Where to start with setting up a personal pension?

[MrsMcCluskeysCat]

So this is something I've been meaning to sort for a while now but a recent pay rise meaning I take home an extra £200 a month has given me a kick up the bum to sort it.

I do contribute into a workplace pension but both the EEs and ERs contributions are the minimum amount (8% combined I think?), and following the contribute half your age when you started a pension rule I should be contributing at least 11%. There's no option to up your workplace contributions until you are in senior management which is at least 10 years away for me if I do even get that far! I don't have kids yet so have decent disposable income so it seems a waste not to be putting some of this into a pension whilst I can! My parents have also recently retired age 60 and that's what I want one day!

So I was thinking it would be good to hear from others who have set up a personal pension. I think it's a SIPP I want? But after reading a Martin Lewis article and starting to look at deals online I'm not sure if I'm best getting advice from an IFA. I've found a deal online which seems good but would you advise I seen an IFA or has anyone set one up themselves?

Any thoughts welcome really just trying to get my head around what to do

I don’t think that you need advice from an IFA.

You’re smart enough to engage in financial planning and you’ve correctly identified that what you need is a SIPP.

You can work out how to open one, and what the tax benefits will be, by contacting a provider. All the big banks and investment platforms sell them. The process is very standard. Pick a provider with a combination of low fees and a solid brand name.

If you’re saying that you need advice on which investments to choose, to sit within the SIPP, then you don’t need an IFA for that either. You can do that by googling: I wouldn’t take advice on equities and funds from an IFA. I pick trackers with the lowest charges.

The only thing you might want to consider is that when your cash is in a SIPP, it’s locked in until you retire. So you might want to put some of your spare money into an investment ISA (even though ISAs don’t give you the same tax savings on contributions as SIPPs) if you think that you will want to access it, eg to buy a house. Again, you don’t need an IFA to tell you that.

Good luck. It’s really encouraging to see somebody in their twenties engaging with this stuff and looking after her own future.

@Iamthewombat

I don’t think that you need advice from an IFA.

You’re smart enough to engage in financial planning and you’ve correctly identified that what you need is a SIPP.

You can work out how to open one, and what the tax benefits will be, by contacting a provider. All the big banks and investment platforms sell them. The process is very standard. Pick a provider with a combination of low fees and a solid brand name.

If you’re saying that you need advice on which investments to choose, to sit within the SIPP, then you don’t need an IFA for that either. You can do that by googling: I wouldn’t take advice on equities and funds from an IFA. I pick trackers with the lowest charges.

The only thing you might want to consider is that when your cash is in a SIPP, it’s locked in until you retire. So you might want to put some of your spare money into an investment ISA (even though ISAs don’t give you the same tax savings on contributions as SIPPs) if you think that you will want to access it, eg to buy a house. Again, you don’t need an IFA to tell you that.

Good luck. It’s really encouraging to see somebody in their twenties engaging with this stuff and looking after her own future.

This is so helpful thank you! As I've looked around I did think it seemed easy enough to sort it myself but was worried as a lot of articles also say you need to discuss with an IFA so I wasn't sure but it's good to hear you think it's do able by myself.

I already save 1/3 of my wage each month and use this to put the max into a LISA each year so after 4 years of working I have a good amount saved for a house deposit, which is why I thought I should start thinking about using money from future pay rises to contribute to a pension as well. Having this extra £200 a month seemed the perfect opportunity.

My parents both had defined benefit pension schemes so have been able to retire early comfortably which has really inspired me to sort this out as I know that would be much harder with just a standard workplace pension.

Excellent work, OP!

To the OP, if you do put the £200 in a pension, would your employer consider you doing it as a salary sacrifice arrangement, so they pay the £200 with no deductions for tax and NI, straight into your SIPP. Some employers will do this, some won’t, but no harm in asking.

Sorry but you really need a financial adviser to give you advice. They now have to take a series of rigorous exams and know all the ins and outs.

@mdh2020

Sorry but you really need a financial adviser to give you advice. They now have to take a series of rigorous exams and know all the ins and outs.

You really don’t.

@MrsMcCluskeysCat remember that you don’t have to make the “perfect” decision first off. The most important initial that you’ll get is tax relief. So it’s better to get started whilst you’re doing your research - you can always switch funds or providers later.

