Pension question

[KangarooKenny]

I’m looking to join my work pension but it mentions charging to manage it, and the funds you invest in may have extra charges, and how it will reduce the value of the pension plan.
Is that normal, and shall I just ignore it ?
Previously I’ve only been in the NHS pension, and I just signed on the dotted line, I didn’t ask any questions.

Yes it sounds normal, not ideal, but normal.

It happened to me, or something very similar - works pension organisers / IFA sold the pension of which they got their cut, they then bought funds each of which also had fees on top.

The “managers” will get their cut, I assume they are the equivalent of the IFAs who sold my previous employers their pension system, and it sounds like they will buy actively managed funds for you - funds that are actually managed by real “fund managers” and each of those funds will have charges too.

It would be far better if employers were able to just buy low cost index trackers for their staff - maybe they can but don’t, I’ve been out of that area for years now so don’t know the new options available.

I transferred all my work pensions to a SIPP as they performed so badly I decided I could do better myself, and I have. Much better.

Normal for there to be charged. Have a look at the details. I would try to aim at costs under 0.5%. Look at the fees, they should be available.

Most workplace schemes have a default fund. You could always ring up the provider directly and ask them for a list of available funds. They will most likely say to get advice before switching. But yes, they don‘t work for free.

It’s normal - presumably using the work pension is the only way you will get employer pension contributions so definitely worth joining from that point of view! You could consider transferring to another pension (SIP or the next work one) once you’re no longer employed if fees are higher than you’d like, but don’t miss out on the contributions while you are.

Thanks, I’m not happy about the charges but I’m going to think that they are coming out of work’s contribution rather than mine !

I’ve only ever been in the NHS pension, never private, so sorry for the stupid question but can I pay in a lump sum to it ? To make up for the time I’ve not paid it. I’ve been doing this job for a couple of years now and never paid it, as I don’t think I was going to stay.

Platform and fund charges are totally normal and are charged with pretty much any investment whether it's a pension or ISA etc. The key thing to look out for is the level of the charge. The % charged is dependent on the platform used and what the investment is. If you are invested in 'managed funds' then the % will be higher compared to 'passive index funds'. Generally speaking if the overall charge is <0.5% a year then that is pretty competitive

Fees are perfectly normal. There will an annual management charge, or platform charge plus a fund management charge. The AMC will be out of your control, but the FMC will vary depending on the fund your pension is invested in. The % sound small but over the life of your pension there is a big difference between 0.15% and 1%!

dont stick with the default fund, it’ll be probably higher fees, more actively managed and have too much in “safe” investments. Assuming you have several years to go, look for the broadest based global equity index fund they offer - fees will probably be lower than the default too.

yes, you can add a lump sum, but from your own funds, not salary. You may need to claim the tax relief on the lump separately.

They give an example of 1%, at the moment I can’t see the actual charge.
They offer a ‘safe’ or ‘less safe’ option so I assume the less safe one will have less charges.
At the end of the day I’m offered the choice of 2 pensions where I get work contributions. I either suck it up or don’t go in the pension. Up to now I’ve not joined and lost a couple of years contributions.

They offer a ‘safe’ or ‘less safe’ option so I assume the less safe one will have less charges.

If “safe” refers to the risk rating of the investment portfolio- big gain or big loss- then do not assume the fees are different between the two options. Ask for the details. Ask for the past performance of the two pension funds.

strange to have such a limited range of funds, but as you’re currently missing out on your employer’s contribution and the tax relief you’ll be better off in the pension than not.

You can pay a lump sum into a Defined Contribution pension scheme. There will be a limit on how much you can pay in, called the pension annual allowance, which is the total of everything going into the pension during the financial year.

Learn about pensions and the scheme you are in. The scheme website will likely have a lot of information on it. There are various YouTube channels and podcasts from UK financial planners to help as well, such as this video: UK Pension Basics

You have not said what pension provider, so we do not know if the fees are high, or not. They may be pretty reasonable. They may be high and thus you may want to pay into something separate, as well as paying the auto-enrolment minimum to the workplace scheme so you get the employer contribution.

