Private pension? Late starter!

[mrpbailey]

I am trying to get my planning in place for later in life, and I know I have left it a bit late to get started! I am far from an expert in this field but have been doing a little bit of reading up on options.

I am currently 37, and have only been paying into a ‘pension’ for the past 18 months. (In my defence I have never had the option of a work place pension until now!). However, I know I should have started a private scheme many moons ago.

My current ‘pension’ is actually a ‘retirement savings plan’, but company match my 6% contributions, so 12% going in monthly. 6% is the maximum allowed. From research, the general feeling is that I should be contributing half my age, so at least18.5%. Is my best option to open a SIPP to top up an extra few percent?

I currently have a small amount in an ISA with Evestor, and have JISA’s for my 2 daughters in Vanguard LS80. I was looking at the Vanguard SIPP and it seems a good option? Is a LISA worth looking into?

I also have a BTL which is on an IO mortgage, with approx. 35% equity, (as well as a residential mortgage).

Any advice would be greatly appreciated. Is it worth me speaking to an IFA? If so, how do you identify a good one from any old Tom, Dick or Harry?

[xeny]

As well as considering a SIPP, look at if your work scheme offers you the option of additional contributions at a reasonable cost especially if you can pay in via salary sacrifice, potentially saving NI contribution costs.

If this is the case, evaluate AVC vs SIPP on investments available and overall cost/hassle to use,

[mrpbailey]

xeny said:

As well as considering a SIPP, look at if your work scheme offers you the option of additional contributions at a reasonable cost especially if you can pay in via salary sacrifice, potentially saving NI contribution costs.

If this is the case, evaluate AVC vs SIPP on investments available and overall cost/hassle to use,

Thanks, I will have a look of this is an option.
Annual fees of this scheme are 1.85%, which seems high compared to say the Vanguard SIPP?

[Slaav]

mrpbailey said:

Thanks, I will have a look of this is an option.
Annual fees of this scheme are 1.85%, which seems high compared to say the Vanguard SIPP?

Check that fee carefully. 1.85% is the sort of number you could expect to pay for a good fully advised offering.

Is there a company that has helped the company set the scheme up? Is there an advisor linked to the scheme that you can lean on with no cost to you initially? If so, pick their brains.

If there is no advisor, try and get a breakdown of the charges to see why it is up at that level.

If you need an advisor, ask friends and family - a referral is your best bet in my opinion. Word of mouth is very powerful.

[xeny]

mrpbailey said:

Thanks, I will have a look of this is an option.
Annual fees of this scheme are 1.85%, which seems high compared to say the Vanguard SIPP?

Seems high full stop - it might be worth looking at periodically transferring funds out to a SIPP unless there's a significant value add to justify those fees.

[mrpbailey]

The scheme is with Zurich international, in the IOM.
Fee is made up of:
0.55% plan admin fee
0.3% trustee admin fee
0.25% plan processing fee
0.75% plan investment advisor fee

The plan has returned about 10% since I started it less than 18 months ago.

[xeny]

Something to be aware of - a pension is a "wrapper" - the underlying investments provide the return, the wrapper gives you the tax benefits. Try and get in the habit of considering them separately.

To an extent the return over the past 18 months doesn't tell you much - what it is invested in, and how much control you have over those investments matters much more.

You may or may not have direct control over the investments, for example I can pick from a range of funds, Global equites, bonds, Ethical equities, Emerging Market Equities etc, I can't pick specific companies, but as a trade off my employer pays all the investment fees.

To quote https://www.telegraph.co.uk/financial-services/pen... - "An annual charge of 1–2% should be considered expensive."

We don't have the full details, but those kind of fees can eat the companies 6% contribution in only a few years compared to a cheaper fee structure, assuming equivalent investment returns, and as I said above, that depends on what the actual investment is in, not on how much you're paying to get it invested.

Is the management fee for the investments, the "plan investment advisor fee"?

[Chilly for June]

mrpbailey said:

The scheme is with Zurich international, in the IOM.
Fee is made up of:
0.55% plan admin fee
0.3% trustee admin fee
0.25% plan processing fee
0.75% plan investment advisor fee

The plan has returned about 10% since I started it less than 18 months ago.

To be fair it wouldn't of been difficult to return 10% with the Covid bounce most stocks have had over the last 12 months.

[xeny]

Indeed, vwrl, which I use as a comparison because at ~35 I'd hope for a fairly high equity mix in a pension portfolio has returned 17.7% over the last 18 months. The OP's investment may of course be more diversified - we don't know.

[mrpbailey]

Sorry for the slow reply.
I have just checked the transactions and the policy fee is at 1.85% per annum, 0.15% p/m.
Looking at the online portal, the biggest proportions of funds are 25% in ‘ishares Europe ex uk index fund’ and 25% ‘ishares USD index fund’.
There are then a few other 5 & 10% funds such as ‘JP Morgan’, ‘invesco Asia’ amongst others.

