Pension Help

Fangorn_

Hello,

I am 35 and my salary is £47,500. Total take home is £53,200 after bonus.

Company pension is currently NEST and non-salary sacrifice. Employer contributions are the legal minimum (£103.15 a month).

I have been contributing £503.10 a month and the total pot is currently £32,881.56. It is currently invested in the Nest Retirement Date Fund.

My recent statement has the following info: total £505,000 with £126,000 lump sum. The biggest concern though is the retirement income which was £13,400.

And for completeness the contribution charge for the year is £174 and I have a small pot from previous employer of £6,197 in a Standard Life Pension.

I know that financial advice cannot be sought on the forum - rather, I was looking for opinions on alternatives to NEST and any perspective on what other people may consider in my situation?

My thinking is all I would be foregoing is the measly employer contribution if I were to look at something like a Vanguard SIPP (Global All Cap Accumulation Fund) and stop the NEST Pension. Alternatively they could run in tandem and I could just increase my additional input into for example, the new SIPP rather than NEST? Or is it possible to pause contributions to NEST, transfer the amount to a SIPP then restart the NEST contributions at minimum levels to ensure I continue to get the small employer contribution benefits? Am I missing something important here?

Does anyone have experience of other simple SIPPs?

Another minor question - given that I just fall into the 40% tax bracket, do I need to notify HMRC every year to ensure that I get the tax relief on the pension contributions - and how much would that be calculated at? I did so last year but was not sure what the actual calculation was.

My risk appetite is medium, I would not really look to invest solely in a high risk fund at this time.

The thing that flagged this for me was the small retirement income as my partner works for the council and contributes only around £100 a month but has a retirement income of around £27,000. I know the schemes are different etc but I would like to consider alternatives to my current set up.

Thank you for any help.

Pat38493

Just to clarify - the numbers like £505000 is what it is saying your pension will be when you retire?  At what age have you specified?

Have you checked your state pension forecast and what does it say - keep in mind your state pension will kick in at a certain point.

Those estimating sites sometimes give quite pessimistic predictions based on an assumption that you will take 25% tax free cash and purchase an annuity - this will not be your only option.  Nevertheless if you are looking for a retirement income a lot higher than around £14-15K, especially before state pension age, you need to look at increasing your contributions one way or another.  It's good that you are thinking about this now as many people don't pay any attention to it until they are much older.

Your partner is in a DB scheme and they are usually much more desirable pensions than a DC scheme.  That said, £100 a month is very good for that size of pension...

Generally it's usually not a good idea to take actions which stops your employer contributions which are, in the end, free money, so it would probably be best to at least keep the employer scheme to get the "free money".  

You should then check how your Nest pension is invested.  It's the choice of investments rather than the provider that makes the much bigger difference.

Beyond that - you might want to research the meaning of "high risk" when it comes to pension investments.  It generally refers to volatility rather than the risk of losing all your money - i.ee. a high risk diversified pension fund will probably grow more than a lower risk one over long timescales like 15 years +, but during that 15 years you might see several large dips and you have to ride them out.  This may not be suitable if you would be tempted to sell at a loss during those dips.

Most people of your age would have a significant part of their pension in what are termed "high risk" because that is what is required to get the growth needed over decades.

LHW99

You don't need to stop contributing to NEST, and lose the employer's contribution. You can open a separate SIPP / personal pension and you would get tax relief in that. If you change employers you could also then transfer the NEST pension into you own separate one, or to your new employer if you prefer.

Fangorn_

Thank you Pat,

£505,000 is what it is saying for when I retire (estimated retirement date 68). I can collect my State Pension on the same date (£203.85 a week, £886.38 a month, £10,636.60 a year).

It is not going to be easy for me to contribute anything more to my pension at this stage. Previous advice had been that I contribute around 17% of my net salary which is currently where I am at.

I appreciate and understand the points made around risk. Interestingly, I notice that the highest performing fund for NEST is the Sharia fund.

Nest 2040 Retirement Date Fund (Growth Phase)  32%
Nest Higher Risk Fund  34.2%
Sharia Fund  93.7%

Five Year Annualised Return
Nest 2040   5.7%
Nest Higher Risk Fund  6.1%
Sharia Fund  14.1%

Annual Total Performance
Nest 2040  7.8%
Nest Higher Risk Fund  8.9%
Sharia Fund  13.6%

With the caveat of previous performance vs future performance is not guaranteed, I may review the fund...

With reference to alternatives to NEST though, would they make much of a difference in the end in terms of fund performance, given the wider availability of various funds for various pensions (for example, Vanguard SIPP previously mentioned)?

Appreciate the response.

Linton

If you go to a SIPP platform you will have a very much wider range of funds.  There must be funds or sets of funds with a similar performance to the NEST ones, but what those are is impossible to say.  A difference in provider of itself wont make a major difference to performance other than from the different charges.

