Pensions advice - Can't top up workplace pension need private pension? Not sure what to do?

M187181

Hi, my son is 25. He has a workplace pension with Nest (no choice). His employer is paying the minimum contribution and his employer wouldn't match any increase he makes to his pension. He can't make any increases to Nest through his employer (they don't even acknowledge his questions about this). So, he has been looking at setting up his own private pension to help him in retirement. I am really pleased he is looking at this at his age.

He doesn't have a great deal of extra money to invest, e.g. £200 per month possibly, but still wants to start to save for his retirement. I don't have a lot of experience with private pensions and have found researching this topic really confusing. My son isn't interested in managing his investments, he simply wants to sign up, invest and let the provider manager everything for him. I have some questions:

1 - Are there solid, reliable pension providers that do this?

2 - How can i tell who are good and bad pension providers - Top 10 returns/providers seem to vary depending on whatever web site I check. There seems to be no real consistency.

3 - How do I know what a competitive management rate is? They all seem to vary by % and how much is invested.

4 - Does he need to claim back the tax on his self-assessment form or would the pension provider do that for him?

5 - I could try to ask a pension advisor, but even there it is very confusing. I don't know where to find them, what they cost, who are good, etc? I don't know anyone who has used one.

Apologies for all the questions, but any help gratefully received.

gm0

1 - Are there solid, reliable pension providers that do this?

Yes. Any SIPP or personal pension direct to consumer will offer this. There are full range SIPPS (Interactive, iWeb, AJ Bell, Fidelity, HargreavesLansdown, Vanguard etc). And there are financial tech new entrants e.g. PensionBee.

2 - How can i tell who are good and bad pension providers - Top 10 returns/providers seem to vary depending on whatever web site I check. There seems to be no real consistency

https://monevator.com/compare-uk-cheapest-online-brokers/

This is an independent blog - a reputable list - not selling a product or via referral fees. Best is complicated. How much you trade (not much from your post), and how often you put the money in will affect "best" for your son

3 - How do I know what a competitive management rate is? They all seem to vary by % and how much is invested.

They all vary. Basic fee. fixed or %. Per trade cost. Contribution of regular plan costs. It's regulated and they all structure it to be attractive on some dimension. As a pot grows - fixed fee wins. To begin with % is fairly harmless as you would expect.

4. This won't be payroll. But to contribute and get tax relief applied he will need his tax returns to work through in terms of pensionable earnings. Anyone can contribute 2880 and get it grossed to 3600 no questions asked. No income proofs etc. More requires the tax records to be sorted over time with the payroll and personal self assessment

5 - I could try to ask a pension advisor, but even there it is very confusing. I don't know where to find them, what they cost, who are good, etc? I don't know anyone who has used one.

On the face of it your son is not interesting (at the moment) to most financial and pension advisers. Other than one acquiring clients for the "long term". Ongoing hand holding comes at an ongoing annual fee. Typically 0.5% of assets (for people with more) and a bit more $ for people with less. You can pay somebody a one off fee to set something up. But he can do it on the web perhaps with some support from you to get around to it. And most of the mainstream providers will be "good enough".

The usual web e-commerce care and fraud concern factors apply. i.e. Am I independently going to the correct (real) website and not a phishing clone. You will be doing a level of ID and verify and address and linked bank account stuff. So impersonation happens as does phishing. I would never suggest responding to outbound mailings.

El_Torro

1. There are plenty of sold, reliable pension providers out there. Some will hold the customer's hand more than others, however ultimately it's up to the customer to decide what to invest in.
2. Pension platforms are usually rated by how expensive they are. People don't focus too much on how good the customer service is since most transactions can be done online anyway. There are comparison sites out there for example https://www.money.co.uk/pensions/sipps but they may not all cover all the options.
3. When looking at the pension platform charge and the fund charge then if you are paying about 0.5% a year for the two costs combined then this is considered pretty competitive.
4. If he is a 40% tax payer then he will need to claim back some tax relief. If he is a 20% tax payer then he pays in a net amount and the pension provider claims back the tax relief for him and puts it in the pension.
5. Considering the small sums we're talking about it probably isn't worth paying a pension advisor to look into this specific situation.

If you are looking for a specific recommendation then from what I hear Dodl by AJ Bell are a pretty good low cost operation for investing beginners. I haven't used them myself.

LHW99

Can't he make a personal contribution to NEST, without going through the employer?

https://www.nestpensions.org.uk/schemeweb/nest/my-nest-pension/contributions-and-fees.html

"Most members pay a percentage of their wages that’s been set by their employer, ……. You or a third party can top this up further."

He should also note that it's not the provider that "performs" it's what the pension is invested in.

NEST doesn't have many options, but he could look at the sharia or higher risk funds. They will be much more up and down over the years, but as he is young that isn't such a problem.

Alternatively has he considered a LISA. I think the current ones allow use as a pension at 60, or can be used for a first house purchase. The conditions will be changing soon though, so it may be worth opening one with a few £ just to have it available.

Exodi

Personally I think it's the right idea to avoid Nest - they charge 0.3% annual management charge, which is pretty average (though there are a fair few out there that charge less, or even no AMC - e.g. InvestEngine).

But my real problem with them is they levy a 1.8% 'contribution charge' taken from any money deposited in.

The reason many recommend sticking with the workplace pension scheme, is because employer matched contributions are effectively free money. As the employer is only willing to pay the minimum/not increase their contribution (they are under no obligation to), then it gives your son options.

