Life Situation:
Living in the UK (not London or a major city), renting, married, no dependents (but hope that will change in near future), I am late 30s, partner is early 40s. Most importantly for this question, very little pension saving to date between either of us, other than through very minimal ‘National Insurance’ scheme. All numbers in GBP – British pounds. I manage finances; partner is on board.
Gross Salary/Wages: Between both of us, about £54,360 per year, £4530 per month. I say ‘about’ because my partner’s income is variable. It breaks down to:
Me: £42,900 a year, £3575/month. Expected to go up to £4167/month from April.
Partner: variable. Can rely on about £9600 a year/£800 a month but is usually more like £11-13k a year.
Taxes and deductions (applicable to my income only):
Income tax: £481/month
Pension contributions: £154.05 to employer pension scheme (In line with UK law, my employer also contributes 3% to my pension. No further ‘matched’ contributions are on offer from my employer.)
Student loan: £178/month (this was a government loan and this is the minimum contribution. In the UK there is no value in paying off student loans any quicker than at minimum rates thanks to very low interest rates on student loans.)
Council tax is included in ‘spending’ below. It’s £120 a month.
Other income: We usually get various unpredictable bits of income from cashback, bank rewards, interest etc. This came to £561.28 in 2020 but is likely to be less this year as there aren’t such big rewards on offer for switching bank accounts.
Net Income: Not counting potential bank rewards etc, it’s £3383.51/month (assuming £950 from my partner’s work, which is what we use to budget). We give away 10% of this, so it then comes to £3045.16 available for spending.
Current expenses: I've attached our budget for 2021. For comparison, I have included what we actually spent in 2020. Some of these are over-budgeted (like internet) in case costs go up, so we may find savings by end of year.
Assets:
£6897.30 across two Help to Buy accounts – we currently save £200 a month in each, which is the maximum allowed. We are not particularly excited about buying a house, but Help to Buy is a very good offer for first time buyers, and it seemed like it might be sensible so we have somewhere to live when we’re retired, given our pension situation (see below).
About £3k in cash savings
We also have another approx 3K saved up in specific 'irregular expenses' categories (e.g. for expenses that are about to come up). The biggest of these are about £933 for car expenses between the two car categories, and £750 that we have saved up for holidays. Pretty much all cash savings are in a savings account with I think 0.50% AER (variable) - except those for imminent payments (e.g. car insurance and tax are due soon).
Investment in a Schroder ‘Balanced Fund Accumulation’ – having issues with online access so can’t see current valuation, but value of investments as of Oct 2020 was £9730.12
Liabilities:
£9,117.49 remaining on student loan, 1.1% interest, repayments in line with income, currently paying minimum rate as per above, gets forgiven if I reach age 65 without having repaid all of it.
Specific Question(s):
The big hole in our financial world is pensions. We are not particularly looking to retire early, but we are concerned about how little we have to support retirement at any age. We both have a handful of pension accounts from previous employment, none of which have much in them (hundreds, not thousands). Setting up the Help to Buy account a year ago was an attempt to rectify this – to give us somewhere to live in retirement.
Now we want to put the rest of our savings into a pension investment. We’ve got just shy of £150 a month to put towards that now, on top of our Help to Buy contributions, but as our income is expected to increase this year, we are planning to put all increases in income directly into a pension account. Our aim is to get to the ‘half our age, as a %’ going into pensions.
I haven’t set up a SIPP yet because investments overwhelm me and I wasn't sure what pension vehicle I should use. I have learned a fair amount from reading blogs and trying to self-educate but it’s been a steep learning curve. I am VERY good at not selling out of fear when markets crash, so I’m not worried about that, but I am not at all good at ‘managing’ accounts as it's almost like a foreign language to me. I have tried to research the ‘best’ or most diversified index fund investments for a pension and got a bit overwhelmed.
Given that, and from what I’ve read on here and on blogs, I am thinking of opening a Vanguard SIPP and then using a LifeStrategy 80 account within that, or probably even better, a ‘target retirement’ fund. I’m happy with a fairly high level of stocks relative to bonds, for now. I have very, very limited choice of funds with employer pension so don't really want to contribute more that way.
A few questions:
• Does this sound sensible or would you recommend a different pathway?
• Should I get two separate SIPPs for myself and my partner, with different companies, in case one goes under or has any issues (we know people who suffered with both having pensions in Northern Rock)
• Should I get over myself and make myself learn how to manage investments so that I can get the lower fees of 0.15 or 0.16 instead of 0.24 on Vanguard’s target retirement fund?
• Any other comments or glaring concerns from all of the above! We are very open to feedback and are learning – a bit late in life, but better late than never!
Edited to add: my workplace pension annual management cost is 0.40%
