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    • johnlucas2018
    • By johnlucas2018 15th Apr 18, 3:31 PM
    • 13Posts
    • 0Thanks
    Help needed - private pension plan or SIPP?
    • #1
    • 15th Apr 18, 3:31 PM
    Help needed - private pension plan or SIPP? 15th Apr 18 at 3:31 PM
    Please could I ask for some advice. This is my first post but I have been reading the forum with interest for a while.

    My wife and I (both aged 52) work in a private company. We have recently paid off the mortgage and have around 180K in cash savings. We do not however have any pensions. Our company run a NEST pension scheme for employees but also offer company payments to private pensions for managers. They will also add their employers national insurance. Most managers have opted for their own pensions rather than NEST and we are considering changing our pay to the following.

    Me: Current salary 42K - change this to 16K salary and 29588 pension (26K + Emp NI)
    Wife: Current salary 18K - change this to 12K salary and 6828 pension (6K + Emp NI)

    Whilst I understand the basics of investing and associated risks, etc. I am no expert and started by looking at simple products that i could just setup monthly payments and leave. In particular I was looking at the Aviva Pension with one of their ready made funds but only because I read in various places that Aviva were quite good, performance looked ok, and it all seemed very simple. However, my colleagues appear to be using SIPPs and suggested Hargreaves Lansdown and AJBell YouInvest. These seem to have lots of investment options that I probably would not need but I am wondering if this would be a better option than the private pension products. I have noticed a number of people on this forum suggesting a SIPP with a single fund like Vanguard Life Strategy and i wonder if this might be a better option. The fees all seem to be comparable

    Aviva - 0.45% base plus 0.3% for managed fund
    YouInvest - 0.25% base plus 0.22% for vanguard life strategy plus 1.50 per trade
    HL - 0.45% base plus 0.22% for vanguard life strategy (no trading fees for funds)

    Would be really interested to know what people are doing. Thanks for your help.
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    • Dox
    • By Dox 15th Apr 18, 3:52 PM
    • 1,205 Posts
    • 913 Thanks
    • #2
    • 15th Apr 18, 3:52 PM
    • #2
    • 15th Apr 18, 3:52 PM
    Just to avoid confusion further down the line...a SIPP (self invested personal pension) is a private pension. They are flavour of the month because of the flexible way in which you can access benefits from them. This might make useful reading:

    Remember that your wife's salary (post-sacrifice) cannot drop below the minimum wage level - and depending on the hours she is contracted to work, 12K looks a bit close to doing just that.
    • johnlucas2018
    • By johnlucas2018 15th Apr 18, 4:02 PM
    • 13 Posts
    • 0 Thanks
    • #3
    • 15th Apr 18, 4:02 PM
    • #3
    • 15th Apr 18, 4:02 PM
    Hi Dox,

    Thanks for the information.

    We did not think that wife's salary would be a problem being that this would be a direct company payment but, having just had a read around, you have raised a good point; the salary still has to meet the minimum wage after the pension payment.


    Would still be interested in peoples view on the SIPPs
    Last edited by johnlucas2018; 15-04-2018 at 4:49 PM.
    • DairyQueen
    • By DairyQueen 15th Apr 18, 9:00 PM
    • 719 Posts
    • 1,273 Thanks
    • #4
    • 15th Apr 18, 9:00 PM
    • #4
    • 15th Apr 18, 9:00 PM
    Just a few thoughts.

    You say that you and spouse are both 52 but have no pensions.

    1) Are you both on target to receive the max SP?
    2) At what age do each of you plan to retire?
    3) Have you calculated your required retirement income (your NUMBER)? Will your projected assets in retirement be sufficient?

    I mention this just to check that you have worked through retirement planning fundamentals and that the pension contributions you suggest will put you on track.

    There are a few points in your profile that suggest a SIPP may not be the best option for you at this stage.

    Understanding the principles of investing isn't the same as having sufficient knowledge to self-manage your entire pension fund. Also, your high level of cash savings (and lack of S&S in your 50s) suggest that you may have a low tolerance to risk.

    Equities are relatively volatile/high-risk and are therefore a medium/long-term investment (at least 5 years and, preferably, 10+). How would you feel if your pension pot dropped by 20%? Or 50%? Are you prepared to invest the time required to understand types of assets, diversification, etc.? Or research how individual funds are invested? Are you happy to take time assessing different platforms to identify the best for your needs?

    Asking yourself these kinds of questions will allow you to assess your attitude to risk and also whether a SIPP is the best option for you.

    I am no expert but I had dabbled with S&S investments on/off for a couple of decades (mostly blissfully ignorant of any rational strategy) before knuckling down and doing some serious research. I have been managing a SIPP portfolio for four years but it has only been intelligently (if I can use that word) invested for around a year. Once I realised the depth of my ignorance it took me around 6 months of serious research before I felt comfortable making any more investment decisions, and I only completed a major reallocation this January. I am, very belatedly, comfortable I know enough to self-manage.

    I now have a well-defined investment strategy. I know the timescales I am working toward. I understand my attitude to risk. I understand options for drawdown and the impact on tax. Allowances have been made for the first death. The strategy is sufficiently flexible to accommodate the timing of market falls and a range of future inflation.

    These factors (and others) are all relevant to an investment strategy and fund choice is the last step in implementing that strategy.

    Vanguard (and others with similar offerings) offer good trackers. A Lifestrategy fund is diversified and automatically rebalanced. The charges are low. They are popular as a one-stop solution for a broad spectrum of investment needs. If you were age 30, or 40, or had guaranteed DB pension and/or managed DCs, I think that a Vanguard Lifestrategy, or similar passive, could be a good one-fund fit for you. However I would think twice about putting all my eggs into a single equity/fixed interest tracker at age 52 and with zero other pensions to hedge the risk.

    I would also think twice about holding so much in cash. Cash is guaranteed to lose value thanks to inflation. A well-diversified S&S portfolio may go up/down like a yo-yo but the trend is likely to be upward over the medium/long-term. If you had a reasonable S&S portfolio/pensions then that chunk of cash may not be a problem but, minus that, I would transfer a reasonable amount into S&S ISAs over the next couple of tax years. Enough cash to meet 2 or 3 years expenses is commonly suggested. A really cautious person may hold 10 years (assuming they also have a reasonable S&S portfolio).

    Had you considered different types of pension for you and your wife initially? Say your wife opts for a SIPP and you opt for managed. You could then test the waters of self-management with your wife's SIPP and, perhaps, transfer your (bigger) pot to a SIPP when you know your retirement goals, have decided on an investment strategy to meet those goals, and are confident that self-management is the right approach for you.

    I use both HL and AJ Bell. Both have their merits depending on the size of your pot and your requirements of the platform. My portfolio is split 67% passive (core) / 33% active (peripheral). My core passives include Vanguard LifeStrategy but I also invest in actively managed funds to gain access to, for example, small companies, and also to weight my portfolio in certain sectors or regions.
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