First Pension

Dudda

I have just finished my degree and will be going into a job in august. The company has provided a stakeholder pension plan with L&G which they have "negotiated" a 0.75% AMC. I was looking on this site and was directed to Cavendish Online and noticed the plans there had as low as 0.20%.

I have no idea what plan is best for me (or whether I should be choosing a stakeholder pension) but I would like to get one set up as soon as Im earning. I'm 22 and will start on around £26k.

Any help would be much appreciated.

jem16

Will the company be contributing to the stakeholder?

Dudda

It doesn't state anywhere that they will be, so I assume not

jem16

You may be better using a Personal Pension with a greater fund choice than a Stakeholder pension especially as you are so young. How much do you hope to contribute?

Dudda

I was thinking 5% to start with.

What are the differences between a stakeholder and personal pension?

jem16

A Stakeholder pension could have around 15 fundss to choose from, all internal funds from the provider. Basically it was designed as a budget option.

A Personal pension could have around 100 funds, a mixture of internal and external funds. It can be dearer than the stakeholder but you could mix and match with internal and external funds and still get good value.

However the most important choice should be where you invest and not the charges. So it's important to choose a pension with the best choice so that you can get good growth.

As your employer is not contributing you can make your own choices. You could also consider the S&S ISA route. The ideal is to have up to £10k of retirement income to avoid tax so often a mix of pension and ISAs is the best.

Dudda

Looking at the fund options there are 23 managed by L&G and 17 managed by external managers.

Does 5% sound like a reasonable amount to contribute?
Should I start with the high risk funds while I have a long way off retirement?

Thanks for your help jem16

jem16

Dudda wrote: »

Looking at the fund options there are 23 managed by L&G and 17 managed by external managers.

The L&G stakeholder is quite good as far as stakeholder pensions go. However you are still limited to a choice of 40 funds compared with the likes of Scottish Widows Personal pension with over 100. You need to decide what is important to you - cheap charges or better growth.

Does 5% sound like a reasonable amount to contribute?

Sounds reasonable at your age but where most people go wrong is forgetting to increase that amount over the years.

Should I start with the high risk funds while I have a long way off retirement?

Sounds sensible - you have over 40 years until retirement.

dunstonh

I was looking on this site and was directed to Cavendish Online and noticed the plans there had as low as 0.20%.

Have you got a link to that one as it seems too low for a new stakeholder on a regular contribution.

At age 22, then personal pensions should easily come in cheaper than stakeholders if you get a front loaded PPP. It is important to note that stakeholders have a defined charging structure. Personal pensions have flexible charging structures. Some will be more expensive than stakeholder but some will be cheaper. Some will be exactly the same but allow access to more funds (the type that Jem is on about).

Dudda

I read it wrong, thats how much you can save.

http://www.cavendishonline.co.uk/COL/Personalpensions.html


I've been looking at the Skandia plan which has over 300 funds and 0.75% AMC.

What does contract-out of the State Second Pension mean?

dunstonh

I've been looking at the Skandia plan which has over 300 funds and 0.75% AMC.

You are reading that wrong. The pension has 0.75% charge with the fund charges on top. That pension is on its last legs as well as the Selestia pension will be replacing it.

What does contract-out of the State Second Pension mean?

You can opt of out receiving a second state pension (smaller amount dependent on NI contributions). The Govt pay a rebate in the NI to the pension provider to invest instead of the Govt providing the second state pension. Pros and cons exist. The younger you are the better it is typically but its generally cost neutral. The main gain is the 25% tax free cash on your contracted out funds and a flexible retirement date.