[Paul B]

Sorry for the extremely boring topics of late. However, each year at work I have a limited window in which to pick my flexible benefits (this year it closes on 8/12). Apart from 'buying' the maximum amount of leave possible (without looking at the number which is hugely upsetting on wasted days out) I've largely left this as standard but for some reason or another this year I decided to read about pensions a bit (which left me a bit  ). Looking at the money advice service online was also depressing...

Currently I pay in 4.5% which my employer matches (they'll do this up to 7% (14% total)).

Moneysaving expert suggests that you should be contributing roughly the percentage of half your age when the pension began. For me this is around 29 so the maximum contribution looks sensible. However, I've got a mortgage to pay off. Currently the interest rate on this is fairly low (although not as low as it could be as it was fixed a few years ago) and we take every opportunity we can to overpay. Given the reasonable house prices in Lancs. being mortgage free at some point in life doesn't look like an absurd concept (which is nice).

Given UKB seems to have a number of speciailists and people who I view as financially savvy how do you strike the balance between importance of these things?

[abarro81]

Whilst people who know about shit like money are here, and since I'm belatedly entering the world of earning money rather than doing a PhD, I'll ask an add-on question... Beyond what your employer will match your contributions up to, are you generally better off sticking extra money in your pension or in a separate fund? (Presuming you can deal with not accessing the money until retirement)
Or should I just convince shark to sponsor me and give me a big fat retainer

[Paul B]

Viewed in those simple terms it is a no-brainer.

But that's clearly not the end of the analysis. You might then want to consider issues like: how much do you trust investing in financial markets? can you tolerate waiting until pension age before you can access your savings? etc

Thanks. I expected it wasn't going to be that straightforward (the MSE article is long), however, additional money from an empolyer can't be a bad thing! The benefits tool online gives you a figure of "what it'll cost you per month", which can be a bit eye-watering when bumping leave up to 45 days total (includes bank hols. and enforced days before anyone sprays coffee everywhere); the same applied to bumping from 4.5% to 7% and put me off last year.

With respect to markets i.e. I'm fairly naive financially.

Barrows is being born into a mortgage free life which is upsetting to say the least.

[abarro81]

Are you thinking a stocks and shares ISA or just a cash one? I have a cash one with some money in but the interest rate is pretty junk

[tomtom]

Retirement age will be 90 by the time you get near your pension Paul

More seriously - the whole austerity belt tightening shit that's been going on for the last 9 years will lead to some huge gaps in people's pensions. And how poorly many of the funds have performed. Why many people look at buy to let as their pension...

[Paul B]

The former. A cash ISA is almost totally pointless.

There was a useful Radio 5 MSE podcast on this fairly recently Barros.

Retirement age will be 90 by the time you get near your pension Paul

Quite probably - the online government tool won't let you set it lower than 55!

[shark]

Maybe a mix of ISA and pension is sensible?

Yes. ISA's are effectively taxed on the way in (insofar as your earnings are taxed) but you can withdraw from ISAs tax free whilst pensions are tax free on the way in (insofar as pension contributions are income tax deductible) but drawings on the way out are taxed.

So when retired your state pension and private pension could use up your tax allowances (whatever they might be by then) and the earnings or drawdown from your ISA would be untaxed.

[shark]

Retirement age will be 90 by the time you get near your pension Paul

More seriously - the whole austerity belt tightening shit that's been going on for the last 9 years will lead to some huge gaps in people's pensions. And how poorly many of the funds have performed. Why many people look at buy to let as their pension...

Funds have many hidden costs and disadvantages and apart from a few notable exceptions don't do well decade in, decade out. Fund Managers get lucky and unlucky and come and go. Picking a fund on the basis of its performance over the last five years is not a good idea. A low cost tracker with dividends reinvested would be a more transparent option than an active fund. With a low cost tracker the known, known of costs will be minimised.

[webbo]

Having returned to paid employment I was enrolled in the Nest scheme. They deducted £2.79 off me. How many years would contributions at that rate take to be worth more than a few fuck alls.

[Doylo]

Aren't Private pensions just shit these days though?

[shark]

Aren't Private pensions just shit these days though?

