Some pension advice please

Pat38493

Nelson1100 said:

Audaxer sai

If your one Vanguard fund has made a positive return of 1% over the past year, that is a better return than from most investment portfolios, as most of us have made a loss over the last year. It is not pointless providing you are investing for the long term, and providing you don't panic and sell if it does fall in value. It would be interesting to know which Vanguard fund you hold?

Keeping £10k cash at home, apart from the security risk, is losing it's value to the current high inflation rate. Putting that £10k in a one year fixed rate savings account could earn you at least £400 in interest!

I'm in the Vanguard Lifestrategy 100 fund which is part of a H&L isa, I've had it just under 18 months, I was told it was a safe bet but on reflection it would have done much better if I'd just left it in the savings isa.

So I'm not sure who told you that was a "safe bet" but that entirely depends what is meant by a "Safe bet".  The 100 in there means that the fund is invested 100% in equities and is designed to deliver growth in the long term meaning periods of quite a few years (more than 5 years).  

So it's a pretty good bet that money you put in there will be worth more in say 8 years from now than it is today in real terms (even after inflation is accounted for).

You can see this if you search up the fund on Google and look at the performance graph over 5 years - it's done better than any cash savings account you would have set up 5 years ago.

However it's not at all a safe bet that it'll worth more in 1 or 3 years from now - these type of 100% equity funds will have a high volatility which means they are likely to have big swings in value over short periods of 3 years or less.  You need to look at the long term performance of the fund over 5 years and more. 

If you are not able to trust that this is how the markets work and avoid selling the fund during these downturns, it might not be the right fund for you and maybe you should look at a fund with a lot less equities.

On the other hand you might think the cash in your house is a safe bet, but, inflation is running at 10% right now and probably will be at least 5% this year as well.  That means your cash will be worth more than 15% less than it was at the beginning of last year.  I wouldn't call that a safe bet either.

In fact I'm willing to bet that if you don't touch any of them, your Vanguard fund will have grown a lot more than any of your cash assets in 5 years from now.

Keep in mind that the current today value doesn't matter - what matters is the value when you want to withdraw that money which may be many years from now.

dunstonh

Nelson1100 said:

dunstonh said:

Basically I'm extremely risk averse which is why I stopped paying into my first pension. 

Its funny to hear a comment that says you are extremely risk averse and therefore you stopped putting money aside for your retirement.  You took a high risk decision to leave yourself short in retirement.

I didn't stop putting money aside - I just stopped putting it into that pension fund because at the time it was losing more a year than I was paying into it.

Which is the perfect time to be paying into it.

I'm in the Vanguard Lifestrategy 100 fund which is part of a H&L isa, I've had it just under 18 months

So you went into a high risk fund during a negative year and stopped because it made a loss.  

investments go down in negative years.  They go up in positive years.   Negative years average around 1 in 5 years. They are always coming at some point and will again and again and again.  They are not bad news at all when paying in monthly. They are good news.

, I was told it was a safe bet but on reflection it would have done much better if I'd just left it in the savings isa.

How told you that in a 12 month period, 100% equities investing was a safe bet?

Why are you just looking at 12 months?  are you retiring now?     What relevence has 12 (or so) months got to your retirement planning?

An economic cycle is around 15 years.  In that 15 year period, you will likely see three negative years and 12 positive years.   So, why did you take the decision to stop in one of those negative years?

Pat38493

@Dunstoh to be fair he did say that he wants to retire in one year from now.  

However, that doesn't mean you need to access all of the money on the day of retirement - only a small part of it is needed immediately and this is the important point.

penners324

Join your company's pension scheme immediately and contribute all of your salary to it.

It's THE most prudent thing you can do.

Nelson1100

I'll try and provide a bit of context which might help clarify some of the queries above.

I still hold the Vanguard 100 fund to the tune of about £18k, I haven't sold it despite its poor performance and I'm intending to feed my £20k isa allowance in after April at £1666 a month too (pound cost averaging they call it I think?).

The reason I thought the Vanguard LS100 was low risk was because I was comparing it to where I was invested at the time, its a long story but here goes....

