Pension Advice - Fund Manager or SIPP

[Guvernator]

Right, now that I'm middle aged I've decided I should probably start a pension.

I've not really felt the need before as I've hardly ever heard good things about them and I'm making arrangements elsewhere to secure an income for my retirement. However I've been reliably informed by a few people that since I now own a business, a pension is a very efficient way to withdraw surplus funds from the company without getting knocked by the tax man. I've probably left it a bit late to build up a decent pot but I plan to transfer a decent amount each year so as long as the pension doesn't do terribly, it will be an small additional income steam.

However I've spoken to a few pension advisor's and it seems to be a bit of a minefield. The costs don't seem to add up with them talking about transfer fee's, advice fees, commission etc which seems to eat up most of what I'd hope to gain in returns.

So is this the norm when starting a pension or would I be better off with a SIPP. I've not really got the time or don't want to take on the hassle of managing my own pension but if it's going to mean I get to keep more of my money for myself rather than paying someone else to look after it for me I'll consider it. Anyone whose done similar or any advice welcome.

[Guvernator]

gibbon said:

SIPP if you want to get involved and control yourself, doesnt have to cost a lot at all.

I use Hargreaves Lansdown.

When you say get involved and control yourself, how much work does this actually involve? I'd rather be working on earning and developing my business rather than worrying about whether I've invested in the right funds. Ideally I'd want someone else to do it for me but they all seem intent on taking my trousers down with their fees. Can I use someone like HL and just invest and forget for a while and then review once or twice a year?

[Guvernator]

Jockman said:

A SIPP is just a Pension Wrapper - as is a SSAS - and they're useful for doing different things with your money.

If you want to keep it simple, stick to a Personal Pension PP through your Company but remember if you want to run it passively then you'll need to pay someone at some stage to review it and to check that it still meets your needs / goals / ambitions.

Ideally this is what I'd like to do. I don't mind paying for advice but the fees I've seen for 3 different providers look excessive. I have no pension to transfer so most want me to pay an up front fee, then charge me commission for what I invest. I'm a pessimist when it comes to pension investments, if I see a 5% return a year I'll deem that to be a good year but most of that would be wiped out by fees\commission so what's the point?

[Guvernator]

Jockman said:

You are aware that the contribution will attract 20% tax relief if made by the company? So, if (cashflow permitting) you banged in the full £40k Allowance you will knock £8k off your corp tax bill. I'm assuming you are limited, apologies if incorrect.

Yes I am Ltd so the tax relief is probably the biggest attraction but I'd also be hoping that after 20-25 years I'd be get something back too. Being a pessimist though with the average annual growth of pensions funds at less than 5%, I don't see how paying someone 2-3% for advice, management fees etc really works. That would leave you with growth of less than 2% and I'd be better off investing it elsewhere albeit without the tax relief.

[Guvernator]

sidicks said:

- The HL fees are around 0.5% or less (from memory) depending on the size of your investment.
- Ongoing investment management fees should be between 0.2% and 1.5% depending on the type of assets you are considering
- upfront advice should be a one-off, although there may be a (smaller) ongoing fee for portfolio monitoring and an annual review

What actually has been proposed?

Up front costs seem to vary anywhere from £500 to £1500. Then ongoing managements costs of around 1% plus investment fees as you mentioned anywhere between 0.2 to 1.5. Most also want an additional fee as I'm not transfering over a pension so that's either another one off cost or an additional percentage until I've built up a big enough pot.

At best we are looking at 1.5% and at worst 3% plus the one off fee. That's all of your first few years growth wiped out by my calculations, just seems a bit excessive and I've asked several. Even the so called cheapest didn't seem that cheap. Who would invest in a pension if you'd be better off just sticking it in a high interest account or investing in far less risky guilts and bonds? I keep thinking I must be missing something but the numbers just don't seem to add up for pensions?

[Guvernator]

Jockman said:

Remember you will pay tax on extraction but 25% of your entire pot may see no tax at all.

Would you be interested in putting your commercial property in a SIPP? Is your wife a Shareholder and Director of the company?

ATG - Don't necessarily want to go for low risk assets as I figure I can afford to be a little bit risky in the first few years at least, just don't fancy having all my initial growth potential eroded by fees.

Jockman - Don't worry, I don't envisage having enough of a pension pot to worry unduly about paying too much tax in retirement.

Don't have any commercial property at present but this is definitely something on the cards in the future although I'd probably prefer to keep that separate from any kind of SIPP. Wife is a minority shareholder but not a director, don't want to give her that much control

[Guvernator]

Ozzie Osmond said:

* SIPP

• Hargreaves Lansdown or Fidelity
• Don't pay for advice (unless you really think you need it. Both of the above provide lots of free information on their websites.)
• Pick some mainstream funds (spread your risk) and hold tight for the ride!

To be honest I am veering towards this. Seems simple to setup and if you pick a few of the popular funds you might not get the growth of an actively managed fund but you are unlikely to get majorly burnt either and in the unlikely event that you you do, it will be financial meltdown anyway and everyone else will be in the same boat.

[Guvernator]

Ozzie Osmond said:

^^ Yes, that's the way I see it.

