Personal Pension advice please 🙏🏼

Freedomforever

Thank you both @dunstonh @Albermarle all opinions/ comments etc much appreciated.
Also to all who have contributed their thoughts and suggestions to my question, sincere gratitude.

Freedomforever

I’m still considering my options with who to start my own personal pension with.When I was younger I enjoyed investing very small amounts on the stock market or just watching how my pep was performing. My brain is not so receptive these days, hence I now feel reluctant to do so.I understand one can choose a managed fund portfolio and in particular I’ve just been reading about Standard Life’s personal pension. As I’m only going to be contributing net tax relief of £2880 per tax year I really want to keep the charge super low as possible.
I think I understood correctly that Standard life’s charge would be roughly I enclose a copy and paste.

Our ready-made option is designed with most pension savers in mind. 

The effective charge you'll pay is:

• 0.70% a year if your pension is less than £25,000
• 0.50% a year if your pension is more than £25,000

This is the Total Annual Fund Charge minus discounts. The charges shown are for the most expensive fund within this investment option - so you may pay less.

I completed a sliding scale investment online: Result as below 

Approx £3,000 investment 

Your estimated effective total annual charge

£21.00

An alternative option that was suggested to me here is fidelity, would the charge work out similarly @IvanOpinion? 

I believe we are able to pay into a pension until age 75, does this apply to non working people?

If no I'm only eligible to pay in until state pension age so that would mean four years contributions for me.

Is it worth it for this very modest amount or should I skip the hassle and keep the money invested in a building society account?

Thank you for your time and thoughts 😊

LHW99

Is it worth it for this very modest amount or should I skip the hassle and keep the money invested in a building society account?

Just taking that part, your £2880 gets made up to £3600 by HMRC. Then you get 25% back tax free, which works out to an equivalent "interest rate" of 6.5% if you took it all out at the end of year 1 and were a basic rate tax payer.

(You could take it out once the tax relief is paid in, subject to any minimum amount needed to keep the account open, if you are over 55).

£2880 in a building society 1 year bond at maybe 4.7% would be about £3018 at the end of the year, so about £40 less than you would get from the pension money if you paid basic rate tax.

If you had any personal allowance left after other income, then maybe none of the £3600 pension would actually be taxed when you took it out, so over £400 better than putting the £2880 in a building society.

If then you put that £2880 in the pension every year for 5 years (without withdrawing any), at the end you would have £3600 x 5 = £18,000 if you had no growth (and even if it was left in cash, most platforms pay a couple of % interest).

If you could do it for 10 years you'd have £36,000 + growth (and only £28,800 would have been your own money).

I think that's (probably) worth it.

Freedomforever

LHW99 said:

Is it worth it for this very modest amount or should I skip the hassle and keep the money invested in a building society account?

Just taking that part, your £2880 gets made up to £3600 by HMRC. Then you get 25% back tax free, which works out to an equivalent "interest rate" of 6.5% if you took it all out at the end of year 1 and were a basic rate tax payer.

(You could take it out once the tax relief is paid in, subject to any minimum amount needed to keep the account open, if you are over 55).

£2880 in a building society 1 year bond at maybe 4.7% would be about £3018 at the end of the year, so about £40 less than you would get from the pension money if you paid basic rate tax.

If you had any personal allowance left after other income, then maybe none of the £3600 pension would actually be taxed when you took it out, so over £400 better than putting the £2880 in a building society.

If then you put that £2880 in the pension every year for 5 years (without withdrawing any), at the end you would have £3600 x 5 = £18,000 if you had no growth (and even if it was left in cash, most platforms pay a couple of % interest).

If you could do it for 10 years you'd have £36,000 + growth (and only £28,800 would have been your own money).

I think that's (probably) worth it.

Thank you for taking your time to explain this so fully to me. 

This kindness is much appreciated!

Dazed_and_C0nfused

And if add the money to the pension and then take it all out early in the tax year (for the £180/6.25% profit) you then have most of the year to stick it in a savings account and earn 5% as well.  Win win.

Freedomforever

Dazed_and_C0nfused said:

And if add the money to the pension and then take it all out early in the tax year (for the £180/6.25% profit) you then have most of the year to stick it in a savings account and earn 5% as well.  Win win.

So are you saying I can pay in £2880 and withdraw money after HMRC tax relief added without penalty.

Then add to a savings account rather than keep it in the pension?

Dazed_and_C0nfused

Freedomforever said:

Dazed_and_C0nfused said:

And if add the money to the pension and then take it all out early in the tax year (for the £180/6.25% profit) you then have most of the year to stick it in a savings account and earn 5% as well.  Win win.

So are you saying I can pay in £2880 and withdraw money after HMRC tax relief added without penalty.

Then add to a savings account rather than keep it in the pension?

If triggering MPAA isn't an issue then you could add £2,880 each year (until you are 75) and take it back out once the tax relief is added.

Assuming you aren't impacted by the new limit on the 25% TFLS (over £250k) there isn't any penalty I can think of.

Some companies pre fund the tax relief but you also need to consider provider fees and it might be the most cost effective option overall is to go with a company that doesn't pre fund but has no charges.

You initially part with £2,880 and ultimately get £3,060 back (if basic rate tax is payable on the taxable element).

Once you have taken money out of a pension there is nothing to stop you putting the £3,060 in a savings account if you wish.

The first year you do this can be a little messy tax wise but that is a minor inconvenience really.

Freedomforever

Dazed_and_C0nfused said:

Freedomforever said:

Dazed_and_C0nfused said:

And if add the money to the pension and then take it all out early in the tax year (for the £180/6.25% profit) you then have most of the year to stick it in a savings account and earn 5% as well.  Win win.

So are you saying I can pay in £2880 and withdraw money after HMRC tax relief added without penalty.

Then add to a savings account rather than keep it in the pension?

If triggering MPAA isn't an issue then you could add £2,880 each year (until you are 75) and take it back out once the tax relief is added.

Assuming you aren't impacted by the new limit on the 25% TFLS (over £250k) there isn't any penalty I can think of.

Some companies pre fund the tax relief but you also need to consider provider fees and it might be the most cost effective option overall is to go with a company that doesn't pre fund but has no charges.

You initially part with £2,880 and ultimately get £3,060 back (if basic rate tax is payable on the taxable element).

Once you have taken money out of a pension there is nothing to stop you putting the £3,060 in a savings account if you wish.

The first year you do this can be a little messy tax wise but that is a minor inconvenience really.

So thankful to this forum and grateful for your supportive insight. Thank you so much, this knowledge will greatly aid my future choices/decisions. Appreciate your time and effort to explain, very kind.

LHW99

Just bear in mind that some platforms may need you to keep a minimum amount in, in order to keep the account open. eg I believe Hargreaves Lansdown wants a minimum £1k left in, but won't charge a fee if everything is in cash - but please check that my understanding is right.

Albermarle

An alternative option that was suggested to me here is fidelity, would the charge work out similarly

Fidelity have a minimum charge of £90, unless you are a regular investor ( which you are not).

I believe we are able to pay into a pension until age 75, does this apply to non working people?

Yes it does.