It started back in 2018 when I had managed to save approx £250k in two current accounts that were earning very little interest, when my late father found out he went through the roof and urged me to invest it. I didn't really want to as I never believed that there was such thing as "Money for Nothing" but when he explained how much I was losing with inflation I realised something had to be done. I started investing not as way to make money but purely to keep my lump sum in line with inflation, After some trepidation I took the reluctant step of investing £50k spread across what I had been led to believe were fairly safe companies, BP, Glaxo, Unilever, Lloyds, Persimmon etc. I did get some gains in the early days but once Covid hit I lost literally thousands over a couple of months, I was absolutely distraught and as a result fell out with my father as I blamed him (wrongly I might add) for pushing me into investing.

As 2020 went on I couldn't see any signs of a recovery and that's when things got worse, in the same way as a gambler chases losses I went about trying to win back my money. I went off the rails, I started investing in more riskier plays, gambling on fly by night Pharma & Tech companies, flipping AIM stocks & crypto and of course inevitably losing more and more money. It affected me mentally and physically, my relationship with my Dad completely broke down, I barely had anything to do with family & friends, my work suffered, I was hardly sleeping because I was so worried by what I'd wake up to when I next opened my portfolio and I'd spend hours staring at tickers & watching charts instead of actually having a life. In the end I knew I was on the verge of a breakdown, the money I'd spent years working so hard for &  carefully saving was evaporating before my eyes and the only way to stop the losses and the stress was to accept that the money was gone and cash out. It was the darkest period in my life.

Its difficult to work out exactly how much I lost because I was throwing money in left right and centre but it was probably in the region of £50k, it was a bitter pill but at least I got my life back.

After I sold out and closed all my accounts the last trading platform I had left was a Hargreaves Lansdown S&S ISA with £18k in it, I went with the Vanguard LS100 purely because it looked relatively safe compared to micro cap stocks and crypto that had previously been my drug of choice.

Hopefully this goes some way to explaining why I don't want to go anywhere near investing again, I don't want to be rich I just want to hang on to as much as I've earned as possible and hopefully live out my last few years with my feet up if that makes sense?

Pat38493

Thanks for the explanation and yes that puts a lot of context around it.  You are not alone and I think that many people have lost even a lot more than you.

You are correct that the Vanguard scheme your are in is a lot safer than the approach your tried to take before as it’s invested across a large number of companies and not just a few.  However that’s only if you let it do it’s work which is basically to pretty much ignore it and only check it a few times a year, and most definitely do not sell up when the market is down - it’s perfectly normal that Vanguard 100 fund is down at the moment for the reasons that Dunstoh explained and it will go up again.

Saying that you don’t want to go anywhere near investing is a bit meaningless because putting money in your bank savings account is investing.  Even keeping your money in your house is investing as you are deciding to keep your money invested in hard currency.

What you are kind of saying I think is that you don’t want to get into active investing where you are individually buying shares and high risk investments like crypto.  That’s fine because hardly anyone else on these forums is doing that either - most posters are invested in funds a bit like the Vanguard fund that you are already in.  These funds are not designed to be monitored from one second to the next like wolf of Wall Street or suchlike - they are designed to be left to do their thing over very long periods.

Putting your money into a pension scheme is not investing.  As mentioned above, a pension scheme is simply a wrapper that allows you to avoid paying tax on your money today.  With any decent modern pension scheme, you can decide how the money within that wrapper is invested, including leaving it all as cash if you insist.  However for someone in your position you would most likely want to divide it up into some cash, some less volatile  investments like bonds, and some equities but spread across a lot of companies by buying one or more funds like Vanguard.  The Vanguard 100 fund that you are already in, is also available as a fund within many pension wrappers.

Risk is a complicated thing because as someone mentioned above, it’s also arguably high risk to keep all your money as cash because it will shrink in a high inflation environment.  Funds like Vanguard might have high volatility and therefore high risk of losing money over a year or two, but their risk of you losing your money permanently or not growing over very long periods is low - therefore from a long term investment view the Vanguard scheme is not very high risk.

Crypto and so on, you are at risk of permanently losing your entire investment or a large portion of it.