I've always been entertained by "investment advice",

• Things go up - advisor points out how much value has been added by his expertise.
• Things go down - advisor says it's all due to unpredictable markets and negative sentiment...

In your situation Tracker funds are probably worth a look amongst your other choices.

In choosing funds it's worth checking across several sources to see how they rate them. I have found Morningstar particularly useful for this,
http://www.morningstar.co.uk/uk/funds/default.aspx

Great site, thank you very much, that's the afternoon productivity out the window!

[Guvernator]

Thanks JulianPH, that is a great summary. Interesting to see that HL aren't actually as cheap as one would be led to believe. I find it a bit annoying that there are "hidden" charges everywhere or so it seems. "We only charge 0.5% but don't forget this doodad which is another 1% and the thingamybob that is another 0.75%". Just tell me what I'm going to pay you in TOTAL ffs.

The whole pensions\investment arena seems to be purposely designed to catch out the unwary. I shouldn't need to be reading through pages of research to set up a relatively simple pension!

[Guvernator]

sidicks said:

As explained above, different services have different charges made to different people. The total charge will depend on a range of factors.

Yep I get that but it should be easier to understand. I had no idea what platform costs where until a few days ago. I understand them a bit more now but why am I paying those or if I have to, why am I exposed to that side of it? Why are they all different etc. It's like me telling my clients how much it costs me to buy something from a 3rd party supplier for them. Surely that's not relevant, what is relevant is how much they will pay me for the entire service in total.

I realise their are probably some regulations around total visibility etc but I think it makes things more complicated. I don't need to know about platform costs, dealing costs etc. Give me a total cost I'll be paying so I can compare it to other services and what they offer. Failing that it should be possible to give a fairly accurate percentage figure for the total service based on a few simple questions. More often than not though I am getting the answer "it depends" or a list as long as your arm of various percentage charges. I like to think I'm a reasonably intelligent person, I'm even not too bad at maths but I don't get that warm fuzzy feeling when speaking to a lot of advisor's that they are really explaining how much it's all going to cost me.

[Guvernator]

JulianPH said:

You are, of course, 100% correct. Unfortunately the Financial Conduct Authority decided (with their infinite wisdom) that you want really want is a breakdown of each and every fee element (advice fees/platform fees/dealing fees/custody fees/investment management fees/ additional investment management expenses/SIPP fees/etc.) rather than a price for the whole service/product.

Remember, they know what is better for you than anyone else...

So the industry is now forced to price this way. Of course there is nothing stopping the industry adding all of this up and giving you the total, but that would generally show how sodding expensive it all is!

It is like M&S having to give you a breakdown of every element of costs when you hand the jumper/sandwich/whatever over at the till. You (and I, and everyone else) don't care!

Tip - the best value always comes from providers/advisers that give the the complete cost. They often look more expensive than those that quote only their own headline fees (such as Hargreaves Lansdown) and omit all other costs, but when you look into things in more detail you see these are actually the best value (unfortunately most people don't look past the headline rate though).

Thank you, much more eloquently put then I but it's nail on head. I can fully understand the thinking behind why the FCA might want total opacity as far too much of the financial sector seems a bit smoke and mirrors to a lot of people but I'm not sure the solution they've come up with is any better. We've gone from total obfuscation to information overload.

Let's just say I've learnt more about investing and pensions in the last 2 days then I ever thought I'd want to know. Mildly interesting and I always like to know at least a little bit about something before sticking my hard earned in it but I could have spent that time doing something a bit more productive in line with my real work.

[Guvernator]

Some interesting points raised fella's. Firstly I'm over 40 so don't qualify for a lifetime ISA so unfortunately that's off the cards. I am aware I need to make provision for my retirement if I don't want to be destitute, however as others have stated I've never been completely comfortable with pensions due to the "political football" nature of it. My answer to this is that I won't put all my eggs in one basket and the pension will only one part of my retirement planning.

I own a Ltd company so there are some big tax advantages to having a pension through the company, this more than anything has led me to start looking at them. If I was paying for it privately I probably wouldn't bother at all.

Speaking of political footballs, many of the advisor's I spoke to wanted to include the state pension into their calculations, probably because it's an easy way to make the figures look better. I pretty much sacked those advisors off straight away as I suspect by the time I get to retirement age there will either be no state pension or the age at which you get it will be so high that it will be an irrelevance anyway. If I as a layman know this then I'd expect a pension advisor to know this too and not try to massage the figures by adding the state pension into the equation.

[Guvernator]

Jockman said:

The state pension is taxable just like your other pensions and it may tip you over into a higher bracket.

It can also affect the offerings of pension companies when they set out your options in due course.

That's assuming you'll get one. Given the current mess the UK pensions pot is in not the mention the countries finances overall, I can't help but think by the time I retire, state pension age will be 75+ and mostly irrelevant to me as I'll probably be dead by then.

[Guvernator]

Jockman said:

Stay positive Get your forecast - £155 per week seems ok. Especially if you've never paid any NI.

https://www.tax.service.gov.uk/checkmystatepension

You should know your state pension age by now.

I've paid plenty of NI and yes my retirement age is supposed to be 67 but I'm not convinced the goalposts won't be moved many many times by the time I get to that age due to the massive pension hole we are in i.e. there's no guarantee it will stay at 67.