Get over to the MoneySavingExpert form, look for the Pensions board and have a look through recent threads - there are always some on this.

*initial benefit

Assuming you buy reasonable investment products, and will be contributing a consistent monthly amount over a period of years, the most important decisions are:

1. what kind of tax wrapper? SIPP, ISA or none
2. what percentage of contributions goes into equities?
3. what fees do you pay, all-in (including platform fees as well as fund mgmt fees and other fund costs such as admin and trading).

On tax wrapper, broadly there is a tradeoff between tax relief and flexibility/access to funds. The higher is your tax rate, the more is the value of the tax relief and hence the more likely it is to be worthwhile accepting the least flexibility / access (ie pension). In my opinion in the 20pct tax band then ISA probably makes more sense if you have headroom, just because the government can change its mind in the future about taxation of those amounts so easily, but if you’re in 40pct tax band then pension contributions are probably worth doing.

On the equity share, if it’s long-term money and you’re young, you probably want a very high equity share, as long as you will be able to hold on and preferably keep investing more into any market crash. From current low interest rates, Bonds and cash are pretty much guaranteed to lose money after inflation is taken into account.

And on the fees, you probably should be able to stay well below 1 percent all-in if you use tracker funds and an online self-service type of platform. Think about fees as a percentage of your returns, not as a percentage of assets. So if you expect a return of 6 percent then a 1 percent fee Is 16% of your return, and a 2 percent fee would take 33% of your return every year!

For the amounts you’re talking about, I imagine it may be difficult to find an IFA who would take you on as a client, and if you do then they might won’t be any good. You could get advice from a bank’s in house advisor but they are paid to sell the inhouse product, which is likely to have higher fees. Your best bet is probably to do your own research, choose a specific platform / fund / wrapper that you intend to pursue, and then perhaps vet that Informally with somebody knowledgeable in your personal network. To make a formal recommendation, I imagine that a professional IFA would need to spend several hours just to follow proper process, but if your situation is as straightforward as it sounds then an informal opinion from someone sensible is likely to be pretty much on-target.

Hope this helps.

Podcast season about Pensions:

meaningfulmoney.tv/season-11-pensions-masterclass/

You don't need a financial adviser or financial planner to get started. You do need them a few years before you retire, as that is when it gets complicated with the various options for getting the money out tax efficiently.

You can open a Self Invested Personal Pension very cheaply these days, entirely online. Personally I use Vanguard Investor but there are others such as Fidelity, AJ Bell etc.

I'd suggest you talk to Pension Wise, they are employed by the government, their advice is impartial and it is free.

They were very helpful to me, I receive an ill health pension, have a SIPP and NEST so not simple.

www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

@Residentnumber1

To the OP, if you do put the £200 in a pension, would your employer consider you doing it as a salary sacrifice arrangement, so they pay the £200 with no deductions for tax and NI, straight into your SIPP. Some employers will do this, some won’t, but no harm in asking.

Thanks for this suggestion I didn't realise this could be an option but I checked today and they won't do

This is really helpful thank you! When you talk about an ISA is that a specific pension ISA I can get? Or just a stocks and share ISA? I am in the 20% tax band at the minute and will be for a long time probably .

I did wonder about whether I would struggle to find an IFA willing to help me, that's why I asked on here because I was worried I would approach one and be laughed at!

@nannynick

Podcast season about Pensions:

meaningfulmoney.tv/season-11-pensions-masterclass/

You don't need a financial adviser or financial planner to get started. You do need them a few years before you retire, as that is when it gets complicated with the various options for getting the money out tax efficiently.

You can open a Self Invested Personal Pension very cheaply these days, entirely online. Personally I use Vanguard Investor but there are others such as Fidelity, AJ Bell etc.

Yes I've seen from my parents retiring that it isn't so straightforward!

It's actually an AJ Bell one that I've been looking at as they were rated the best pension provider by Which in 2020 and 2021 and it did seem simple enough to sort myself online so thanks for your input

@MrsMcCluskeysCat

This is really helpful thank you! When you talk about an ISA is that a specific pension ISA I can get? Or just a stocks and share ISA? I am in the 20% tax band at the minute and will be for a long time probably .