If you are able to find out what funds your two company pension funds are invested in you can get some comments here because I strongly suspect that as several other posters have mentioned here, your best and safest move right now would be to feed nearly your whole salary of your last year of working into your pension pot and live off your cash.  To be sure about that you would need to check what your pension is actually invested in and maybe adjust the L&G pension in line with your risk aversion.  If you post some further details on that there are folks on this forum who are familiar with the investment platforms of many of these companies and can point you out how to go about it.

One other thing to keep in mind is that although your S&S ISA might be described as tax free investing, it’s only in the sense that the growth is tax free.  With the pension, you can invest in exactly the same funds and not only is the growth tax free but you won’t pay any income tax on the money you put in there - that’s a 20% return before you even got started.  Really for someone in your situation there is no good reason to be putting money in an ISA rather than a pension wrapper.

Audaxer

Nelson1100 said:

I'll try and provide a bit of context which might help clarify some of the queries above.

I still hold the Vanguard 100 fund to the tune of about £18k, I haven't sold it despite its poor performance and I'm intending to feed my £20k isa allowance in after April at £1666 a month too (pound cost averaging they call it I think?).

The reason I thought the Vanguard LS100 was low risk was because I was comparing it to where I was invested at the time, its a long story but here goes....

Sorry to hear about your past experience with investing. You are correct that Vanguard LifeStrategy 100 is a globally diversified fund and much better than investing in individual shares. It is good that you are planning to continue investing in this monthly through your ISA allowance. If there is an equity crash this year and the fund value drops, you shouldn't panic as that is a good time to keep investing monthly as the fund unit prices will be cheaper.

I'm interested to know whether, as already discussed, you are intending to put the maximum amount allowable into a pension in your last year of working, as you would benefit from a very healthy amount of tax relief?

Kim1965

You have potentially a 30 year investment horizon in retirement. You have enough money.
 Your investment strategy has fluxed between two extremes, either stuffing cash under your mattress or sticking it on the nose of crypto currency. Its no wonder that you have lost money.
 Perhaps you need to educate your self regarding investing and then get some help because yiur missing out on creating wealth by making some very basic howlers. Digest the info of some wise contributers of this thread so you can kick back and enjoy retirement. 

Nelson1100

Thanks for your help here guys, this feels so much less like stumbling about in the dark.

So as you can probably imagine I don't know much about my pensions but looking through the documentation the Legal & General one is L&G PMC Fixed Interest Fund 3 as far as I can tell.  Is that enough information? But looking through the details it's lost 4.92% since 2017!  (I wish I hadn't looked now)

I will talk to my company's payroll dept this week and see what they can do with regards paying more in.
But for my understanding - if I put £4k in to it a month when it comes to withdrawing it I would get £1k back tax free and then if I draw the £3k in small increments over time I would only pay 20% as long as my net income was under £50k?

Do L&G do that? Does my pension become like a savings account where where I can just call up and say "can you transfer £5k this quarter and then £4k the next?


The Zurich one is called Zurich Adaptable Pension Plan (PBP) but I can't seem to find out much about this one.

Audaxer

Nelson1100 said:

I will talk to my company's payroll dept this week and see what they can do with regards paying more in.
But for my understanding - if I put £4k in to it a month when it comes to withdrawing it I would get £1k back tax free and then if I draw the £3k in small increments over time I would only pay 20% as long as my net income was under £50k?

As regard pensions contributions from now until you retire in a year's time, what I would do is to try to get as much into a pension as you can to get maximum tax relief before you retire in a year's time. On the basis that your salary is £52.5k, you should be able to contribute a maximum of £32k net this tax year, which with tax relief added would be £40k gross. If keeping it in cash in your pension, then when I retired, if it was me, I would want to withdraw up to my personal tax allowance and the tax free element of that, each tax year, to get the whole £40k out within about 3 years, i.e. without be liable to pay any tax on it.

It might be a good idea to open a separate SIPP. However before doing anything, I would suggest you do your own research on pensions, tax relief and drawdown. Here is a good book which could get you started:
DIY Pensions: A Simple Guide to Pensions, SIPPs & Retirement Planning: Amazon.co.uk: Edwards, John: 9781520782683: Books