Auto-Enrolment Pension Questions, advice/education sought!

akira181

I now have pensions with 3 auto-enrolment companies (that I'm aware of) and have very little understanding of how all this works. A brief summary of my current situation below, hopefully someone can offer some advice!

Around £700 with Now: Pensions. Oddly low for 18 months of contributions on a basic salary of £20k a year (assuming OT isn't included) but that boss was cheap and extremely crooked, so wouldn't surprise me if something wasn't above board. Anyhow, I stopped contributing to that pension in Sept 2016 and the value hasn't really changed. Gone up and down over the last 3 years (can't seem to find older statements, the website is pretty poor) but stayed between 600-700. Their monthly fees have totalled £18 every year.

Around £12,000 with Smart Pensions. I stopped contributing to that one in June 21. 5 years of contributions and it's only grown around 7% total. Not sure how this stuff works but that sounds like a really bad ROI for 5 years. No idea what their charges are either, their statements don't really make it clear what they're charging and their documentation is confusing as hell.

Around £2000 with NEST Pensions with my current job. Contributions of around 2300 in 14 months (started 18 months ago) and a current value of 2000, which is even worse. The pension deductions on my payslip don't add up to the contributions shown on the NEST website either. Around 125 on my payslip but on the website it's £85 (employee), 65 (employer), and around 20 tax relief contributions. I started in July 21 and just spotted that my first contribution to NEST was Nov 21 with nothing backdated.

Lastly, NEST Pension says that with a £100,000 retirement pot, I could expect something like £2,400 per year on retirement. Assuming my pot gets to 100k, 2.4% return sounds like an utter joke, I'd have better average returns just sticking everything into a plain cash ISA than bothering with this pension auto-enrolment, paying fees for seemingly nothing.

Can someone offer some advice and tell me if I'm just not understanding this auto-enrolment pension stuff or are they generally terrible?

I guess my questions are should I combine all my pots into one? Is there a MSE recommended/preferred pension provider or do I have to use the employer offered one? Do I have to have to use a pension provider at all or could I just setup a stocks and shares ISA instead and divert the contributions to there?

penners324

You're not understanding the pension at all.

The 'forecast' is based on that £100,000 last 35 to 40 years in retirement.

You can transfer the accounts together if you prefer. Pretty easy with those providers to do.

As for contributions check your account and check the contributions listed. If they don't match go and ask your company payroll department 

penners324

Your employer is contributing 3% and the government 25% on your contribution.

You wouldn't get either in ISA.

You also need to check what your pension pot is invested in. Probably a medium level investment which have done pretty poorly over the last 3 years.

You can change the fund you're invested in in the website or app of each provider

Marcon

akira181 said:

I now have pensions with 3 auto-enrolment companies (that I'm aware of) and have very little understanding of how all this works. A brief summary of my current situation below, hopefully someone can offer some advice!

Around £700 with Now: Pensions. Oddly low for 18 months of contributions on a basic salary of £20k a year (assuming OT isn't included) but that boss was cheap and extremely crooked, so wouldn't surprise me if something wasn't above board. Anyhow, I stopped contributing to that pension in Sept 2016 and the value hasn't really changed. Gone up and down over the last 3 years (can't seem to find older statements, the website is pretty poor) but stayed between 600-700. Their monthly fees have totalled £18 every year.

Around £12,000 with Smart Pensions. I stopped contributing to that one in June 21. 5 years of contributions and it's only grown around 7% total. Not sure how this stuff works but that sounds like a really bad ROI for 5 years. No idea what their charges are either, their statements don't really make it clear what they're charging and their documentation is confusing as hell.

Around £2000 with NEST Pensions with my current job. Contributions of around 2300 in 14 months (started 18 months ago) and a current value of 2000, which is even worse. The pension deductions on my payslip don't add up to the contributions shown on the NEST website either. Around 125 on my payslip but on the website it's £85 (employee), 65 (employer), and around 20 tax relief contributions. I started in July 21 and just spotted that my first contribution to NEST was Nov 21 with nothing backdated.

Lastly, NEST Pension says that with a £100,000 retirement pot, I could expect something like £2,400 per year on retirement. Assuming my pot gets to 100k, 2.4% return sounds like an utter joke, I'd have better average returns just sticking everything into a plain cash ISA than bothering with this pension auto-enrolment, paying fees for seemingly nothing.

