self employed pension

db75

Im 50 and have no pension but am now in a position to pay 60k into a pension from my business -after years of prevarication ive finally spoken to a financial adviser and have had some information about past 5 year performance and also fees.

• Low = 30.69% over 5 years average 6.138% (Fee 1.75%)
• Bal = 41.07% over 5 years average 8.214% (Fee 1.76%)
• Med = 53.55% over 5 years average 10.71% (Fee 1.79%)

I was about to go ahead with the balanced option but then read an article about the relative benefits of active and passively managed pensions and that in the long term passive ones perform better when you take into account the lower fees. it also stated that average charges are 1.09% and that anything over 1.5% is considered very expensive and reccomend provider charges dont exceed 0.34. 

I am very green with all this so wanted to get some feedback from anyone more knoweldable?

thanks in advance

Marcon

db75 said:

Im 50 and have no pension but am now in a position to pay 60k into a pension from my business -after years of prevarication ive finally spoken to a financial adviser and have had some information about past 5 year performance and also fees.

• Low = 30.69% over 5 years average 6.138% (Fee 1.75%)
• Bal = 41.07% over 5 years average 8.214% (Fee 1.76%)
• Med = 53.55% over 5 years average 10.71% (Fee 1.79%)

I was about to go ahead with the balanced option but then read an article about the relative benefits of active and passively managed pensions and that in the long term passive ones perform better when you take into account the lower fees. it also stated that average charges are 1.09% and that anything over 1.5% is considered very expensive and reccomend provider charges dont exceed 0.34. 

I am very green with all this so wanted to get some feedback from anyone more knoweldable?

thanks in advance

Sidetracking slightly (forgive me), but you say you are self employed and have no pension. That means you can't use 'carry forward' and would need profits of at least £60K in the current tax year if you are going to contribute that amount in one go.

You would, of course, make the contribution net of tax and the pension provider would add the 'tax top up' at basic rate to bring it up to £60K, with any higher rate relief being claimed via your self assessment tax return, but hopefully your adviser (surely the ideal person to answer your questions, assuming they are an independent financial adviser - reading one article is never going to give you a balanced view) has already explained all this to you?

db75

Thanks thats a good point, it may have to be slightly lower and of course its only one article but I suppose that was the motivation for posting here to get a few other more experienced voices  before I go ahead

dunstonh

FAs can only sell the products and services of their employer.   There may be some FAs that have wider range and less limitations but most stick to one provider/small panel.     

These firms are known as vertically integrated as they offer the product/platform, provide the advice and use their investments.  Each layer is a level of earnings for them.

If you used an IFA, you could instruct the IFA to use passive only, if the IFA is not already doing so by default.  IFAs are whole of market and have to follow your investment wishes.

 it also stated that average charges are 1.09% and that anything over 1.5% is considered very expensive and reccomend provider charges dont exceed 0.34. 

If you use an adviser and there is ongoing servicing included then it will be more expensive than if you DIY and use a low cost option (there are some high cost DIY options that are more expensive than advised so DIY is not automatically cheaper).
The charges layers will typically be:
x% for product/platform
y% for fund charges 
z% for adviser charges.

0.34% is at the upper end for platform/provider charges nowadays.  0.2x% is more typical.
funds can range from 0.06% upwards.   A fully managed portfolio will be closer to 0.7x%.  A fully passive closer to 0.1%.  And hybrid will be in between.

Charges are a secondary consideration.  Not primary. Many investors prefer active only or passive only or hybrid.  It is opinion.  However, any inclusion of active will push the cost up.

Marcon

db75 said:

Thanks thats a good point, it may have to be slightly lower and of course its only one article but I suppose that was the motivation for posting here to get a few other more experienced voices  before I go ahead

The important thing is that you do actually 'go ahead' - you were posting about your lack of retirement planning in 2018 https://forums.moneysavingexpert.com/discussion/5889740/lack-of-retirement-planning#latest and it would really be in your financial interests not to be repeating similar posts in another six years...!

Given that tax benefits, fretting too much about charges could just delay action further...

db75

as i said in the original post  i have been prevaricating for years. now that I had taken advice I was just wanting to check that it didnt seem a bad deal to those that are more experienced before going ahead. Seems reasonable with a large investment.

Marcon

db75 said:

as i said in the original post  i have been prevaricating for years. now that I had taken advice I was just wanting to check that it didnt seem a bad deal to those that are more experienced before going ahead. Seems reasonable with a large investment.

Indeed - but if you at least started a pension, even with just a very modest amount, it would open to the way to using carry forward in the next couple of tax years if you want to go on prevaricating a bit longer and then play catch up (depending on your earnings).

db75

i definitely will start a pension within the next month. im just looking at the way the fees would impact the long term value , a fair it of difference between vanguard and what i have been quoted so given that im definitely going ahead ini this tax year  if both are passive funds and  one is over 1% more unless theres something im missing it would seem better to go with vanguard

Dazed_and_C0nfused

db75 said:

i definitely will start a pension within the next month. im just looking at the way the fees would impact the long term value , a fair it of difference between vanguard and what i have been quoted so given that im definitely going ahead ini this tax year  if both are passive funds and  one is over 1% more unless theres something im missing it would seem better to go with vanguard

Are you dealing with a financial advisor or independent financial advisor?

db75

im not exactly sure, its an individual that has his own company within sjpp

dunstonh

db75 said:

im not exactly sure, its an individual that has his own company within sjpp

It is a regulatory requirement for an adviser to make their position clear.  IFAs will usually make a point of highlighting their independent status.   FAs will often make a point of hiding the fact they are not independent.