21 and thinking about getting a pension

willmot

Hi All, been a long time lurker on these forums but have never posted, however I could really do with some advice on pensions as I am keen to start one.

A bit of info.

• I am 21 years old
• I am self employed
• I have only been self employed for 1 year
• This year my earning have fallen just below the higher tax threshold ( Around (£30,000) net.
• Next year my earning will surpass the higher tax threshold ( Probably around £45,000 - £50,000 net).

I have been to nationwide for advice, they obviously recommended one of their own products and recommended I start with contributions of £100 pcm.

However I have also been talking to my grandad who was self employed before he retired and who had a pension, He recommended I take out a sipps pension with Hargreaves Lansdown.

So to summarise I am still doing lots of research into all the different options and getting my head round how it ll works. What I want from you guys is any general advice or things I should be looking at.

Thanks

dunstonh

I have been to nationwide for advice, they obviously recommended one of their own products and recommended I start with contributions of £100 pcm.

Slight rephrasing. You saw an insurance salesman at the Nationwide who wanted to sell you their own product.

However I have also been talking to my grandad who was self employed before he retired and who had a pension, He recommended I take out a sipps pension with Hargreaves Lansdown.

SIPPs are experienced investor products for those wanting direct investment. If you intend to use shares, investment trusts etc then they are the ideal option to use as only a handful of personal pensions allow that and no stakeholders. If you intend to use investment funds then SIPPs can be the most expensive option when comparing like for like distribution channels. HL dont discount any of the annual charges and you get no FOS protection and will need to pick the investments yourself. If that is ok with you then fine. If not, then it could turn out to be an expensive mistake.

at 21, the cheapest options available to you are personal pensions. Significantly cheaper than HL (even on full commission basis) and with a middle ground of investment choice (more than stakeholder but less than SIPP).

bigturnip

As for how much you want to put in, the best option is going to be as much as you can afford, the more you put in when you are younger the better.

You only have to run a few models with an average return over 30 years and then see the difference it makes by having it invested for 40 years to see how much of a difference investing when you are young makes.

It might be best to make smaller regular contributions and then top it up with lump sums every now and then (when times are good), but you may prefer to make larger contributions if you're going to be tempted to spend it elsewhere.

willmot

Ok so if a personal pension is the way to go, is there any advice on where I should go to get one? Do they differ between financial institutions?

Thanks for your replies, it helps so much to hear what other people think...

sdooley

actually I would differ and say a stakeholder is probably better than a personal pension, although personal pensions may offer slightly lower charges presently they are able to make all sorts of charges, even charges to change to a different pension whereas a stakeholder is limited to a single charge, the annual charge of up to 1% (but some can be got for 0.5%)

As a general rule, if you have a choice between two investment policies and you don't understand the difference, buy the cheaper one, so looking at the funds available from your stakeholder pension, look to see which ones have the lowest fees

you want a fund that invests in shares ('equities') as over 40 years you will probably earn more from this than bonds

dunstonh

actually I would differ and say a stakeholder is probably better than a personal pension, although personal pensions may offer slightly lower charges presently they are able to make all sorts of charges, even charges to change to a different pension whereas a stakeholder is limited to a single charge, the annual charge of up to 1% (but some can be got for 0.5%)

personal pensions can offer a lot lower charges. Not slight. I set up a PPP recently using a mix of internal and external funds with a reduction in yield of just 0.6%. A stakeholder would have been 1.1% and would only be able to use internal funds.

Whilst the stakeholder charges cannot be increased above 1.5% for first 10 years and 1% thereafter they have a limited fund range. The personal pensions of most providers are effectively the same as the stakeholder but allow the addition of external funds and that is valuable.

The personal pensions in which are focused on lower charges in particular do so because they take the cost of advice/initial set up away from the annual managment charge. That is the single biggest reason they are better value and although they dont have a charges guarantee, they are highly unlikely to be altered in future unless the amc of the fund needs amending. Even if they do, then they can be transferred free of charge.

As a general rule, if you have a choice between two investment policies and you don't understand the difference, buy the cheaper one, so looking at the funds available from your stakeholder pension, look to see which ones have the lowest fees

in that case, you would go with a personal pension as the explicit charged ones would be cheaper than a stakeholder in this scenario.

is there any advice on where I should go to get one?

IFAs are the only ones giving advice on the whole of market options.

Do they differ between financial institutions?

Yes. Quite significantly. Whilst stakeholders have the defined charging structure, you are compromising the investment options. To allow the extra investment options of a PPP you have to allow flexibility on charging options and that flexbility allows providers to decide how they charge. Some virtually mirror the stakeholder and just charge extra on the external funds. Others have completely modern "factory gate" style charging which offers better value for younger investors (typically those with more than 20 years to retirement). There are also going to be some pretty poor examples out there still as well (same can be said for any product with that though, including stakeholders).

purch

As a general rule, if you have a choice between two investment policies and you don't understand the difference, buy the cheaper one, so looking at the funds available from your stakeholder pension, look to see which ones have the lowest fees

What proof do you have that the lowest cost Investment Policy always produces the best return ???

What utter gibberish....

Cost and Charges are the least of your worries.....Investment performance is what matters

you want a fund that invests in shares ('equities') as over 40 years you will probably earn more from this than bonds

.....based on the previous recommendation, I wouldn't take much notice of this comment either.