 20 years = £427,167
• £1000 per month (equals £1250pcm) @6% growth for 20 years = £569,557

If you are a high rate tax payer you can also claim some additional tax relief back each year.  

dunstonh

However, an IFA i've been chatting to recently as part of a free introductory consultation has advised me against TRF's due to them being too regimented (automatically changing asset allocation - possibly at a sub-optimal time) and de-risking too early.

I generally take the same view.   Risk adjustments are not done on your schedule or to match you.  So, you have to fit the fund rather than the fund fit you.        If you accept investing above your risk profile initially and ending below your risk profile at the end and dont really care then that's fine.  Or you can go with an option that doesn't auto-risk reduce (not necessarily needed with income drawdown the most common method nowadays).

 IFA will take a piece of any money that goes under his management, but shouldn't cost extra for a SIPP.

An IFA on a transactional basis doesn't take ongoing.

what are the pro's and con's of going directly through the Vanguard platform vs. say the Fidelity platform?

The Vanguard product isn't really a SIPP.  Its a platform to offer their own brand funds only.  Fidelity is a whole of market SIPP (over 30,000 options).

Out of interest... here are some projected fund values the IFA gave me based on 3 potential amounts of monthly contribution. It would be good to get some thoughts on how accurate the figures seem, online calculators i've used give wildly varying results.

All the projection calculators use a range of assumptions.   So, unless the assumptions are the same in all of them (which they are not) then you will get different outcomes.

QrizB

bpk101 said:

Bimbly said:

What they mean is...

Open a Vanguard Sipp now, deposit money before April to get your tax relief for the year. Choose a retirement target fund or a life strategy. Start contributing.

Oh i see, i don't have a lump sum to deposit now for this current tax year unfortunately, only the monthly contributions i've factored into my new budget starting in April.

You don't need much of a "lump sum"; you can open a Vanguard pension account with £500 or with a £100/month DD.

Audaxer

bpk101 said:

Out of interest... here are some projected fund values the IFA gave me based on 3 potential amounts of monthly contribution. It would be good to get some thoughts on how accurate the figures seem, online calculators i've used give wildly varying results.

I have made the following assumptions: 

• Investment growth of 6% per year which would imply a risk profile of a 5 or 6 out of 10
• You are a sole trader, and as such will get 20% tax relief added on all pension contributions (ie a £1250 contribution will cost you £1000)

In terms of the numbers 

• £500 per month (equals £625pcm) @6% growth for 20 years = £284,778
• £750 per month (equals £937.50pcm) @6% growth for 20 years = £427,167
• £1000 per month (equals £1250pcm) @6% growth for 20 years = £569,557

If you are a high rate tax payer you can also claim some additional tax relief back each year.  

Did the IFA advise what percentage equities in your SIPP you will need for 6% average annual growth over 20 years?  

Albermarle

bpk101 said:

Perhaps a question for a different thread but if i was to opt for a Vanguard LS or TRF whilst i mull over options for the longer term plan, what are the pro's and con's of going directly through the Vanguard platform vs. say the Fidelity platform?

I use the Fidelity platform already for my child's S&S iSA. In one respect i can see the convenience in having everything under one roof, but on the flip side i can also see the benefit of having them separate just in terms of keeping them as separate entities in my mind. It would also be good to 'try out' another platform just from a user performance point of view. Obviously not if the fees or terms are massively different though. 

It is a competitive market , so fees tend not be massively different, although there are some differences.
Vanguard platform charges 0.15% with the restriction only Vanguard investments available.
Fidelity charges 0.35% and you can invest in thousands of different funds, Investment Trusts, ETF's, shares etc .
In fact the 0.35% can be significantly reduced depending on the size of funds and what you invest in .

Also check if Fidelity will charge you to transfer out if you decide to move to the IFA idea
No transfer charges with either platform.

Albermarle

bpk101 said:

Out of interest... here are some projected fund values the IFA gave me based on 3 potential amounts of monthly contribution. It would be good to get some thoughts on how accurate the figures seem, online calculators i've used give wildly varying results.

I have made the following assumptions: 

• Investment growth of 6% per year which would imply a risk profile of a 5 or 6 out of 10
• You are a sole trader, and as such will get 20% tax relief added on all pension contributions (ie a £1250 contribution will cost you £1000)

In terms of the numbers 

• £500 per month (equals £625pcm) @6% growth for 20 years = £284,778
• £750 per month (equals £937.50pcm) @6% growth for 20 years = £427,167
• £1000 per month (equals £1250pcm) @6% growth for 20 years = £569,557

If you are a high rate tax payer you can also claim some additional tax relief back each year.  

You need some clarity if these projected figure are in today's money i.e. after inflation is taken into account .
If not then in 20 years £284K will only be worth less than half of that in real terms .

If inflation is 4% then 6% growth gives you only 2% growth in real terms .

2% real growth for a medium risk investment would be realistic , whilst 6% real growth would be pretty optimistic .

[Deleted User]

However, an IFA i've been chatting to recently as part of a free introductory consultation has advised me against TRF's due to them being too regimented (automatically changing asset allocation - possibly at a sub-optimal time) and de-risking too early.

1. You need to start ASAP. Starting as early as possible and putting as much as you can is more important than what investment vehicles you pick. 

2. I wouldn’t spend time on trying to predict future growth and value. Unpredictable. One thing for sure: the more you put in, the more you will have. So, start today and maximize contributions. 

3.  Because you are starting from 0, Vanguard SIPP is a good option. They are particularly advantageous for low value funds.

4. Because you are starting late, you have no choice but to be aggressive.  If I were you, I would pick a product with 100% equities.  Like VLS100.  Thats it. You are done. Just keep adding more money into the same fund. 

5. Target funds are fine but if you use them pick a target date further in the future than 2042.  Because you need to be aggressive. Target funds move out of equities and into bonds as you approach the target date. You can’t afford to do that too early.

6.  If your wife were to take over control she shouldn’t have any issues. When you have a single fund which owns the whole world, adding more money to it is extremely simple. 

7. You don’t need an IFA.  Use what you would have paid to an IFA to increase your contributions instead.

Grumpy_chap

Grumpy_chap said:

 Are you looking to use previous years of carry-forward unused contribution allowance?

bpk101 said:

Carry-forward unused contribution allowance? Tell me more...

The attached article explains annual contribution limits and carry forward of unused annual allowance:
https://www.hl.co.uk/pensions/contributions

bpk101

Audaxer said:

Did the IFA advise what percentage equities in your SIPP you will need for 6% average annual growth over 20 years?  

Not explicitly no, they did ask me to complete a risk assessment to get a more accurate picture.

The risk factor they based these initial calculations on (5 or 6 out of 10) might indicate something around 50-60% equity (?) which feels a little too cautious for now perhaps.