I believe I can change funds myself, but haven’t yet tried.
Current “annualised rate of return” (May 2020 - now) is showing as 21%, which seems decent?

[ATG]

Return is a function of risk taken and luck. A high return over a short period tells you very little about whether the fee structure is reasonable.

I'd be looking to drive the fees through the floor. Cheap passive funds for me every time and I'll pick the individual funds to give me the asset class, sectoral and regional diversification and exposure that I'm comfortable with. Really broad brush stuff. A chunk of super low risk fixed income Sterling. A chunk of blue chip UK equity. A chunk of US tech. A chunk of emerging market stock. Works for me.

A bit of professional advice up front to help you figure out a number of funds to invest in would probably be very useful. Once set up, there's no need to watch this stuff day to day or regularly tweak your contributions to the different funds. For example, my firm lets us tweak our fund choice once a year, unless there are some extenuating circumstances. As you approach retirement you'll want to gradually change the level of investment risk you're running, but at your age you're not going to need to make material changes for years.

[ATG]

P.S. I wouldn't be worried about being a "late starter". You've probably been earning for 15 years and you're likely to be working for the next 30 years during which time you'll almost certainly be paid significantly more than you were in your first 15 years. Just get used to chucking a fair slice of your income into pension/savings now and it'll start piling up. You'll quickly stop missing the foregone spending power and the confidence that comes from securing your financial future is liberating. The sums you need to have saved to produce a retirement income can seem daunting, but with 30 years in hand they are eminently achievable.

[mrpbailey]

Apologies for coming back to this thread so late, had a lot on and this got put on the backburner. Appreciate all the responses so far, very helpful.

I have been looking into it some more, and the main benefit that I failed to disclose, is that as the scheme is a savings plan rather than a pension, then I can withdraw the whole lump sum when the time comes, tax free.

I am a seafarer and do not pay any tax (all legal & above board!), but do pay class 1 NI. Therefore I wouldn't see any tax relief benefits on a normal pension scheme?

As someone above queried what funds I am invested in, I am on a default plan where risk is reduced the closer you get to NRA. I can pick & choose from 124 funds & change any time.
I am currently invested in the below:

Fund code	% invested	Last 12 months return (%)
BMGBP - ishares UK index fund inst acc	10	21.3
FCEUR - ishares Eur ex UK index inst acc	25	28.2
HOUSD - JP Morgan emerging markets equity fund inst acc	4	22.1
JEGBP - JPM Global Natural Resources IPP	5	36.7
JOUSD - Morgan Stanley Global property equity fund	15	24
XJUSD - ishares USD Index fund institutional acc	25	22.7
ZSUSD - Invesco Asian equity fund inc	5	27.7
2LUSD - Bgf Glb government bond A2 acc Ipp	11	-12

Would that be classed as a broad range? The investment with a loss is the only bonds I am in. The best performer I only have a small percentage in.
Would you be happy with the above funds or any advice on tweaks? Appreciate that it is only opinion not advice etc. I am certainly not averse to risk at this point, as (hopefully) still time to recover.

Thanks

Edited by mrpbailey on Thursday 17th June 02:07

Edited by mrpbailey on Thursday 17th June 02:08

[dingg]

Merchant seaman still benefit from the basic tax relief on payments into personal pensions

[Mr Pointy]

OP your situation does seem to have a couple of aspects which differ somewhat from the norm (tax-free status & savings plan not pension) so it's definately worth getting some advice. Have a look at the IM stickies at the top of this forum & maybe contact Nik for a chat (all it will cost you is an hour of your time).
https://www.pistonheads.com/gassing/topic.asp?h=0&...
https://www.pistonheads.com/gassing/topic.asp?h=0&...

I'd say you might want to look more closely at the performance of your savings plan as the charges do seem high. The past 18 months have been very volatile & it's easy to pick a timeframe that gives good figures but the more important results are over longer timeframes - five years or so. Of course there's nothing wrong with high(ish) charges if they are coupled with outstanding performance or detailed advice, but you don't seem to be getting the latter.

For most people there are three main elements:
Emergency fund - to cover big unexpected items like redundancy or the ship fails it's MOT & needs a new rudder
Pensions - money is locked away until retirement but has tax advantages on the way in & is outside your estate for IHT - is this true for your savings plan?
ISAs - this could be worth looking at for you. Most people pay into an ISA out of tax-paid income so £20k invested actually needs £25k to be earned (crude calculation) but it would only actually cost you £20k. The funds can accessed any time & the gains are all tax fee, although inside your estate for IHT.

The key issue is probably how well your savings plan is really performing for the level of charges (over the long term, not 12 months) & if there are any big advantages to it over a SIPP/personal pension.