I would do this:
Find out what the pension scheme is, how much would be deducted from your pay, how much employer contribution is, and if it is a salary sacrifice scheme or not.
Find out about the fund choices and the fees.
Find out how additional contributions can be made, such as debit card via their website.
Ask if they can tell you if you can make a lump sum contribution of £x. They may or may not be able to tell you, as it may be considered to be 'financial advice' and/or they do not know enough of your personal tax situation.
Join the scheme so you get the employer contribution.
Then consider if it is worth paying more in to that scheme, or to look for another scheme with other fees/funds.

You pay fees on your mortgage, you effectively pay fees to have a bank account - defined contributions pensions are no different! Just move on from the fees point and start saving!

Someone has to be paid to manage the funds to get the best returns. This is what the fees do. It's perfectly normal so just get signed up as you're currently missing out on the free money from your employer contributions.

Of course fees need to be paid, someone is spending time and money setting up and running this pension for you. It's a service you are buying.

Workplace pensions typically have fairly low fees, and a limited range of options too to keep it simple and keep costs down.

I'd join asap, you are missing out on employer contributions and tax relief on your contributions.

Not all schemes allow lump sum contributions so you'll need to check that, plus you are limited to the total amount of contributions you can make per year. It's unlikely your employer will make up their missed contributions.

It's likely the two choices you have are lower risk and higher risk which will affect the growth, not the fees. You have to decide if you want the potential for bigger growth and losses or if you would be happier with potentially lower growth but less likelihood of losses. Typically the younger you are, the more risk you can take but it is a very individual decision.

I’m not a risk person, and I’m starting late, so I’ll go for the safe option !
Im thinking of putting a lump sum in of the contributions I would have made over the last couple of years, I know work won’t match it, but I’ll feel better if I put that in.

If you are making a lump sum contribution, you may be better putting it into a SIPP with a low cost provider. They will charge lower fees than your workplace pension. E.g. Vanguard, AJ Bell. You make contributions and choose what to invest it in.

The big benefit of the workplace pension is that your employer contributes, free money for you. I'm assuming your employer won't be contributing to your lump sum contribution, so no need to put it into your workplace pension if you can find a better option.

You can move pensions between providers. So if you contributed to your workplace pension for a year then left, you could then move that pension either into your SIPP, or to your next workplace pension provider. So you wouldn't need to end up with multiple pension pots. If your employer will make contributions it is worth taking them, even if you don't think you will stay there for long.

If your workplace pension has high fees or a limited choice of funds you can move your pot elsewhere- sometimes you need to wait until you have stopped contributing to it, sometimes you can move what you have whilst still contributing.

Thanks for that. I’ll not put a lump sum in,

www.moneyhelper.org.uk/en/pensions-and-retirement#

Have a look here for info op.

remember that higher 'risk' normally means more growth (although not guaranteed).

How long will it be until your retirement? As a general rule, when reference is made to 'risk' like this, what it typically means is expected volatility. Certain asset classes such as equities are volatile - the value goes up and down significantly over time- whereas other classes such as gilts are very stable, with the value only varying by small margins. More volatile assets such as equities typically have a long term overall return which quite dramatically exceeds the returns of safe/low risk assets. For someone with several decades left to invest, the difference in final portfolio size between and all-equities and all-gilts portfolio could easily end up being more than a 10-fold difference. So the 'safe' options do reduce volatility, but they typically also heavily limit growth. I have about 25 years to go until retirement and I am currently investing in 100% equities. I frequently see big drops in my portfolio value, but also periods of fast growth, and overall have ended up making a large amount of money from investment growth.

Obviously entirely up to you what you do here, but I think sometimes people hear 'safe' attached to an investment option and instantly think that means that it's the better choice, whereas the reality is that most people will end up much worse off than if they had accepted more risk.

It’s 15 years until I’m old age pension age, but I’m not sure how long I’ll actually work for.
Ive lost about 4 years contributions due to me dithering, so I’ve taken the plunge and I’m joining.

I would live off the lump sum and contribute as much as I can through salary sacrifice if that is an option as not only will you get tax relief but you will also save on NI deductions.