Is it better to invest in pension at start of the financial year, or towards the end

skray

Hi

Any estimate available what is the typical growth of a pension fund over a year.

I have funds available for investment and to gain maximum tax benefit I deem investment into a private pension fund is the best option. There is a 20% relief at source, and if I am in the 40% tax bracket I get a further rebate of 20% when I file my tax return.

I have already exhausted my ISA allowance etc. The funds are held in my personal account that is salary sacrifice etc not available.

Is it better to put the money into the pension fund at the start of the year, or invest into a fixed deposit at the start of the year for a period less than one year, and then pay the money into the pension fund towards the close of the year?

The difference is money in a fixed deposit will grow by (say) 4.2%, and after paying 40% tax net gain will be 2.52%.

If I put the money at the start of the year will the pension fund grow by 2.52% at least?

If have an employer arranged pension fund with Fidelity where I pay through salary sacrifice, and also pay into Aviva managed pension fund from time to time with my own money for tax benefit. The mode of investment (risk profile) is default - it is determined by the fund manager based on my age etc.

By comparing the beginning and end balances over a year it is difficult to calculate effective growth because of contribution during the year.

Regards

Dazed_and_C0nfused

I must be missing something here.

If salary sacrifice is an option why wouldn't you use that and fund your everyday needs from your own money 🤔

You seem to be opting for something that doesn't give you the maximum tax (and NI) benefit you refer to at the start of your post.

dunstonh

Any estimate available what is the typical growth of a pension fund over a year.

yes.  Going back to 1915  the range is -37% for the worst and +66% for the best.
The median 1 year return is 5% at worst and 12% at best

(assumes market cap for equities relative to the year in question and basket of bond types for the defensive with portfolios measured on 10% slicies between equity and bonds starting at 0% equities and ending at 100% equities).

Is it better to put the money into the pension fund at the start of the year, or invest into a fixed deposit at the start of the year for a period less than one year, and then pay the money into the pension fund towards the close of the year?

Growth periods outnumber negative.  So statistically, earlier is better. 

If I put the money at the start of the year will the pension fund grow by 2.52% at least?

Possibly. Possibly not.  You are not comparing like for like if you are looking at cash ISAs vs equity/bond investments.

eskbanker

skray said:

Any estimate available what is the typical growth of a pension fund over a year.

[...]

The difference is money in a fixed deposit will grow by (say) 4.2%, and after paying 40% tax net gain will be 2.52%.

If I put the money at the start of the year will the pension fund grow by 2.52% at least?

Money in pensions will normally be invested and investment returns can't meaningfully be compared with savings one on a like-for-like basis - they would generally be expected to be better over the long term but are inherently volatile so short term comparisons aren't viable.

In other words, some mainstream investments might grow by, say, 6-8% as a long term average, but that wouldn't be linear and predictable growth - some years they'd increase by double digits and in other years they'd lose value.

As well as that issue, returns are actually much more variable than that anyway, according to investment choices, so there's no 'typical growth' as such - the more risk that's taken, the greater the potential gains (and losses) are.

However, in general, it would be expected that investments outperform savings on average, so investing sooner rather than later should make sense....

Albermarle

If have an employer arranged pension fund with Fidelity where I pay through salary sacrifice, and also pay into Aviva managed pension fund from time to time with my own money for tax benefit. The mode of investment (risk profile) is default - it is determined by the fund manager based on my age etc.

These funds that are based on age are often referred to as Lifestyle funds. They are invested in higher risk/higher growth investments to begin with, then as you approach retirement age they start to move into less risky investments. A couple of things to note;

1) As these are the default options, they are a one size fits all option, that may or may not be the most suitable for you.
2) Most tend to take the derisking too far, some more than others.
3) They work on the age they have in their system for your retirement. The default age will be 65, which may or may not fit with your retirement plans. 

There will be option with both providers for you to change the investments if you wanted to. 

squirrelpie

Instead of worrying about optimising the time of contributions to your pension fund, why not worry about choosing something better than the default funds to suit your circumstances?

ali_bear

It is better to invest in a pension on a regular (monthly) basis. You don't say how old you are or how near to retirement. But if you're more than a decade from retirement your investment should be going into high growth, more volatile funds, and by spreading out your investment over time you average out the short-term market variations at the time of purchase.