Plenty of information for those with pensions 'L plates', so start here: https://www.moneyhelper.org.uk/en/pensions-and-retirement  They have an excellent helpline you can ring for a chat/to clarify anything you don't understand - and they won't try to sell you anything.

Also look on the websites for NEST, Now and Smart, all of which have a whole load of info aimed at those with no knowledge of pensions.

Employers have a 3 month 'waiting period' before they have to auto-enrol you, which is what your employer has done (hence no backdating).

If the contribution shown on your payslip is 'around £125', that would roughly tally with an employee contribution of £68, a tax 'top up' claimed on your behalf by NEST of £17 (so £85) + £65 employer contribution.

akira181 said:

Can someone offer some advice and tell me if I'm just not understanding this auto-enrolment pension stuff or are they generally terrible?

I guess my questions are should I combine all my pots into one? Is there a MSE recommended/preferred pension provider or do I have to use the employer offered one? Do I have to have to use a pension provider at all or could I just setup a stocks and shares ISA instead and divert the contributions to there?

You're not understanding pensions/how the financial markets work - and you are far from alone in that!

There's nothing wrong with any of the arrangements your employer and former employer use. If you opt out of your current employer's choice of auto enrolment scheme, they won't pay into another pension arrangement on your behalf, so you're giving up what is effectively 'free money' - a self imposed pay cut. They certainly won't pay into an ISA on your behalf instead of an auto-enrolment pension.

Albermarle

As already suggested a slow and careful read of the pensions providers websites can be fruitful.

Around £12,000 with Smart Pensions. I stopped contributing to that one in June 21. 5 years of contributions and it's only grown around 7% total. Not sure how this stuff works but that sounds like a really bad ROI for 5 years. No idea what their charges are either, their statements don't really make it clear what they're charging and their documentation is confusing as hell.

From their website I have found this .
Our charges (smartpension.co.uk)

They say 99% of customers are invested in their default fund . The performance of this fund is pretty poor ( too much UK %)

tacpot12

You don't understand how pensions work very well at present, but we can help. We've all had to go through the same process to learn what's involved. The great thing is that you are here, asking for help when there is time for the help to be really useful. 

Lets start with the forecast that a £100,000 retirement pot would provide £2,400 per year on retirement. There are a number of assumptions embedded in the forecast, e.g. how long you might live for, what the rate of return might be on your investments after you retire, what inflation might be, etc. All the assumptions makes it very difficult to understand what you will actually receive. 

To give you an idea of what £100,000 is really likely to provide you with, I can tell you that I receive about £4,600 per £100,000 that I have invested. I retired five years ago and started drawing on my pension three years ago, and am happy that I can increase this amount to match inflation indefinitely.

You already have nearly £15,000 in savings, and assuming that you get an average return of 6% per year, which should be easily acheivable in NEST, you will have nearly £86,000 if you don't pay any further contributions, but don't retire for another 30 years. You haven't said how old you are, but I have guessed you are about 35 and so might retire in 20 - 30 years time depending on how your retirement saving goes. 

Of course, you will continue to contribute more, and these contributions will go up in value, but it is also the case that value of money will decrease over that time due to inflation so that £4,600 a year now won't buy as much.

I saved relatively small amounts into my pension to start with and increased the payments as I went through my working life. Just before I left work, I was contributing 16% of my salary to my pension (before tax releif) and my employer was contributing another 8%. 

I think it is very likely that you will end up with a pension pot of around £400,000, so you can expect to have an income of £18,400 a year, but this will only be worth about £5,000 a year in todays money. (It will feel like £5,000 a year!). You can only hope to have this much my investing and increasing your contributions when you are able to.

It is vitally important that your pension savings are invested in assets that will grow overtime, and that you use a provider whose charges are low. NEST is pretty good, but it charges quite a lot per contribution, so eventually you will want to move away from NEST, but it is fine for the moment.

