Pension Basics

sadpunk

Hello,

I am one of those people that has paid little attention to their pension other than checking in a couple of times a year and having moved jobs a few times been careful to consolidate to tidy things up.

My present situation is as follows:

52 year old male with 5 years served at current employer. I have a group pension which is salary sacrifice. Both the employer and I contribute 5% each of my £64k p.a. salary. This pension is with Aegon and is currently worth £40,737. Invested 100% in Universal Lifestyle Collection fund:

https://extranet.secure.aegon.co.uk/static/sxhub/pdf/client-pen-universallifestyle.pdf

The PDF linked states total charges are 1.03% but I have statements that state the charges are 0.62% yearly charge.

In addition to the above I have a personal pension (former workplace pension) with Scottish Widows which I contribute £500 per month from my salary. I do not claim higher tax relief on this as I did not know that was a thing until very recently. I am in the process of obtaining the statements required to claim relief for the past three years when I became a higher rate tax payer.

This pension is currently worth £152,326 and is invested in two funds listed below:

Scottish Widows Pension Portfolio Three Pension (Series 2) £66,128.73
https://documents.feprecisionplus.com/Factsheet/SWPOC/FS/QG33_SCE.pdf

Scottish Widows Pension Portfolio Two Pension (Series 2) £86,197.95
https://documents.feprecisionplus.com/Factsheet/SWPOC/FS/QG30_SCD.pdf

These funds have an AMC of 1.00%.

There is a Current Charge Adjustments section of the Plan Information Statement I recently asked for which I do not quite understand. It states:

Payment type	Charge Adjustment
Regular payments	-0.40%
Transfers payments	-0.40%

I don't know what this refers to. Any help appreciated.

So, thanks for reading thus far. A fair bit of background. I have been contemplating seeking out an IFA but have been encouraged to take control and educate myself rather than remaining blissfully unaware. I realise now is a good time to take closer look at matters as I get older. Both the above have a death benefit that pay out the whole of the pension to a named person (wife).

However, I am confusing myself when it comes to charges and what is best for me to do. Should I maintain both pensions (I have no choice with my employer pension). Should I move the, seemingly more expensive, Scottish Widows pension into my employer one and let PAYE sort out my tax relief for me - assuming I am indeed eligible for the additional 20% relief due to my salary?

I have had some conflicting advice from friends some of whom are invested in a SIPP but my lack of knowledge leads me to believe this is a bit risky since I am having to ask really basic questions here. I have always chosen medium risk when signing up for pensions.

I could simply carry on investing in both and upping my contributions when I can. I am worried the Scottish Widows pension is expensive as I was alarmed at last years statement telling me my fund grew by £9,207.79 but the investment performance was only £3,457.79 after charges. I'm not sure if these two sums are even related.

Any advice would be hugely appreciated.

DRS1

"I am worried the Scottish Widows pension is expensive as I was alarmed at last years statement telling me my fund grew by £9,207.79 but the investment performance was only £3,457.79 after charges. I'm not sure if these two sums are even related."

You are contributing £500 per month so that will contribute £6k per year to the fund value. Yes there is a gap then between £3207.79 and £3457.79 which I can't explain. There may be some tax relief as well but that would be more than £250.

On the SW charges it looks like you are getting 0.4% off (maybe off the 1% AMC or maybe off something else) so it is probably not as expensive as you think.

QrizB

This is not a complete answer - others will hopefully look at your situation in more detail - but some initial thoughts to be going on with:

• The Ageon Universal Lifestyle fund is aimed at people who plan to buy an annuity at retirement. This might include you; annuities are currently quite good value. But if you have different plans for retirement, you might want to change your fund. (I'd suggest leaving it as it is for now, it won't start de-risking until you're in your 60s.)
• If you stop the £500pm payments to SW and instead salsac an additional £800pm to your current works pension, your monthly income will be roughly the same but you'll avoid the higher-rate tax problem and also reduce your NI payments.
• Paying almost £6k in charges on £150k with SW is closer to 4% than 1%. Can you share more details from last year's statement? Ignore, I misunderstood what you were saying.

vacheron

I have some of my pension funds in the Scottish Widows Pension Portfolio Two Pension (Series 2) fund as well, On the whole I have been happy with the performance over the last few years.

Most workplace schemes received a discount on the standard SW 1% AMC. It looks like your scheme discount was 0.4%

I believe that in the past this discount used to end when you left the scheme, but someone had mentioned that this practice was banned, or is at least frowned upon. So in my case the discount has remained for the last 3-4 years.

Smudgeismydog

I would also suggest stopping further payments into your SIPP, and instead increasing your salary sacrifice contributions, as this is more tax efficient.

ali_bear

With your current salary sacrifice arrangement you reduce your taxable pay of 64k by 5%. Would you be able to increase your contribution to, say 25%. This would bring your taxable pay below the 40% higher rate threshold. Would you be OK with the reduced take-home pay?

LHW99

Have you thought of having a free appointment with Pensionwise. No advice, but they can give guidance that could be useful.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Albermarle

 but have been encouraged to take control and educate myself rather than remaining blissfully unaware. I realise now is a good time to take closer look at matters as I get older

If you become a regular reader of this forum, your knowledge will definetely increase.

dunstonh

The PDF linked states total charges are 1.03% but I have statements that state the charges are 0.62% yearly charge.

That is normal. That fund is available in multiple contracts. So, it shows the maximum charge rather than the actual charge you are paying.

It was available on stakeholder pensions, which have a default charge of 1.00%. The 0.03% can be ignored as that is a synthetic figure and not a real charge. (This is a whole other issue, and the FCA is currently consulting on adjusting this).

here is a Current Charge Adjustments section of the Plan Information Statement I recently asked for which I do not quite understand. It states:

I had to clip the rest of the copy and paste due to a fault in the quoting system.

But it is the same issue. 1.00% is the default and you get a 0.40% discount on that.

Should I move the, seemingly more expensive, Scottish Widows pension into my employer one and let PAYE sort out my tax relief for me - assuming I am indeed eligible for the additional 20% relief due to my salary?

The SW pension is fractionally cheaper than the Aegon.

Neither are at the lowest cost end of the range.

I believe that in the past this discount used to end when you left the scheme, but someone had mentioned that this practice was banned, or is at least frowned upon. 

It was banned in 2016.

sadpunk

Thanks all for insightful comments and suggestions.

I am currently in dialogue with the Financial Accountant at work who is going to run a draft projection for my April salary to show the real cost of increasing my pension contributions to somewhere in the region of 25% since this is the threshold by which I reduce 40% tax as mentioned @ali_bear. I genuinely had no idea how salary sacrifice worked and how beneficial it is in my situation.

I am torn between transferring my private pension (Scottish Widows) into my work pension (Aegon). On the one hand it would be nice to only think about one pension and one set of charges. On the other hand the Scottish Widows pension seems to have done well (as noted by @vacheron). I'm not quite in a position to max out contributions into my work pension AND my private pension if I keep them both. If I max out my work pension I will have to reduce/stop regular payments into my Scottish Widows pension.

A further question; having never claimed the additional 20% relief on my private pension contributions, would I still be advised to do so if I am maxing out my work pension contributions? If salary sacrifice reduces my tax liabilities to below the 40% am I still classed as a higher rate tax payer?

GunJack

No, if you salsac down to below the 40% tax threshold you will no longer be a 40% taxpayer, that's the whole point of ditching the sipp contributions and upping the salsac....it's clean from a tax point of view, no need to contact HMRC for the extra 20% tax relief