Choosing a private pension while self-employed

Langerhan

My sister is a self-employed dancer. Her income is enough to cover her bills and expenses when averaged over the year, but is very, very unpredictable as some months she'll get big contracts and some months will be audition after audition with nothing coming of it.

She recently told me she's interested in setting up a pension and asked me for help choosing one. I was over the moon... until I started trying to research it. All the articles I've been able to find have detailed the differences between the different type of pensions, how tax works regarding private pensions, why a pension is a better way to go about things - but I can't find any sort of comparison of them. Normally when I'm trying to find a new product, I'll read the MSE article, read a few other sites, do some research and make a decision. With this, though, I'm absolutely stuck. Everywhere seems to assume I already know who the main pension providers are and how to go about setting one up, so they all tiptoe around naming names.

Is there something in particular I should be searching for? A comparison anywhere of risk levels and average returns? I've only ever been on PAYE and workplace pensions, so this is all very new to me. My sister is 30 and this is the first type of financial planning she's ever been interested in, so I want to be able to present her with some options in a way that's easy for her to understand.

Marcon

Langerhan said:

My sister is a self-employed dancer. Her income is enough to cover her bills and expenses when averaged over the year, but is very, very unpredictable as some months she'll get big contracts and some months will be audition after audition with nothing coming of it.

She recently told me she's interested in setting up a pension and asked me for help choosing one. I was over the moon... until I started trying to research it. All the articles I've been able to find have detailed the differences between the different type of pensions, how tax works regarding private pensions, why a pension is a better way to go about things - but I can't find any sort of comparison of them. Normally when I'm trying to find a new product, I'll read the MSE article, read a few other sites, do some research and make a decision. With this, though, I'm absolutely stuck. Everywhere seems to assume I already know who the main pension providers are and how to go about setting one up, so they all tiptoe around naming names.

Is there something in particular I should be searching for? A comparison anywhere of risk levels and average returns? I've only ever been on PAYE and workplace pensions, so this is all very new to me. My sister is 30 and this is the first type of financial planning she's ever been interested in, so I want to be able to present her with some options in a way that's easy for her to understand.

Starting with https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics and clicking on the links under 'Pension options for the self employed' is not a bad place to begin, and possibly suggest your sister reads.

Googling on 'best personal pensions' will get you some tables comparing fees etc. It's important to choose a plan which will accept irregular contributions, possibly of quite modest amounts at times. Risk levels depend on the underlying funds in which your sister will be invested - a pension scheme is just a tax-efficient wrapper.

MX5huggy

A pension is just a wrapper for investments. Most pension providers or platforms have a vast range of options covering all risk levels and potential returns. 

Another wrapper she should consider is the Lifetime ISA. 

Have a read of https://monevator.com/category/investing/passive-investing-investing/

For a pension I don’t think you could go far wrong looking a Vanguard it’s cheap, no trading fees, a fairly limited choice of funds (avoids, paralysis of choice). 

Albermarle

As said, the investments you choose within the pension, are much more important than the choice of pension provider.

Investment choice is down to a number of factors, such as years to retirement, and the persons tolerance to risk.

Some pension providers offer a huge range of investments, which can be intimidating to the inexperienced.
Some, offer a very limited range and try and help to guide you to a suitable choice ( Nutmeg, Wealthify ) for example.
Or a halfway house like Vanguard, as mentioned above, with about a hundred to choose from I think.
Or Standard Life also offer personal pensions, and the website will explain simple and more complicated options.

Many of the providers have good websites, with sections on investing, so worth just browsing through a few of them to see what you think and what you can learn.  Also an MSE guide.
Investing in stocks for beginners: how to get started - MSE (moneysavingexpert.com)

dunstonh

The internet can be useful but it can also be wrong and go out-of-date very quickly leaving articles of information available to read that is obsolete.

There are no pensions specific to the self employed.   So, any individual retail pension fits her initial status.    Stakeholder pensions are largely niche nowadays (and not many providers left).  Personal pensions are going the same way   SIPPs are increasingly the main option, but they are also potentially the option where you can make the most mistakes and the most complicated.   SIPPs can be both the cheapest and the most expensive.  robo-providers offer simplification in a way that stakeholders used to but they tend to be quite expensive.

It sounds like she needs payment flexibility.  So, this would perhaps go more towards a SIPP or robo.

A comparison anywhere of risk levels and average returns?

Pensions don't have returns.   Pensions are a tax wrapper.   The provider is the administrator for pension. i.e. issues the statements, codes the website, carries out the administration etc.       The investments are where the returns are.

If you look at SIPPs (real ones not ones pretending they are) then these are whole of market.  They all offer the same investments.  So, returns would be identical if all held the same investments.   Only differences would be service standards, software and functionality.

Everywhere seems to assume I already know who the main pension providers are and how to go about setting one up, so they all tiptoe around naming names.

Pensions are regulated which means only advisers can recommend what providers.  Websites typically remain generic.   There will be some opinion articles out there and providers will often promote their own product.

In all likelihood, the provider names that you would recognise are not available direct to consumer or have a more expensive/basic product available direct to consumer.   The main direct to consumer providers will be names that you have probably never heard of before.

Langerhan

Well blimey, no wonder I was finding it difficult, this is complicated! Don't worry, though, I've read Martin's bit and know that the pension is the wrapper, was just using it as shorthand

Looking around, it seems the best for her would be Nest. She'd be looking for something simple and low-risk. Nest has a minimum of £25 a month, which she'd be able to do.

MX5huggy

Nest has a fairly unique charging structure of taking 1.8% of your contributions, followed by an annual fee of 0.3%. None of the other mainstream providers charge the contribution fee, but their ongoing costs can be higher. 

Vanguard will charge 0.15% platform fee plus fund fee of between 0.08 - 0.23 ish %

You don’t have to pay a fixed amount each month with any SIPP, they make it seem like you do but if you stop they don’t (can’t) do anything. 

NannaH

She’s 30,  open a cheap Sipp and choose a global equities fund with low charges,   perhaps Fidelity Index World or similar.   Look at Morningstar or Trustnet for details of funds. She can afford to be 100% in equities at her age,  maybe look to derisk a bit at 50.  Low risk now won’t keep up with inflation, never mind give any growth. 
Look to pay no more than 1% in total,  my Sipp charges a .45% fee plus my average fund fees are .15%, so 0.6% total charges.  

To be honest, she needs to put at least £100 a month in,  £25 (£30 gross)  will give her maybe £50k in 35 years,  £100/£125 gives her £180k , assuming 5% net growth and increasing contributions by 2% a year. 

Albermarle

This is a simple pension, with only 5 investment options at different risk levels.
Total charge 0.56% pa 
Personal Pension | Private Pension | Legal & General (legalandgeneral.com)
As already mentioned due to her age she should go for a high risk/high growth investment fund.