I would recommend you have a look at the performance of the NEST Sharia fund and Higher Risk fund. In my opnion, these are good funds to be invested in while you are young. I would move everything to these funds. I would recommend splitting the money between them, perhaps 50/50 or 25/75 if you want to try the Sharia fund for a while. (Don't worry about the name - worry about the performance and charges).  It is likely that you wil have been autoenrolled into a NEST 20xx Retirement Fund. To my mind this is ok, if you know you want to buy an annuity when you retire, but if you are not sure what you are going to do for retirement income you are better off moving away from these default funds.  

I would recommend moving your savings from Now and Smart Pensions to NEST as they don't charge an fee for transfers in (it is treated differently to how they treat regular contribiutons).  If Smart Pensions can't tell you clearly what their charges are, they don't deserve your business.

You are already making great strides by taking an interest in the performance of your funds, but you need an investment return on average of at least 7%. The NEST 20nn Retirement funds will give you this, but you will do better if you can increase the return even slightly due to the effect of compounding. A 1% increase in average return over 30 years will result in you have 34% more income in retirement.

Goog luck and keep saving. It is worth it in my opinion.  

dunstonh

Around £12,000 with Smart Pensions. I stopped contributing to that one in June 21. 5 years of contributions and it's only grown around 7% total. Not sure how this stuff works but that sounds like a really bad ROI for 5 years. No idea what their charges are either, their statements don't really make it clear what they're charging and their documentation is confusing as hell.

If you paid in for 5 years then only one contribution would be there for 5 years, The next would be 4 years 11 months and so on.   So the rate of return should not be measured over 5 years.   2022 is negative year (happens on average 1 in 5 so nothing to be alarmed about)

Lastly, NEST Pension says that with a £100,000 retirement pot, I could expect something like £2,400 per year on retirement. Assuming my pot gets to 100k, 2.4% return sounds like an utter joke, I'd have better average returns just sticking everything into a plain cash ISA than bothering with this pension auto-enrolment, paying fees for seemingly nothing.

Do not mix up pension with returns. They are two different things.      The projections given are synthetic calculations using assumptions. The projections are intentionally pessamistic and include a deduction for inflation.   

You certainly would not get a better return using a cash ISA.  That is a misunderstanding on your part.

Is there a MSE recommended/preferred pension provider or do I have to use the employer offered one?

No there is not.  However, you are free to use any retail pension on the marketplace.   You dont have to use an auto-enrolment scheme.

Do I have to have to use a pension provider at all or could I just setup a stocks and shares ISA instead and divert the contributions to there?

Why would you want to use an S&S ISA?  The pension wrapper is better than the S&S ISA wrapper.   Both share the same investments and same charges. So, the only difference is the tax handling and pension beats ISA on that front.

akira181

penners324 said:

The 'forecast' is based on that £100,000 last 35 to 40 years in retirement.

I definitely don't understand this pension process at all, but hope to change that!

My point was that if the forecast pot is 100k and they pay 2.4k per year in retirement, retirement would need to be 42 years before you'd actually get your money back. With the retirement age at 67 and likely going up, it doesn't sound like a particularly good deal unless you expect to live way past 100.

Marcon said:

If the contribution shown on your payslip is 'around £125', that would roughly tally with an employee contribution of £68, a tax 'top up' claimed on your behalf by NEST of £17 (so £85) + £65 employer contribution.

Thanks for the sites, I'll check them out!

Made progress on the contribution mystery, I got an unexpected bonus in November which boosted my Pension contribs in my payslip from 85 to 125 but the amount paid into NEST is still 85. NEST show the tax relief top-up separately. I guess I'll see what happens in December then get in touch with payroll to see where that 40 went to.

Albermarle said:

They say 99% of customers are invested in their default fund . The performance of this fund is pretty poor ( too much UK %)

I did change Smart Pension from their default to a high risk, high growth potential fund 83 weeks ago (I spoke to them on chat about it and the chat record was still there). Looks like at some point since then, they changed their system to allow you to choose how much of your pot to allocate to what fund instead of committing the whole lot. In doing so, I assume I was reset to default. Don't recall being notified of this but could easily have missed any notification.

tacpot12 said:

It is vitally important that your pension savings are invested in assets that will grow overtime, and that you use a provider whose charges are low. NEST is pretty good, but it charges quite a lot per contribution, so eventually you will want to move away from NEST, but it is fine for the moment.

