Pension Diversification

Crystal_Pixie · 21 May 2018 at 3:43PM

Quick bit of background: 46yo female, higher rate taxpayer in a fairly secure industry.

At the moment I have 2 pensions - my HL SIPP which is doing well with a £140k pot (I merged 2 pots together to save fees) which I am contributing a minimal amount (£150 a month) and my works DB scheme which I contribute 6%.

However, it is very likely that the DB scheme will be wound up reasonably soon (discussions have started with unions) and it has got me thinking that I should be contributing more to pensions.

I am a novice investor, so would it be better to invest in my work's AVC scheme (Aviva) rather than increasing the contributions to my SIPP? The fees are very reasonable (passive funds at 0.24% pa). I know that advice states trying not to pay too much in fees, but I wonder if having several pots would be safer?

No debt apart from Mortgage which isn't particularly large (<£50k) and my husband works at the same company and has his own pensions and is in the same DB scheme.

I would like to retire at 60 but this may change now there is talk of winding up the DB scheme.

Linton · 21 May 2018 at 4:00PM

Various factors arising from your employers pension may be important:

1) Can you use your AVC pot to pay the Tax Free Lump Sum from the DB pension? If so putting sufficient money in the AVC to pay out the full TFLS could be very worthwhile.
2) Does you employer offer Salary Sacrifice? Again this could be a good reason for using the AVC.
3) May you want to retire earlier than the DB scheme retirement age? If so putting the money into a SIPP could be more sensible as you could access it earlier with no reduction in benefits.

I dont see how merging pots in HL saved fees. HL is one of the more expensive platforms. Most platforms charge on a % basis so generally it would not matter whether you split the pots or not.

dunstonh · 21 May 2018 at 4:23PM

I am a novice investor

observation only - yet you are using an experienced investor option.

so would it be better to invest in my work's AVC scheme (Aviva) rather than increasing the contributions to my SIPP?

What made you choose the experienced investor option to begin with and has that reason changed?

I know that advice states trying not to pay too much in fees,

Advice does not say that.

Fees are important but secondary to investment selection. If fees were a primary consideration then we would all be investing in cash.

As I said just this morning to a client who was asking a question on fees. He has had just over 130% back since 2011. I could get him cheaper and compared VLS to it and the lower charges would have got him around 78%. Do you want 130% after higher charges or 78% after lower charges?

Fees are important and should be considered but they should not be the driver. It is important not to be paying more for low quality though. There are plenty of high cost options that offer little value.

And if fees were important to you then you wouldnt be using HL.

zagfles · 21 May 2018 at 5:54PM

Linton wrote: »

Various factors arising from your employers pension may be important:

1) Can you use your AVC pot to pay the Tax Free Lump Sum from the DB pension? If so putting sufficient money in the AVC to pay out the full TFLS could be very worthwhile.
2) Does you employer offer Salary Sacrifice? Again this could be a good reason for using the AVC.
3) May you want to retire earlier than the DB scheme retirement age? If so putting the money into a SIPP could be more sensible as you could access it earlier with no reduction in benefits.

I dont see how merging pots in HL saved fees. HL is one of the more expensive platforms. Most platforms charge on a % basis so generally it would not matter whether you split the pots or not.

All good points but particulary 1) - because usually you can trade in part of your DB pension for a tax free lump sum but the commutation rate for doing so is usually rubbish - perhaps losing twice or three times as much pension based on market value. The tax saving often isn't worth it. Eg they might offer £10k lump sum for £1k less pension, whereas the real market rate might be £30k for £1k less pension

But if they have an AVC scheme from which they allow you to take the TFLS from, this means you can get your TFLS from that without having to commute any pension - effectively get it 100% tax free rather than 25% if you put it into a SIPP.

So look into this - urgently if the DB scheme is shortly going to close! Note - don't assume you'll be allowed to do this - all schemes are different, check first.

kidmugsy · 21 May 2018 at 8:46PM

Crystal_Pixie wrote: »

my HL SIPP which is doing well with a £140k pot (I merged 2 pots together to save fees)

Have a look at the Beaufort thread and consider whether you really want all your SIPP capital in one company however good a company it might seem to be.

zagfles · 21 May 2018 at 10:21PM

kidmugsy wrote: »

Have a look at the Beaufort thread and consider whether you really want all your SIPP capital in one company however good a company it might seem to be.

I think even in the Beaufort case it's only those with assets above £150k who are likely to lose anything. Other than the write-down on overvalued "highly illiquid" assets. I don't think people with a relatively modest SIPP pot invested in mainstream assets need to go into panic mode just yet.

dunstonh · 21 May 2018 at 10:49PM

The issue with beaufort is not something that somoene stick to mainstream is likely to suffer. However, if someone is really concerned then they should stick to using a personal pension or stakeholder pension with insured funds. 100% FSCS protection with no upper limit that way.

However, going with no more than £50k per fund house in unit trusts on a mainstream SIPP would not be too far behind.

kidmugsy · 22 May 2018 at 12:31AM

dunstonh wrote: »

if someone is really concerned then they should stick to using a personal pension or stakeholder pension with insured funds. 100% FSCS protection with no upper limit that way.

Do any of those providers stick out as being usually competent and good value?

dunstonh · 22 May 2018 at 9:24AM

kidmugsy wrote: »

Do any of those providers stick out as being usually competent and good value?

Yes. Most of them. Stakeholders are largely old hat but personal pensions are fine.

atush · 22 May 2018 at 12:36PM

Linton wrote: »

Various factors arising from your employers pension may be important:

1) Can you use your AVC pot to pay the Tax Free Lump Sum from the DB pension? If so putting sufficient money in the AVC to pay out the full TFLS could be very worthwhile.
2) Does you employer offer Salary Sacrifice? Again this could be a good reason for using the AVC.
3) May you want to retire earlier than the DB scheme retirement age? If so putting the money into a SIPP could be more sensible as you could access it earlier with no reduction in benefits.

I dont see how merging pots in HL saved fees. HL is one of the more expensive platforms. Most platforms charge on a % basis so generally it would not matter whether you split the pots or not.

This. We need to know the answers to 1,2,3

Crystal_Pixie · 22 May 2018 at 12:58PM

zagfles wrote: »

All good points but particulary 1) - because usually you can trade in part of your DB pension for a tax free lump sum but the commutation rate for doing so is usually rubbish - perhaps losing twice or three times as much pension based on market value. The tax saving often isn't worth it. Eg they might offer £10k lump sum for £1k less pension, whereas the real market rate might be £30k for £1k less pension

But if they have an AVC scheme from which they allow you to take the TFLS from, this means you can get your TFLS from that without having to commute any pension - effectively get it 100% tax free rather than 25% if you put it into a SIPP.

So look into this - urgently if the DB scheme is shortly going to close! Note - don't assume you'll be allowed to do this - all schemes are different, check first.

Thanks I will check about TFLS - this isn't something I would have considered.

Pension Diversification

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