Certainly they are not as good as a final salary pension scheme which is becoming pretty rare outside the public sector now as they are unaffordable for companies as retirees are awkwardly living too long.

However, private pensions still offer a good incentive to invest ie you get a 20% to 40% reduction on contributions depending on your tax status so that's not shit. Also if you set up a low cost SIPP then you have the flexibility of using the money to invest in pretty much whatever you want so that's not shit either. If your employer is prepared to add even more than that's also not shit though you may have to be part of their scheme

[Doylo]

Cheers Shark. My old king wants to give me a decent wedge of cash but he says he'll only stick it in a pension. Need to get on it.

[shark]

Cheers Shark. My old king wants to give me a decent wedge of cash but he says he'll only stick it in a pension. Need to get on it.

Old King? Googled it and can only find Old King Clancy! 

If its your dad then he could give you the money so you could put it in a SIPP which means that unlike a stocks and shares ISA you can't get your grubby hands on it till your 55 and the SIPP provider will add the tax relief at basic rate. If a higher rate tax payer you claim the extra back as an allowance on your annual tax return to reduce your tax bill (thousands of people dont!).

In the SIPP put the money in a FTSE100 tracker or similar rather than blowing it all on Lagerstarfish Enterprises PLC   

[Doylo]

I've just read up on the SIPPs though and it says they're best suited to people who know a bit about investments etc...

[shark]

I've just read up on the SIPPs though and it says they're best suited to people who know a bit about investments etc...

The great and good  investment community would have you believe its all very complicated and your financial affairs need to be managed by experts. The only adviser who truly has your interests at heart is yourself. A SIPP is simply a pension managed by yourself. You can invest recklessly or conservatively the choice is yours. A tracker of the FTSE 100 with dividends reinvested is a reasonable choice for a novice investor. If you want an actively managed fund with low charges look at "Fundsmith". Talk to Pete about it.

[lagerstarfish]

Barrows is being born into a mortgage free life which is upsetting to say the least.

he's a fool if he ignores the investment opportunity that is a cheap British mortgage

[shark]

Barrows is being born into a mortgage free life which is upsetting to say the least.

he's a fool if he ignores the investment opportunity that is a cheap British mortgage

Has he been gifted a house? If so he can still raise a mortgage against it and go knee barring around the world with tenants paying the interest. He don't need no retainer from me.

[abarro81]

Not been gifted a house unfortunately, though I'll happily have one of yours if you've got too many...

Will look up about SIPP and trackers, cheers, need to start thinking about this shit now I'm getting old

[Paul B]

Report back with your conclusions please.

If only there was way to see how you'd do managing this kind of thing. A bit like where online casinos allow you to pretend at gambling to lure you in.

[slackline]

I'll be taking advantage of the forthcoming new Lifetime ISAs when they launch in April 2017 in addition to my pension.

25% return on the money you put buy seems a pretty good deal if its honoured, and could be more if opting for shares LISA as the money will be invested for some time and should provide a positive return (from what I've read the 25% is paid purely on what you put in, interest/return on investment is separate).  Obvious downside being that its tied up for a minimum of 20 years as you can't access it until your 60 without sacrificing the benefits, but when you do its tax free unlike pensions.

[kingholmesy]

I've just received my annual pension statement from my previous employer and depressingly the value of my fund has fallen by over a £1k in the last year.

Anyway, I also noticed that it has an annual management fee of 0.58%.  Is this about normal?

Should I leave the money where it is, or transfer it into my current employer's scheme?  Both are defined contribution schemes (not sure what the management fee is with my current employer's scheme).

[Ali]

Just to add to Sharks comment on the tax treatment of pensions v ISAs: As he says, ISAs are taxed on the way in and pensions on the way out so if you pay the same tax rate all your life then they would be financially equal. However most people have lower incomes in retirement than when working so may move from being a higher rate tax payer to a basic rate payer or from basic rate to having some tax free allowance unused. In this case pensions win out. And if you are getting matched contributions from your employer that's doubling your money for free and (except in some unusual circumstances) seems a no -brainer,  as said before.
There are also the less tangible pros and cons, in particular the lack of flexibility of pensions. They can't currently be accessed before 55 and there are some proposals to link this age to state pension age minus 10yrs. If this happens then it could affect anyone under about mid 40's now and mean they had to wait even longer. So if you want to early retire best have some other investments, probably in ISAs. There are also risks of future governments changing rules of either pensions or ISAs or changing tax rates,  all of which can't be predicted but tips the balance slightly towards ISAs as you are not tied in til retirement.
The lack of flexibility could be considered a benefit if you think you may lack the self discipline not to raid your savings at some point! Also pensions savings are not taken into consideration if you need to apply for benefits in the future.

