/ pension question

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stevieb - on 09 Jan 2017
I've just had a pension meeting at work with a consultant at work who was barely able to answer any of my questions, so I thought I'd throw this open to the experts of UKC.

I accept that all responses are non-binding and not advice in any legal definition of the word.

So, I currently pay into a work place pension the maximum that is matched. This is in a salary sacrifice set up.
If I decided to pay in more, for easy maths lets say £100 of gross, what are the benefits/drawbacks?
My expectation is that I will lose £50-70 from my net income, and in return I will get £100 in my taxable pension pot.
Am I missing anything? apart from annual management fee of 0.75%

Also, if I was moving an old dormant defined contribution pension to reduce fees, is 0.75% a competitive annual fee? (I know I need to check for an exit fee)

thanks
Coel Hellier - on 09 Jan 2017
In reply to stevieb:

> My expectation is that I will lose £50-70 from my net income, and in return I will get £100 in my taxable pension pot.

Yes, it's as if you hadn't paid income tax on the contribution. So it depends on what rate you pay income tax. (Note, however, that you then do pay tax on your pension income after you retire.)

> ... is 0.75% a competitive annual fee?

It's fairly good, but there are cheaper. E.g. the Hargreaves Lansdown SIPP charges 0.45% annually I think.
stevieb - on 09 Jan 2017
In reply to Coel Hellier:

Thanks, the consultant also said it was before NI, on the salary sacrifice approach?

I was a bit nervous of SIPPs as I probably wouldn't manage it enough, but can you just use the SIPP to drop the money in a unit trust anyway?
MarkJH - on 09 Jan 2017
In reply to Coel Hellier:
> It's fairly good, but there are cheaper. E.g. the Hargreaves Lansdown SIPP charges 0.45% annually I think.

Is it? As far as I know, 0.75% is the maximum permitted by law for a default DC pension scheme. I pay 0.5% on mine.
Post edited at 14:48
MG - on 09 Jan 2017
In reply to stevieb:

> Also, if I was moving an old dormant defined contribution pension to reduce fees, is 0.75% a competitive annual fee? (I know I need to check for an exit fee)

Just looking at this. Beware the difference in charging methods. For example, percentage fees will be competitive if you only have a small sum in your pension but will get rapidly less so as your sum increases, when a fixed fee will be cheaper. I think quite a few providers anticipate the that pensioner savers won't change provider and expect large fees from "small" percentage charges.
MG - on 09 Jan 2017
In reply to MarkJH:

That's not for personal pensions.
Coel Hellier - on 09 Jan 2017
In reply to stevieb:

> I was a bit nervous of SIPPs as I probably wouldn't manage it enough, but can you just use the SIPP to drop the money in a unit trust anyway?

Yes. The SIPP is the "pension" wrapper around unit trusts or investment trusts or shares.
MarkJH - on 09 Jan 2017
In reply to MG:

> That's not for personal pensions.

Was the OP not talking about a workplace pension?
Ferret on 09 Jan 2017
In reply to stevieb:

> Thanks, the consultant also said it was before NI, on the salary sacrifice approach?

> I was a bit nervous of SIPPs as I probably wouldn't manage it enough, but can you just use the SIPP to drop the money in a unit trust anyway?

Yes - the SIPP is just a 'wrapper' that your pension cash is held within. You could leave it all in cash there if you wanted (not a great idea). Most providers will have some sort of 'standard' unit trust designed as a safe, moderate, middle of road default option, or you can pick one or more funds yourself.

I'm with Hargreaves, I generally just let a set %age of my monthly contribution go into each of about 8 funds. I alter the %ages now and again, or sell a position and move it to an alternate once in a while and occasionally build up cash and invest in a few equities.

If managing yourself, keep it simple, understand what you are going into and sanity check eery 2 or 3 years and most importantly, as you get older reduce risk so that you are not fully invested in equities, in the run up to retirement just in case you hit a significant downturn market which could easily damage your pot just before retirement. Some funds/providers have options around automatically altering your profile based on age bands to capture that risk for you (lifestyling I think it may be called).
Coel Hellier - on 09 Jan 2017
In reply to stevieb:

> Thanks, the consultant also said it was before NI, on the salary sacrifice approach?

I think that is the case for an employer scheme, yes.
See http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest/employer-contributions

It's not the case for a non-employer SIPP.
See http://www.hl.co.uk/pensions/sipp/tax-benefits-of-a-sipp
stevieb - on 09 Jan 2017
In reply to MarkJH:
Hi, yes that is my workplace pension.
I don't have a choice for my current income, and it sounds like it's NI efficient, so probably best for any top ups.


But I do also have an old pension that could be worth moving for lower fees. If moving, I could move to my workplace one or a different one.
JJL - on 09 Jan 2017
In reply to stevieb:

Benefits:
Pension increased with gross salary (no tax deductions - so 45%, 40% or 20% benefit
Pension grows tax free
Puts it out of reach in case you'd otherwise spend it

Drawbacks:
Out of reach if you need to spend it
Need to understand lifetime allowance (although that's a nice problem to have for most)
Be careful that your *notional* salary is maintained (for future % pay rises etc)

In terms of charges there are two components - a provider charge and underlying fund charges. 0.75% is quite a big chunk of your annual growth (or fall) and cheaper is available.
There's also a lively argument about managed (more costly) vs trackers/ETFs.

If you are far from retirement then I'd suggest a smallish portfolio of low cost trackers or ETFs.

I have a SIPP with Interactive Investor and a range of geographically spread index funds. Charges are 0.06% for the US tracker for example. The platform costs £90/year and I think £200 to set up. Trades are £10. In total that is loads cheaper than 0.75% for me.
neilh - on 09 Jan 2017
In reply to stevieb:

In a nutshell you are highlighting the huges benefits of stuffing money into a pension.

It is incredibly tax efficient...... at the moment!
JJL - on 09 Jan 2017
In reply to stevieb:

You could pay into employer scheme for N.I. benefit and then transfer funds out...
stevieb - on 09 Jan 2017
In reply to JJL:

> You could pay into employer scheme for N.I. benefit and then transfer funds out...

Ha ha, that's quite cheeky, and potentially worthwhile.
I've just remembered, that (at least for the matched bit) my company are also passing on their NI benefits, so even more reason to overpay into this pension if this applies for my whole contribution.
stevieb - on 09 Jan 2017
In reply to JJL:

thanks, I don't think my dormant previous pension has enough value to start going down the fixed fee route, but I may be wrong. However a SIPP does look interesting for what would be 1 of my 5 pensions

good point re the notional salary.
Scott K - on 09 Jan 2017
In reply to stevieb:

My employer gives us some of the savings back each year as a bonus into the pension but in the small print it states that this could end at any time. No idea if your one does this, might be worth investigating. I have to admit that my pension is very generous in that the employer puts in double my contributions and it also has death and incapacity benefits. Not to be sniffed at!
I would say that if you are a higher rate tax payer it's worth it.

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