Nest is a relief at source pension scheme, meaning your son pays tax on their pension contribution on their payslip, then Nest claims basic rate tax relief from the government and adds it back to their pension pot. The idea being that the money in there therefore has theoretically not been taxed (so it's fair that it's taxable in retirement).

To answer your questions:

1 - Are there solid, reliable pension providers that do this? [let the provider manager everything for him]

There are a couple but they usually have higher fees for this service. But to name a few - PensionBee, Nutmeg, Vanguard, Plum, InvestEngine etc. Personally I'd suggest spending just a little time researching investments before making this decision, passive global index funds have historically outperformed most active fund managers.

2 - How can i tell who are good and bad pension providers - Top 10 returns/providers seem to vary depending on whatever web site I check. There seems to be no real consistency.

I think as long as they are reputable, offer the investments you require and have reasonable fees, any could be considered - I don't think there's a 'Best at Everything', cheaper usually trades off with worse customer service, as with all services.

3 - How do I know what a competitive management rate is? They all seem to vary by % and how much is invested.

0.3% is about average, 0.15% could be considered low-price, 0% is rare (only InvestEngine off the top of my head, if you choose your own investments). Some might suggest looking at the whole picture - e.g. what drawdown options do they offer in retirement, how easy/hard is it to transfer, etc.

4 - Does he need to claim back the tax on his self-assessment form or would the pension provider do that for him?

The providers will generally claim it for you and add it to your pot automatically (though note this usually takes a month or two). Again, note only basic rate tax is claimed by default - if he earns more than £50,270 gross annually (aka a higher rate tax payer), he'll need to claim the higher rate relief himself.

5 - I could try to ask a pension advisor, but even there it is very confusing. I don't know where to find them, what they cost, who are good, etc? I don't know anyone who has used one.

A Independent Financial Adviser (IFA) would be recommended, but personally I think it's a bit overkill considering his position. People usually recruit their services when they have vast sums already invested. Likewise they will charge a relatively exorbitant fee to make it worth their time.

Hope that helps.

Albermarle

 My son isn't interested in managing his investments, he simply wants to sign up, invest and let the provider manager everything for him. I have some questions:

Same as what a lot of people would like, but it is not as simple as that.

For example with his current NEST pension, there is a choice of investment funds ( 10?) eg - Low risk - High risk - medium risk - a fund geared towards a retirement date etc. These funds are managed by the fund manager- but the customer has to choose which one they want. If you do not choose anything then you will be put in the retirement date fund ( I think) So a kind of negative choice. In reality most of the hard work is done for you but the customer is ultimately responsible for their own decisions, or lack of. No pensions provider will offer you direct personal advice for free. You always have to pay for this and as already said a certain level of funds is needed to make that worthwhile, and your son's situation is so straightforward that it would not be justified anyway.

Also note again what has been said in a previous post, as it is a common misunderstanding.

He should also note that it's not the provider that "performs" it's what the pension is invested in.

Has he tried shouting a bit louder at his employer to increase his contributions, as normally this should not be an issue? Although as said NEST is not really the best scheme around.

dunstonh

1 - Are there solid, reliable pension providers that do this?

All of them.

2 - How can i tell who are good and bad pension providers - Top 10 returns/providers seem to vary depending on whatever web site I check. There seems to be no real consistency.

Whole of market platforms offer the same investments. So, returns are irrelevent. Robo providers have their in-house portfolios but whilst they are simple to use, they are not usually that good compared to the popular multi-asset funds he could use on a whole of market platform.

So, he needs to weigh up whether he wants better with a bit of learning required or simple but not optimal.

4 - Does he need to claim back the tax on his self-assessment form or would the pension provider do that for him?

Basic rate relief is handled by the provider. Higher rate relief is handled via HMRC.

3 - How do I know what a competitive management rate is? They all seem to vary by % and how much is invested.

Small value regular contributions would be in the 0.3x% ballpark.

5 - I could try to ask a pension advisor, but even there it is very confusing. I don't know where to find them, what they cost, who are good, etc? I don't know anyone who has used one.

Avoid FAs - they are sales reps of the companies they represent

IFAs are type that should be sought out. However, IFAs typically deal with higher net worth people and not small regular contributions.

If your son is not using his LISA allowance, then a stocks & shares LISA is more tax efficient for a basic rate taxpayer than a personal pension.

jimjames

He doesn't have a great deal of extra money to invest, e.g. £200 per month possibly, but still wants to start to save for his retirement.

£200 is a great place to be for adding money to a pension age 25. Definitely not in the "too small" category and most SIPP providers will deal with minimum amounts that are half that or less. Lots of suggestions above but well done to him for thinking about this early on.

artyboy

…and frankly what a cr@ppy attitude from their employer. Given the comment about refusal to even acknowledge, I'm going to assume it's not some 5 person family business but something larger with an actual admin/HR function that does the absolute bare legal minimum, using a provider that frankly could be the little brother of SJP with their initial contribution fees.

Maybe I've just been lucky in my working life, but I hope this isn't the norm for employers…

GunJack

https://forums.moneysavingexpert.com/discussion/comment/81907513#Comment_81907513

I fear this may become more the norm as the Labour government keep adding costs to employers.....I'm pretty centrist in my views but what this lot are doing just sucks...

M187181

https://forums.moneysavingexpert.com/discussion/comment/81907407#Comment_81907407

Yes. They deny they have any link to the nest Pesnion scheme, then simply don't bother replying. They wont even tell him who to contact to get information on contributions, I had to sit down with his payslips/P60/Nest account to work out what was paid by his employer. It would be lovely if they matched any increase, but there is zero chance. Thanks, though, made me check back with my son to confirm their useleness.