[Teaboy]

The choice seems to be sacrifice 60p of your take home pay and knock 60p off the capital of your mortgage or sacrifice 60p and have £2 paid into a pension fund (I'm not sure if that's the same if you are a lower rate tax payer as not sure if NI is deducted).

Things to bare in mind is you'll still have to pay tax on whatever income you draw down in the future except 25% is tax free.

[Ali]

Good point on the 25% tax free, I'd forgotten that in my post.

If anyone wants to make a start on learning about investing Tim Hale's book "Smarter Investing, Simpler Decisions" is quite widely recommended and I found it useful. Monevator.com is a good website about investing, tending to feature strategies based on passive investment, low costs and diversification. They did a series of videos fairly recently about getting started.

[shark]

I've just received my annual pension statement from my previous employer and depressingly the value of my fund has fallen by over a £1k in the last year.

Anyway, I also noticed that it has an annual management fee of 0.58%.  Is this about normal?

Should I leave the money where it is, or transfer it into my current employer's scheme?  Both are defined contribution schemes (not sure what the management fee is with my current employer's scheme).

You'd need to take proper advice on that.

Re the point about management fee that is only one part of the cost - there are usually lots of hidden internal management costs that are not obvious

[Johnny Brown]

Just had a letter from The Pensions Regulator saying we need to set up a pensions scheme. As directors, the employees are ourselves. Any idea where to start, or who might be trustworthy to help choose?

[Tommy]

I predict a PPI timebomb as thousands of us get bombarded by shit firms selling us shit pensions we never wanted anyway. I'm sticking my head in the sand for the moment and will opt for something that looks incredibly boring when I'm forced to.

[Ru]

Pensions are generally worthwhile if you are a higher rate tax payer or your employer makes contributions.

Paying down a mortgage is worthwhile as part of your strategy - essentially it's a 3% (or whatever your mortgage rate is) fixed rate investment.

Whilst I agree that investment funds can have high costs, many still do much better than the whole market even after costs. Funds are generally focussed on an investment area - e.g. UK companies, American companies, Smaller companies, Emerging Markets etc. This means that when one of those areas is doing badly, so will the fund, generally speaking, no matter how good the manager. Therefore you need to invest in a range of funds.

The most sound general advice is to spread your bets. Use a pension if your employer will match inputs, pay down some of your mortgage. Put some in a shares ISA so that you have an accessible cash fund if you need it.

[slackline]

Put some in a shares ISA so that you have an accessible cash fund if you need it.

If you know you won't need it and are young enough (or are a first time buyer) the forthcoming LISAs seem a good deal to me.  I'll be taking one out in April as I qualify (just).

[Bubba]

Just invest in Bitcoin. What could possibly go wrong

[Tommy]

Slackers you're quite right. No brainier that one.

It is just a form of helicopter money though... just a bit back door. I bet the public won't see it that way though and hence won't make a fuss about yet more QE.

[Johnny Brown]

Yes the LISA sounds like a great deal, unfortunately it's not going to get the man off my back.

[chris j]

Just had a letter from The Pensions Regulator saying we need to set up a pensions scheme. As directors, the employees are ourselves. Any idea where to start, or who might be trustworthy to help choose?

I presume as you're talking about directors, you're a limited company? If the only employees are directors, the company should be able to opt out from the workplace pension scheme (presuming you don't want to set up a workplace pension?).

This is what my accountant sent me last summer:

"As things currently stand you are under a legal obligation to set up an auto-enrolment scheme by your specified staging date. It is possible for you to apply for exemption if you meet one of the following two conditions:

‘The only people working for the company are directors and none of them has an employment contract’

‘The only people working for the company are directors and only one of them has an employment contract’ "

The accountant then dealt with the pensions regulator and I haven't heard from them again. Don't know if this is any help?