[mrpbailey]

dingg said:

Merchant seaman still benefit from the basic tax relief on payments into personal pensions

That's good to know, thanks!

[mrpbailey]

Mr Pointy said:

OP your situation does seem to have a couple of aspects which differ somewhat from the norm (tax-free status & savings plan not pension) so it's definately worth getting some advice. Have a look at the IM stickies at the top of this forum & maybe contact Nik for a chat (all it will cost you is an hour of your time).
https://www.pistonheads.com/gassing/topic.asp?h=0&...
https://www.pistonheads.com/gassing/topic.asp?h=0&...

I'd say you might want to look more closely at the performance of your savings plan as the charges do seem high. The past 18 months have been very volatile & it's easy to pick a timeframe that gives good figures but the more important results are over longer timeframes - five years or so. Of course there's nothing wrong with high(ish) charges if they are coupled with outstanding performance or detailed advice, but you don't seem to be getting the latter.

For most people there are three main elements:
Emergency fund - to cover big unexpected items like redundancy or the ship fails it's MOT & needs a new rudder
Pensions - money is locked away until retirement but has tax advantages on the way in & is outside your estate for IHT - is this true for your savings plan?
ISAs - this could be worth looking at for you. Most people pay into an ISA out of tax-paid income so £20k invested actually needs £25k to be earned (crude calculation) but it would only actually cost you £20k. The funds can accessed any time & the gains are all tax fee, although inside your estate for IHT.

The key issue is probably how well your savings plan is really performing for the level of charges (over the long term, not 12 months) & if there are any big advantages to it over a SIPP/personal pension.

Thanks, and I will have a look at those IM threads. I was previously under the impression that IM were for the big investors mainly.

[xeny]

mrpbailey said:

Fund code	% invested	Last 12 months return (%)
BMGBP - ishares UK index fund inst acc	10	21.3
FCEUR - ishares Eur ex UK index inst acc	25	28.2
HOUSD - JP Morgan emerging markets equity fund inst acc	4	22.1
JEGBP - JPM Global Natural Resources IPP	5	36.7
JOUSD - Morgan Stanley Global property equity fund	15	24
XJUSD - ishares USD Index fund institutional acc	25	22.7
ZSUSD - Invesco Asian equity fund inc	5	27.7
2LUSD - Bgf Glb government bond A2 acc Ipp	11	-12

Would that be classed as a broad range? The investment with a loss is the only bonds I am in. The best performer I only have a small percentage in.
Would you be happy with the above funds or any advice on tweaks? Appreciate that it is only opinion not advice etc. I am certainly not averse to risk at this point, as (hopefully) still time to recover.

Several things, some somewhat simplified.

Firstly, and this is probably the most important thing to keep in mind is that a year is a crazily short term to try and compare investment performance over, especially as atypical a one as we've just experienced.

That's a reasonably diverse/broad range. It's a little UK heavy, but if you were to take a globe and colour in an area that you've got a fund covering, you've coloured in most of the planet.

The point of bonds in a portfolio is to move in opposition to equities, so when equities take a tumble the investor doesn't look at the headline number, scream in fear and sell everything at the bottom. Helpful when you're accumulating, and when you're taking money out. If you could look at a snapshot around March last year when everyone was panicking about COVID the numbers would look rather different.

In a few years think about how you want to run down the pension. The more equities you run in retirement, the odds are the better return, but the more volatility. Depending on your circumstances, the default risk reduction as you get nearer to NRA may suit you or not..

The point of a portfolio (rather than just owning one thing) is that over time different assets perform differently depending on circumstances. There's currently a run on demand for resources, so that's done well. An investor iooks at all the different possible investments and ideally wants a finger in each pie, but you only have 8 fingers, and some of them are inevitably smaller than others.

I'd suggest on your "to-do" list should be properly understanding the rules relating to seafarer pensions and what you can and can't do with them. That's not an exotic portfolio, it's pretty vanilla, but it would be worth your while seeing if there's a way you can take advantage of company contributions (because who doesn't like free money?) and periodically transfer to a firm/structure that offers lower costs.

[Mr Pointy]

mrpbailey said:

Thanks, and I will have a look at those IM threads. I was previously under the impression that IM were for the big investors mainly.

No, absolutely not. The initial aim is to provide information & guidance to any PH member whether or not you invest with them & Nik is the nominated contact for this. My pension contribution last year was £2880.

[theboss]

I would open a LISA just because the option will be removed when you are 40 so you may as well get one whilst you can.

Read the rules on withdrawals. If you already own property you won't qualify for the first time buyer condition so the money could be tied up until you're 60 with a penalty levied on early withdrawal.

I'm doing this and just treating it as additional retirement savings outside any pension.