Personal Pension Plan or SIPP

Simon_Jay · 14 March 2018 at 11:22AM

Hi, further to the very helpful information I have received on the forum, I am making arrangements to reduce salary and make company payments to a pension.

I am a company director, aged 52 with a property (mortgage paid off) and cash across various accounts, but I have no pension. My aim is to contribute 20-30K per year for the next 10 years. I am now trying to decide on a suitable pension product which is proving a bit of a headache. We use NEST for our employees but I am not too keen on that. I have no investment knowledge so need a straightforward product that I can pay in to and leave to hopefully grow. I am totally lost whether to go with a personal pension plan or a SIPP.

I have been looking at the Aviva Pension with the Ready Made Funds. In particular, the Aviva Investors Multi-asset Fund II (risk=lower to medium), This appears to have fees of 0.4% for the product and 0.35% OCF.

The other option is SIPP with a single balanced fund and I have been looking at HL. I see that people often seem to suggest Vanguard Life Strategy 60 (0.45% platform + 0.22% OCF) and HSBC Global Strategy Balanced (0.45 platform + 0.19% OCF). I notice HL also offer their own funds such as the Balanced Growth Portfolio with an OCF of 1.32%.

I really would appreciate any views people have on these options. With the SIPP, can you set things up to automatically invest to a particular fund each time a contribution is received, or do you have to go in and make a purchase each time. I guess with the personal pension products like Aviva, the money goes straight to the fund. In the future, I would be looking at a drawn down arrangement.

Thank you very much indeed for any views on this.

BLB53 · 14 March 2018 at 11:32AM

I would go down the SIPP route and think the Vanguard Lifestrategy or their Target Retirement funds would do a good job. However you could do this with AJ Bell Youinvest for 0.25% or look at a fixed fee platform which may work out better long term.

Here's an article from DIY Investor which may be useful
http://diyinvestoruk.blogspot.co.uk/2016/08/selecting-your-diy-pension-platform.html

dunstonh · 14 March 2018 at 12:29PM

I am a company director, aged 52 with a property (mortgage paid off) and cash across various accounts, but I have no pension. My aim is to contribute 20-30K per year for the next 10 years.

Via the company or personally?

(or potentially personally as director loans to company to then enable company contributions).

I am totally lost whether to go with a personal pension plan or a SIPP.

The DIY market has nearly totally set up with SIPPs. They are cheaper for companies to offer as they have a lower level of consumer protection and lower regulatory requirements. The DIY market is generally cost focused. So, it made sense for them to do this. PPPs are mostly available through advisers/intermediaries.

I have been looking at the Aviva Pension with the Ready Made Funds. In particular, the Aviva Investors Multi-asset Fund II (risk=lower to medium), This appears to have fees of 0.4% for the product and 0.35% OCF.

The point of DIY is to save money. Yes you avoid the initial advice charge when you DIY but you are using an option that is twice the cost annually that is available under advice. You can also get cheaper under DIY well.

The other option is SIPP with a single balanced fund and I have been looking at HL. I see that people often seem to suggest Vanguard Life Strategy 60 (0.45% platform + 0.22% OCF) and HSBC Global Strategy Balanced (0.45 platform + 0.19% OCF). I notice HL also offer their own funds such as the Balanced Growth Portfolio with an OCF of 1.32%.

At 1.32% you looking at paying similar or more to what an IFA would arrange on a model portfolio (i.e. a higher quality option). Yet getting a basic option on a DIY basis for the same money.

Simon_Jay · 14 March 2018 at 12:36PM

Hi dunstonh - thanks for coming back.

I would be looking to make company payments.

I was not considering IFA as just wanted a simple arrangement really.

Thanks again.

dunstonh · 14 March 2018 at 1:06PM

I was not considering IFA as just wanted a simple arrangement really.

Which is fine. However, DIY in financial services is like any DIY job. If you do it well you can save money. If you do it badly it can be more costly. Some of your options fall into the latter.

You need to make sure you are DIYing well.

Simon_Jay · 14 March 2018 at 1:32PM

Hi dunstonh. Thanks for the info. Yes, I do fully agree with you which is why I was seeking views. The information you have provided really is helpful and I will now think about using IFA instead

dunstonh · 14 March 2018 at 1:46PM

and I will now think about using IFA instead

That wasnt the intention. And realistically, unless the pension value is getting into 5 digits quickly, you may find many IFAs wont offer services or will give you a charge that is meant to be a passive rejection.

The intention was to focus a bit more on your DIY and remember that some DIY options are very expensive and low quality and you need to identify those.

further to the very helpful information I have received on the forum, I am making arrangements to reduce salary and make company payments to a pension.

Just recapping on that point. Is the intention to bring your salary down to £680pm (increasing a little in next tax year)? That is the optimal level for directors of own company. It qualifies you for NI related benefits (including state pension) without you or the company actually paying any NI. Usually, anything in excess of £680 is taken as dividends or company pension contributions.

Simon_Jay · 14 March 2018 at 2:48PM

Hi dunstonh

Thanks for coming back.

Ideally I would take the salary down to the lower level as you suggest but it is all a little involved.Basically I am bringing in a far higher level of business than the other Directors and thus qualify for commission payments each month. In the past I have let this accrue until the end of the financial year. I have then dropped it through to profit and taken it via dividend (alphabet arrangement for the higher payment to myself). The issue is that these commission payments are now starting to increase in value and the nature of our business means it is difficult to determine profit until year end. The other shareholders are not happy making extra dividend payments throughout the year.

I am looking to pay myself around 20K (which I need to live on), then pay monthly commission payments to pension (with employers NI added so extra 13.8%) and then, at the end of the year, take a general dividend (if we have made a profit). I was looking at splitting shares with spouse which is fine for final dividend but does not solve the commission issue.

I was thinking that the pension is quick and clean, allowing me to extract moneys owed as soon as they are due and in a tax efficient manner. I am thinking that, if I pay in to the pension for around 10 years, I can then retire and hopefully draw down with little tax to pay. I am looking to make a contribution of around 34k this financial year.

Thanks for your help.

dunstonh · 14 March 2018 at 3:21PM

Ideally I would take the salary down to the lower level as you suggest but it is all a little involved.Basically I am bringing in a far higher level of business than the other Directors and thus qualify for commission payments each month.

We were in the same situation. We had uneven income, pooled costs and individual costs (such as a director employed an assistant that only worked for him). So, trying to sort that within one structure was a pain.

How our accountant recommended it was each director had their own company and those companies had an equal share in the main company. Then each month, the earnings belonging to each director is paid to their holding company. This allows each director to decide their own methods of taking the money without impacting on the others and ensures each gets paid for their respective income without causing conflict. It also allowed directors to run individual costs through their own business whilst shared costs were put through the main business. It keeps it clean and avoids conflicts.

I have seen a number of companies fail because directors fell out over money/workload etc.

Personal Pension Plan or SIPP

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