[Catcheemonkey]

You'll have received this letter as part of the government's pension Auto-Enrolment roll out. I've  set up a couple of these schemes and it's pretty easy for small companies to remain compliant: employer contribution rates are low (initially a minimum of 1% of salary) and you can use the government NEST scheme if you don't want the hassle or expense of selecting another provider.

Most importantly, if the Directors / employees aren't interested then they can immediately un-enrol. Depending on the set-up of the business, you may have to register an auto-enrolment scheme before you can do this. Best to take some professional advice if this is the approach you plan to take.


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[Catcheemonkey]

Also - I should have said, if the directors are the only employees and they don't have contracts and aren't paid through PAYE then you won't need to enrol - see  www.thepensionsregulator.gov.uk/en/employers/what-if-i-dont-have-any-staff.aspx


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[Offwidth]

Funds have many hidden costs and disadvantages and apart from a few notable exceptions don't do well decade in, decade out. Fund Managers get lucky and unlucky and come and go. Picking a fund on the basis of its performance over the last five years is not a good idea. A low cost tracker with dividends reinvested would be a more transparent option than an active fund. With a low cost tracker the known, known of costs will be minimised.

I'm not so sure about that. We have a local not for profit broker whos fairly broad recommendations I've followed with very little adjustment (they give cheap access to Cofunds and Fidelity). My investments have worked out pretty well despite the 2008 crash. Partly I think people get ripped off on fees and quality unless they shop around and partly that people forget dividend payments make a significant difference over the years. Some trackers are a rip off as well if you don't get the dividident income.

My house has been a poorer investment but cheap in repairs and climbing time used up, so Im happy.

My work pension has been good but would be a lot worse if I was 5 years younger.

Its like the students I teach are unaware how badly their chances have declined as they head to professional roles. They have a 50k+ debt I had a grant, free fees and a graduate apprentice linked vacation job (a scheme removed by Maggie)

[Offwidth]

Just invest in Bitcoin. What could possibly go wrong

If I'd listened to friends when I first heard that I'd be worth many millions now. I had the spare cash but my sense of  risks and prospects turned out very wrong.

[GraemeA]

Also - I should have said, if the directors are the only employees and they don't have contracts and aren't paid through PAYE then you won't need to enrol - see  www.thepensionsregulator.gov.uk/en/employers/what-if-i-dont-have-any-staff.aspx


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I assume that the directors of JB's company get paid the amazing amount of £11,000 PAYE and the rest on dividend. I also assume that they pay higher rate tax. In which case it is worth enrolling as there is a slight tax benefit (higher rate relief on top of the basic rate relief) plus the employer's contributions are deductible from your corp tax (I think). But it's pretty low return for quite a bit of hassle plus if you screw up you get jumped on by the Regulator.

We used NEST at the Works but we have 20 ish employees so had to do it anyway, so me, Sam and Percy enrolled. But not sure whether the hassle is worth it for you guys.

The NEST Pension seems like a fairly conservative fund although they do have various options if you want to be a bit adventurous, including an Ethical Fund although as Nestle is in that portfolio I would question how ethical it is in reality.

[Johnny Brown]

Thanks guys, all helpful advice. I don't have any pension/ savings so this is probably a good reason to start.

I also assume that they pay higher rate tax

AHAHAHAHAHA. In my dreams. In the wrong game obviously.

[GraemeA]

Thanks guys, all helpful advice. I don't have any pension/ savings so this is probably a good reason to start.

I also assume that they pay higher rate tax

AHAHAHAHAHA. In my dreams. In the wrong game obviously.

I was basing my assumption of the cost of Gibb's T5 

[Johnny Brown]

I'm no type surprised! It's a good job I do the accounts or I'd be convinced he was rinsing me.

[Johnny Brown]

So about 11 months ago I finally started a pension with a lump sum plus monthly payments since. Performance has been disappointing, presumably this is the same for all but without any longer term gains behind me it feels like pissing the serious cash I've ever had straight down the drain. Looking like I may have the potential to put another lump sum in before year end, but that's not hugely attractive given the short term outlook.

Any better ideas? Or soothing words of long term wisdom?

[SA Chris]

Buy premium bonds?