Be careful with investing in Sharia funds for non-religious reasons.  The restrictions in where they can invest can make them highly dependent on a small range of sectors, in particular Tech.  So they can be much more volatile with higher highs and lower lows than funds without such restrictions.  For example HSBCs Islamic Global Index fund is 46% in the Tech and Communications Service (eg Netflix and similar) sectors. 42% of its total assets are in just 10 companies compared with 20% for a more general global index fund.

El_Torro

So your forecast is saying that if you retire at 68 (35 today) and you are contributing £606 a month (including employer's contribution) you will have £505k in today's money when you retire at 68. I just ran those numbers through an online pension calculator and I'm getting more or less the same figure. So I don't think the forecast you have is particularly pesimistic. 

If you think this figure is too low then moving your pension out of Nest isn't the answer. Contributing more is the answer. Not to say that Nest are great. They do charge for contributions, which most platforms don't do. However their ongoing fund and platform charge is 0.30%, which is lower than most platforms / funds. So if you stay with Nest a long time things balance out. 

If you want more control and choice in what funds to invest in then opening a SIPP (in addition to your workplace pension) could be a good idea. 

Fangorn_

Appreciate these responses, very helpful. 

I will need to give it some more thought.

Pat38493

The pension provider will affect the charging structure you pay and any conditions like exit charges and so on.  This is definitely something to consider but it's not nearly as important as the choice of investments.

Also when looking at pension funds you should look over the longest possible periods - 10 years or more rather than 5 years if available.  A lot of folks would also say you need something diversified - many posters choose to invest in a global equity market tracker index for example.  Theoretically you are investing the entire world economy.

I am not familiar with Nest but I think it is based on a pre-canned list of investments to simplify the choice.  

The main advice would be - spend time doing research before making significant changes to your pension so that you don't make any unwise choices - there are lots of choices that are perfectly fine and you won't really know which one was best except with hindsight.  However there are some choices that are clearly not good.  e.g. deciding to invest money that you don't need for another 30 years in cash or cash like investments.

Exodi

Personally, I'd drop NEST as soon as I could.

The annual platform charge (0.30%) is OK but the 1.8% 'contribution charge' is significant. I don't think most people are aware NEST charge this.

I'd look into what options you have available to you, though I suspect pretty much anything would be better.

Since you mentioned Vanguard, you would not be able to have your employer directly contribute to it (I think you know this) and if you just considered regular partial transfers from NEST > Vanguard as you say unfortunately the 'contribution charge' from NEST would still be levied as soon as the money is paid by your employer, so while there is a minor saving in annual platform charge from 0.30%>0.15%, you'll still be bludgeoned for 1.8% on all incoming money.

If it was me, I'd find a way to have your pension paid into another provider without contribution charges (most of them). It doesn't even have to be particularly competitive, as you could just transfer the money from there to your desired platform (if the employer is not able to contribute to it directly).

1.8%, crazy.

QrizB

Exodi said:

Personally, I'd drop NEST as soon as I could.
The annual platform charge (0.30%) is OK but the 1.8% 'contribution charge' is significant. I don't think most people are aware NEST charge this.

I think the general opinion on this board (although it isn't unanimous) is that Nest's 1.8% contribution charge is more than balanced out by its low ongoing charges?

OP is 35 and could potentially remain invested for 30+ years. Nest's 1.8% upfront charge is equivalent to an additional 0.06% pa over that period.

Exodi said:

If it was me, I'd find a way to have your pension paid into another provider without contribution charges (most of them).

Trying to persuade your employer to pay their contribution to a different provider, when they only pay the minimum and have chosen a low-hassle auto-enrollment option like Nest, is unlikely to be successful.

Exodi

QrizB said:

I think the general opinion on this board (although it isn't unanimous) is that Nest's 1.8% contribution charge is more than balanced out by its low ongoing charges?

OP is 35 and could potentially remain invested for 30+ years. Nest's 1.8% upfront charge is equivalent to an additional 0.06% pa over that period.

I disagree, and only in the interests of not being confrontational did I not comment on El_Torro's suggestion earlier it'll 'balance itself out'.

0.30% AMC is OK, but it's certainly nothing to write home over. There are plenty of platforms offering this or better, without the 1.8% contribution charge. Happy to run a simulation on Excel with another workplace provider (like The Peoples Pension, for example), but I think we both know it would be a waste of time and NEST would come out with lower returns.

QrizB said:

Trying to persuade your employer to pay their contribution to a different provider, when they only pay the minimum and have chosen a low-hassle auto-enrollment option like Nest, is unlikely to be successful.

I find this reply quite odd on a money saving forum. You're assuming the employer won't allow any other provider without even trying. I myself was on NEST, the default workplace provider, until a couple of years when I engaged the conversation with my employer. I am now significantly better off in a salary sacrifice arrangement with a different provider.

The OP is still young, they still have the opportunity to save 1.8% on their future contributions.