Humble Pension Pot - Lump Sum Payment

[sarahhc82]

Hi

I'm looking for some pension advise please.

For various reasons I have a very humble pension pot of only £15.5k at the age of 42. But I am trying to educate myself and improve my financial situation.

I have a lump sum of £5k that I would like to add to my pension and moving forward I can add an extra £300 a month to a pension too.

I now contribute 8% from my salary at the moment which my employer matches (the max. they match to) this equates to £450 a month going in to my pension. I work PT as have 2 young children. There is no salary sacrifice available where I work.

The workplace pension is with Aviva and the annual fee is 0.59%.

With the £5k lump sum and the £300 a month extra I am able to add, I am wondering if I add that to my Aviva workplace pension, or should I set up another private pension. Any advice appreciated.

*Additionally I have £40k in ISAs and I plan to start a S&S ISA when I can find the time to get my head around those!

Thank you in advance.

A separate pension is useful if you can get lower fees (platform fee plus fund fees plus dealing fees) than the 0.59% youre currently paying. Or if the workplace pension has a poor choice of funds and you want to invest in something different. Otherwise it's an unnecessary complication.

It’s important also to make sure the fund your existing pension is invested in is appropriate. Do you know what it is? At age 42 you need to be in something geared to longterm growth.

Check where your work pension is invested. If very cautiously you may want to move it to a higher risk fund.

Use this calculator to get yiur head round your figures
https://www.guiide.co.uk/

I really don’t think you can better the 0.59% that your workplace pension offers.

If you were to setup a separate pension e.g. for a SIPP with interactive investor this would start at about £70 per annum plus 0.1 - 0.25% for fees on ETF funds that track an index. So for a 5k pot they would be expensive. From memory the other SIPP providers like AJ Bell and Hargreaves charge more, but you can check their websites to be certain.

Check your fund choice to make sure it matches the level of volatility you can tolerate.

High risk in theory should result in high reward. Do your homework on this though - obviously this isn't financial advice. But the difference between 5% growth and 10% growth per year compounded over the next 25 years is staggering.

Play about with some online pension calculators to see what I mean.

You still have time to become a pension millionaire!

A SIPP with AJ Bell charges 0.25% on shares up to a maximum of £10 per month, and 0.25% on funds up to £250k then 0.1% on the £250k after that. No fee on funds over and above £500k. There would be dealing charges too - £5 per share deal (falling to £3.50 for frequent traders) and £1.50 for fund deals.

That would make a huge difference to your total returns in the long run compared to Aviva's 0.59%. If you don't feel confident picking your own investments then you can use one of their template portfolios.

I would set up a SIPP.

I don't know why everyone jumps to SIPPs on these threads. They are not for everyone, especially not inexperienced investors and can have high charges. Op either pay a financial adviser or do a lot of research yourself. Don't ask randoms on the Internet. You can get impartial guidance here.
moneyhelper.org.uk