I would recommend you have a look at the performance of the NEST Sharia fund and Higher Risk fund. In my opnion, these are good funds to be invested in while you are young. I would move everything to these funds. I would recommend splitting the money between them, perhaps 50/50 or 25/75 if you want to try the Sharia fund for a while. (Don't worry about the name - worry about the performance and charges).  It is likely that you wil have been autoenrolled into a NEST 20xx Retirement Fund. To my mind this is ok, if you know you want to buy an annuity when you retire, but if you are not sure what you are going to do for retirement income you are better off moving away from these default funds.  Hit the nail on the head pretty much. I'm 36, ideally would like to retire in 25 years or sooner if I can afford it. If the tories have their way, I'll be 80 or something stupid before I can get a state pension. I'm clueless about the employer pension system, so need to learn more if I want to achieve early retirement.

 Now: Pension was simple, Annual Charge: £18. No faff but no growth either. Smart Pension statements just aren't clear about the charges, a snip of an annual statement from a few years ago is below. Does after charges mean out of the 3.1k employee+employer contributions, 1.6 of it was charges? Doesn't sound particularly right but their website talks about some tiered charge system and other stuff that makes it confusing for a novice.

My company just picked NEST at random I think. I'll take a look at the funds you mentioned for NEST and consolidate my pots. Although NEST doesn't allow you to split the pot, you can only pick one fund it would seem (or my current balance is too low). Do you have a preferred pension provider I should consider once I get my head around this system?

dunstonh said:

Do I have to have to use a pension provider at all or could I just setup a stocks and shares ISA instead and divert the contributions to there?

Why would you want to use an S&S ISA?  The pension wrapper is better than the S&S ISA wrapper.   Both share the same investments and same charges. So, the only difference is the tax handling and pension beats ISA on that front.

Mainly because I don't understand the system and it feels like a cash isa would have outperformed the pension pots, especially the NOW: Pension one. Now I understand it's not that straightforward and I should probably manage the pot a little better.

Can I ask my employer to change pension providers (assuming I find a different one I like) or can they refuse?

Marcon

akira181 said:

Mainly because I don't understand the system and it feels like a cash isa would have outperformed the pension pots, especially the NOW: Pension one. Now I understand it's not that straightforward and I should probably manage the pot a little better.

Can I ask my employer to change pension providers (assuming I find a different one I like) or can they refuse?

For most people, their first experience of saving is in some sort of building society or bank deposit account, where the capital value is pretty much assured and only increases as (modest!) rates of interest are added, so it's no surprise that it comes as a nasty shock to many when they see a savings pot going down in value. Hence the need to understand a bit more about how these things work.

You can ask your employer to change provider (you can ask anything...), but it's very unlikely they will agree, particularly if the request comes from someone who by their own admission knows nothing about pensions. They are highly unlikely to do it for just one individual - the extra admin alone would make it a foolish move for them.

You say they picked NEST 'at random', but the reality is that if they are a fairly small company, it's unlikely they had many choices open to them. Insurers didn't fall over themselves to offer brilliant deals on group personal pensions for smaller employers.

Why not just leave your previous pension savings where they are if for some reason you don't like NEST? 

dunstonh

Can I ask my employer to change pension providers (assuming I find a different one I like) or can they refuse?

They can refuse and almost certainly will refuse. Employers have to have an autoenrollment-compliant pension.    They take on most of the cost in setting that up.   They are unlikely to give you a bespoke arrangement at further cost.

My company just picked NEST at random I think.

It wont be random.  NEST is aimed at smaller employers needing a simple scheme.  The major providers all typically want a certain number of employees or assets under management before they offer their product.     That leaves about 4 small providers in this area. Smart, Now, Peoples pension and Nest.    You have three of the four.

Albermarle

Smart Pension statements just aren't clear about the charges, a snip of an annual statement from a few years ago is below. Does after charges mean out of the 3.1k employee+employer contributions, 1.6 of it was charges? Doesn't sound particularly right but their website talks about some tiered charge system and other stuff that makes it confusing for a novice.

No , it means there was investment growth of £1540, after charges were deducted.( so before charges it would have been slightly higher)

I sent a link in  a previous post that explains the charges clearly.