I did wonder about whether I would struggle to find an IFA willing to help me, that's why I asked on here because I was worried I would approach one and be laughed at!

Sorry this was in reply to @YankeeDad

[quote sashh]I'd suggest you talk to Pension Wise, they are employed by the government, their advice is impartial and it is free.

They were very helpful to me, I receive an ill health pension, have a SIPP and NEST so not simple.

www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise[/quote]
This is really helpful I'm going to take a look thank you

You can’t get a “Pension ISA”.
You’ll see the phrase “tax wrapper” a lot now you’ve started researching
A tax wrapper is an informal term for a way of holding money that’s got a particular tax benefit.

A Pension and an ISA are two different kinds of tax wrapper.
You could actually have the exact same stocks and shares in each - but they’d be treated differently for tax.

Pension: tax relief when you put money in, but you get taxed when you withdraw later (very simplified - there are various allowances). Locked away until specific age.

ISA: no tax relief going in, but you’re not taxed when you withdraw from it - including not being taxed on the growth. Also accessing any time.

LISA: different rules again. If your parents recently retired at 60 I’m going to guess that you’re under 40, so definitely take a look at this one.

Yes, look into ISA as well as SIPP.

Don't make it complicated. A lot of managed funds can be quite expensive, without necessarily returning more than basic index funds. You could, say, go for a mix of UK, European and Global index funds.

Vanguard is a huge, well established company with very low charges. They also have a lot of useful information on their website.

NB:
AJ Bell are not a pension provider - they are an investment platform which holds your investments, irrespective of the investment wrapper you choose. Different investments firms - Hargreaves Landsdown is another well known one - have different charges, but I believe AJ Bell are among the more reasonable ones.

@Cocomarine

You can’t get a “Pension ISA”. You’ll see the phrase “tax wrapper” a lot now you’ve started researching A tax wrapper is an informal term for a way of holding money that’s got a particular tax benefit.

A Pension and an ISA are two different kinds of tax wrapper.
You could actually have the exact same stocks and shares in each - but they’d be treated differently for tax.

Pension: tax relief when you put money in, but you get taxed when you withdraw later (very simplified - there are various allowances). Locked away until specific age.

ISA: no tax relief going in, but you’re not taxed when you withdraw from it - including not being taxed on the growth. Also accessing any time.

LISA: different rules again. If your parents recently retired at 60 I’m going to guess that you’re under 40, so definitely take a look at this one.

Ah ok thanks I definitely have some more research to do but I'm starting to get my head around it a bit more . Yes I have a LISA for a house deposit which I put the max in each year but I'm hoping by the time I buy I will have more than enough for a decent house deposit and will be able to leave some in ready to start building it back up for the tax free lump sum at 60.

Are you sure your company will not let you change just your contribution? It makes no difference to them and saves all the fuss of starting a separate account. I’ve been an IFA for 20years and I have NEVER heard of a pension that limits employee input unless it is a DB or hybrid scheme and even they offer AVC’s.
Challenge the decision, or speak to the pension provider directly. It makes no sense.

Oh and money in a pension is worth more than into an ISA, the difference is flexibility and access.

AJ Bell are not a pension provider - they are an investment platform which holds your investments, irrespective of the investment wrapper you choose

AJ Bell is very much a pension provider, not quite sure what you think their SIPP is.

@Dindundundundeeer

Are you sure your company will not let you change just your contribution? It makes no difference to them and saves all the fuss of starting a separate account. I’ve been an IFA for 20years and I have NEVER heard of a pension that limits employee input unless it is a DB or hybrid scheme and even they offer AVC’s. Challenge the decision, or speak to the pension provider directly. It makes no sense.

No they give employees in senior management or above the option to change contributions each April and I've asked each year if I can change mine but always told no not until I am in that pension scheme. My pension is with the people's pension do you know if I will be able to change my contributions directly with them?

God almighty, your company are idiots! Honestly it can be any blooming number you like. They are being difficult and unhelpful.
thepeoplespension.co.uk/workplace-pension-contributions/

Once you’ve shown HR that page, ask them if you can speak to the person that does payroll. It might be they don’t understand the system or they are too lazy.