[T_B]

Tax free savings innit. Retire. Spend lump sum on gite in Font

[Ru]

They always say never try and time the market. That said, right now we do seem on the verge of potentially a big downturn. The risk is that the downturn will come in a year or so and there might be a rally before then. So you might sit it out for a year and miss all the upside, decide that the risk of a downturn has been overstated, invest and then get hit. Or never invest at all.

The best way to mitigate between the two is not invest in big lumps, but rather continue with monthly payments. That way you keep buying as the price drops but don't don't gain as much when they go up. You could sit on the cash and increase your monthly payments or stick a load in the mortgage.

[Johnny Brown]

Thanks, that's useful. I remember Coinbase giving me the same advice when I bought my first bitcoin...

At the moment the money exists as company profit rather than pay. So paying a lump sum into the pension is tax-free for me and also reduces the company tax liability.

[abarro81]

I know nothing about finance, but I'd always thought that part of the safety of pensions was that they're drip-fed rather than fed by lump sums...
- If the stock market does well then your initial money grows so you're ok.
- If the stock market does badly for a period then the money you put in at that point can buy a lot of shares, so as long as it recovers at some point you're then ok.
So effectively you buy high and low, and sell at point X, thus minimising the risk of being in a "buy high sell low" disaster scenario...

Edit: what Ru said innit

[36chambers]

having a quick read up on "dollar cost averaging" might help

[shark]

I’d just invest the sum and don’t agonise about it given your investment timescales.

Pound cost averaging just seems to me like a pitch to get punters on a direct debit and yes I understand the theory.

The time to invest is now - it always has been and always will be.

[dpb]

https://monevator.com/lump-sum-investing-versus-drip-feeding/ monevator article on lump sum investing Vs drip feed/cost averaging.

[shark]

Thanks for link.

Yes. There has been a few back testing studies that have shown that on average lump sum investing comes out best. This assumes you have a lump sum which was what JB has and was asking about.

Regular payment to invest is a good idea if you on a regular salary and the vehicle has low costs such as an ISA or pension with a low cost FTSE tracker or ETF. Just don’t do it based on pound cost averaging.

[Johnny Brown]

Thanks Shark, that's just the no-nonsense older wiseguy advice I was after.

I'm just hoping we have some clarity before 29th March as that's about my deadline.

[IanP]

I'm just hoping we have some clarity before 29th March as that's about my deadline.

Aren't we all  .

Article here https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/what-is-pound-cost-averaging agrees with Shark but does mention 'insurance against regret'

'Nobody likes the idea of investing a significant sum of money, only to see the market drop immediately afterwards. For some investors, this fear of regret leaves them paralysed. They decide to wait until they feel more confident about the market, but this time may never come. For these investors, pound-cost averaging may be a way to overcome their paralysis and at least get some money into the market.'

So if you have the option of investment but are putting it off, one route round this may be invest some now and then rest later.  The averages may say that you are more likely to do better by investing all now (though there's also a lesser but still significant risk that you might be worse off) but hedging by splitting investment may make it easier to invest and may even actually have some risk mitigation justification given the high degree of uncertainty around end of March.

Actually facing similar situation with some inheritance money of my daughters which she (with my advice) needs to decide what to do with. 

[Doylo]

I’ve got a private pension but am now employed PAYE (don’t know for how long)  and have been offered another with employers contributions. Am I best trying to get them to pay into my existing private pension? Got a feeling their offer is exclusively for their company scheme.

[IanP]

I’ve got a private pension but am now employed PAYE (don’t know for how long)  and have been offered another with employers contributions. Am I best trying to get them to pay into my existing private pension? Got a feeling their offer is exclusively for their company scheme.

Almost always worth joining employee pension scheme since they pay in as well as you, would think it unlikely they will pay into a private scheme instead.  I would expect the money to be invested into some sort of tracker based fund anyway so similar to the type of investments people are talking about here so only slight disadvantage is that you would have to manage multiple pensions though when you actually come to use them you should be able to consolidate.  WIthout knowing the details I would expect as minimum you should should set you contribution rate at least as much as needed to get the maximum employer contribution (if that makes sense)

[Doylo]

Yeah thanks. Need to milk the employer contribution for as long as it lasts.