Starting a pension in a SIPP

[conanius]

Hi Folks.

I am a director of my own company, and have been for the last couple of years. During this time, I have not been contributing into a Pension.

I have some previous Civil Service Pension (10.5 in the "Premium" Defined Benefit Scheme) and then I've got a small amount (Sub £50k) in two other workplace pensions (Held with Towers Watson and Legal & General Respectively).

I am trying to get my head around the best method of setting up a Pension for myself, and I just want to check I haven't made some huge confused step:

1) I can quite quickly and easily set up a SIPP with someone like Hargreaves Lansdown. I'm not after something that I need to spend hours each week reading the FT, and as such they have funds I can pick from to make the overhead a little easier.

2) I can transfer in my Towers Watson and Legal & General holdings into this SIPP

3) I can "simply" pay money each month from my company account into the SIPP. I can do this as 100% company contribution with zero matching from myself. My accountant will deal with what this means at the end of the year, but it appears to be tax efficient as can be put against things like Corporation Tax.

4) Miracles happen, and if I contribute enough over the next many decades, this concept called retirement might exist. I'll get some choice in how I do the drawdown and when (Ideally 65 or earlier, ideally making use of the 25% tax free lump sum if it still exists, ideally buying a joint annunity so it covers me and my wife.

Is that broadly correct?

[xeny]

1) To an extent picking funds is simply transferring the problem of picking shares. Consider things like broad equity trackers (google VWRL as an example) if you've no opinions going in to this. Look very hard at minimising fees when picking the SIPP provider.

4) Annuity rates are so low you may want to consider draw down rather than buying an annuity.

[trickywoo]

3) The annual limit is currently £40k which can be entirely offset against profit for corporation tax purposes. In addition as long as a pension has been in place you can carry forward up to three years worth of contributions.

I have a feeling these pension ‘benefits’ may be changed for the worse as the government tries to pay for Covid so well worth considering the situation now being as good as it gets.

[conanius]

Thanks for the replies folks - sorry if I've been a bit thick.

xeny said:

1) To an extent picking funds is simply transferring the problem of picking shares. Consider things like broad equity trackers (google VWRL as an example) if you've no opinions going in to this. Look very hard at minimising fees when picking the SIPP provider.

4) Annuity rates are so low you may want to consider draw down rather than buying an annuity.

Thats for the tip, will read about them. HL appeared OK as did AJ Bell when looking at SIPP fees.

I won't be retiring for ~25-30 years, but fair comment on draw down.

trickywoo said:

3) The annual limit is currently £40k which can be entirely offset against profit for corporation tax purposes. In addition as long as a pension has been in place you can carry forward up to three years worth of contributions.

I have a feeling these pension ‘benefits’ may be changed for the worse as the government tries to pay for Covid so well worth considering the situation now being as good as it gets.

Yeah, I think in honesty we all need to take the rough with the smooth on Covid. I'd have wanted the absolutely huge handouts if I had been eligible and impacted, so any loss accepted really.

[cloud_dog]

Depending on the amounts involved you may be better off looking at a fixed price provider, i.e. II, etc, rather than percentage.

If percentage based then Vanguard are cheaper at 0.15% platform fee, although a fairly limited but acceptable range of funds, or Fidelity 0.35%. You could download MSE SnowMan's excellent spreadsheet for comparing platform charges:
https://forums.moneysavingexpert.com/discussion/55...

Before transferring it is also worth finding out what the charges are on your existing pensions as they may be very competitive.

[CarlosFandango11]

conanius said:

I won't be retiring for ~25-30 years, but fair comment on draw down.

It’s not an a binary option of an annuity or drawn down. You can take an annuity from part of your fund, and draw down from the rest when required.

Ie. Use your state pension, DB scheme and an annuity for a guaranteed minimum monthly income, and the draw down as and when you need additional cash.

[Mr Pointy]

conanius said:

Thanks for the replies folks - sorry if I've been a bit thick.

Thats for the tip, will read about them. HL appeared OK as did AJ Bell when looking at SIPP fees.

I won't be retiring for ~25-30 years, but fair comment on draw down.

Fees have a very significant effect over the timescle that you are talking about so you need to sure you are getting good value. Whilst HL have built a good user experience you need to realise you are paying a platform fee of 0.45% of your total pot every year just for this. On top of that are the individual fund fees which vary but can be in excess of 1%. For your 1.45% you're not even getting Advice - every communication you see has "this is not Advice" included. Over 30 years fees can easily cost you hundreds of thousands pounds & are not always (rarely?) justified in outperformance.

Look at the IM sticky thread at the top of the Finance forum & consider emailing Nik for a chat - it's all free with zero obligation. He'll be able to talk you through all of your options & not just with any pension questions. As you have probably realised if you're making contributions as a PSC director than this is very tax efficient.

[cloud_dog]

conanius said:

Thanks for the replies folks - sorry if I've been a bit thick.

The fact that you know you need to ask questions means that is not true

Have you tried the usual places to gain an understanding of investing:

Monevator.com (https://monevator.com)

I also found Lars Kroijer to be a very useful resource. His book 'Investing Demystified' is well worth a read. He also has a YouTube channel, if you prefer to consume your information via that method (https://www.youtube.com/channel/UC1RYKuzT6ic2KYCKWQsScDw)

[chip*]

OP, re:1, to minimise cost, its worth considering ii which is a budget investment platform starting with a monthly fee of £10 (free for 6 months on new SiPP account). I recently moved my self-managed portfolio from HL to ii, and it's obvious the website and app is basic and nowhere as slick as HL, but they are fully functional. Customer service appear knowledgeable and dealt with my queries swiftly on the few occasions I contacted them.

https://www.ii.co.uk/ii-accounts/sipp

Fixed fee platform may initially appear expensive for a small portfolio, but as your portfolio grows (and you intend to save regularly + over 25 odd years of growth), you will quickly hit the crossover point and all future investment will be free of platform fees i. e. you only pay the investment fund fee + fund transaction cost.

Also more importantly, ii gives you full market access just like HL, so you have a wide choice of investment firms and products.

There is another budget platform iWeb which is used by other forum members, but I haven't used them myself so can't comment on their service or website (I just can't believe how they stay in business with their cheap fees!).

Edited by chip* on Thursday 31st December 13:04

[cloud_dog]

chip* said:

There is another budget platform iWeb which is used by other forum members, but I haven't used them myself so can't comment on their service or website (I just can't believe how they stay in business with their cheap fees!).

Just for info, iWeb are increasing their joining fee from £25 to £100 as of tomorrow, I believe). For a buy and hold S&S ISA, with irregular (lump sum) investments they are difficult to beat, i.e. £5 transaction charge and no ongoing charge. Very basic site/functionality but probably the best option for a lump sum buy and hold strategy.

IF the OP was comfortable with EFTs (stocks and ITs), as opposed to OIECs/funds then, Fidelity and AJ Bell are well worth investigating. Fidelity platform fee for non-OIECs is £45pa plus any transaction charges (£10 ad-hoc and £1.50 regular), so needs to born in mind, and similarly AJ Bell/YouInvest platform fee for non-OIECs is £100pa plus any transaction charges (£9.95 ad-hoc and £1.50 regular). I think I may have seen notification that either Fidelity or AJ Bell (or possibly both) are revising their charges which may mean a slight increase.

[conanius]

Thanks for all the feedback.

After chatting to a few friends who have used some of the listed services, I've gone for AJ Bell.

Thanks for the tip on checking my current providers costs - I hadn't done that ! - but this does appear to be cheaper.