Author Topic: Some Advice on UK Pension / Index Funds Please  (Read 1170 times)

jeeebus

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Some Advice on UK Pension / Index Funds Please
« on: January 11, 2017, 06:05:47 AM »
Hi all,

I have a small pension plan (2,000) from a brief employment that I had 8 years ago, and would like to start a SIPP and transfer it into that. Some relevant background info:

  • I'm 30
  • Employed as a co-director of a small company
  • Higher rate tax payer
  • Have no other pension plans
  • Discovered MMM just over a year ago, completely changed my ways by clearing my credit card debts, establishing a 5k emergency fund and putting 13k into an investment ISA with Hargreaves Lansdown (Vanguard LifeStrategy 80), so should be able to save around 20k per year for the foreseeable future

I don't like the idea of locking all of my retirement savings away in a SIPP until I am 57 because if things go well over the next 15 years I hope to at least semi-retire when I'm 45. That said, there are some obvious tax advantages when putting into a SIPP. So ideally I'd like to put approximately 25% of everything I save into it, and the remaining 75% into my investment ISA. The trouble is I don't know which funds to use for my SIPP. I am very comfortable with LifeStrategy 80, but don't really want to put all my eggs in one basket. Does anyone have any suggestions of other funds so that I have a starting point for my research? I know many people over the pond like to invest in REIT index funds for a bit of diversity. Is this a good idea? Or is my whole plan flawed? Any advice welcome.

Thanks

frugledoc

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Re: Some Advice on UK Pension / Index Funds Please
« Reply #1 on: January 11, 2017, 12:40:24 PM »
Hi all,

I have a small pension plan (2,000) from a brief employment that I had 8 years ago, and would like to start a SIPP and transfer it into that. Some relevant background info:

  • I'm 30
  • Employed as a co-director of a small company
  • Higher rate tax payer
  • Have no other pension plans
  • Discovered MMM just over a year ago, completely changed my ways by clearing my credit card debts, establishing a 5k emergency fund and putting 13k into an investment ISA with Hargreaves Lansdown (Vanguard LifeStrategy 80), so should be able to save around 20k per year for the foreseeable future

I don't like the idea of locking all of my retirement savings away in a SIPP until I am 57 because if things go well over the next 15 years I hope to at least semi-retire when I'm 45. That said, there are some obvious tax advantages when putting into a SIPP. So ideally I'd like to put approximately 25% of everything I save into it, and the remaining 75% into my investment ISA. The trouble is I don't know which funds to use for my SIPP. I am very comfortable with LifeStrategy 80, but don't really want to put all my eggs in one basket. Does anyone have any suggestions of other funds so that I have a starting point for my research? I know many people over the pond like to invest in REIT index funds for a bit of diversity. Is this a good idea? Or is my whole plan flawed? Any advice welcome.

Thanks

Remember you can only pay salary into a SIPP so if you pay yourself mostly in dividends from your company then that does not count towards your SIPP allowance.

SIPP only makes sense if your earned income is in the higher rate, otherwise I would just max out your ISA.
 
Lifestrategy is fine for an eggs in one basket approach, but be aware that most brokers will charge you for holding funds.

Hargreaves Lansdowne for example, cap their ISA fee at 45 pounds and SIPP fee at 200 pounds for ETFs, shares, ITs but uncapped for funds.

For UK investors I recommend VWRL vanguard all world ETF and VGOV gov bonds for your 20% bonds if that is your desired allocation.

dreams_and_discoveries

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Re: Some Advice on UK Pension / Index Funds Please
« Reply #2 on: January 12, 2017, 03:57:13 AM »
Hi all,

I have a small pension plan (2,000) from a brief employment that I had 8 years ago, and would like to start a SIPP and transfer it into that. Some relevant background info:

  • I'm 30
  • Employed as a co-director of a small company
  • Higher rate tax payer
  • Have no other pension plans
  • Discovered MMM just over a year ago, completely changed my ways by clearing my credit card debts, establishing a 5k emergency fund and putting 13k into an investment ISA with Hargreaves Lansdown (Vanguard LifeStrategy 80), so should be able to save around 20k per year for the foreseeable future

I don't like the idea of locking all of my retirement savings away in a SIPP until I am 57 because if things go well over the next 15 years I hope to at least semi-retire when I'm 45. That said, there are some obvious tax advantages when putting into a SIPP. So ideally I'd like to put approximately 25% of everything I save into it, and the remaining 75% into my investment ISA. The trouble is I don't know which funds to use for my SIPP. I am very comfortable with LifeStrategy 80, but don't really want to put all my eggs in one basket. Does anyone have any suggestions of other funds so that I have a starting point for my research? I know many people over the pond like to invest in REIT index funds for a bit of diversity. Is this a good idea? Or is my whole plan flawed? Any advice welcome.

Thanks

Remember you can only pay salary into a SIPP so if you pay yourself mostly in dividends from your company then that does not count towards your SIPP allowance.

SIPP only makes sense if your earned income is in the higher rate, otherwise I would just max out your ISA.
 
Lifestrategy is fine for an eggs in one basket approach, but be aware that most brokers will charge you for holding funds.

Hargreaves Lansdowne for example, cap their ISA fee at 45 pounds and SIPP fee at 200 pounds for ETFs, shares, ITs but uncapped for funds.

For UK investors I recommend VWRL vanguard all world ETF and VGOV gov bonds for your 20% bonds if that is your desired allocation.

Welcome sounds like you've made a great start, and want to start planning for the future.

As a benchmark, to retire in 15 years I believe you need ~50% savings rate - not sure how that stacks up for you?

If you are a company director, a SIPP is really valuable, as it's a business expense it reduces corporation tax, you don't need to pay yourself a matching salary/dividends to do the 40k pension max (that's only if you operate a salary sacrifice on employee contributions, but you'll just have employer contributions).

Maxing your ISA out each year is also highly recommend if you can, it's a great tax free opportunity.

jeeebus

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Re: Some Advice on UK Pension / Index Funds Please
« Reply #3 on: January 12, 2017, 04:56:26 AM »
Thanks both for your responses.

Although we pay ourselves a fixed amount each week, we treat the current tax-free personal allowance of 11k as a salary, and the rest is treated as dividends. Any earnings in excess of the above are then awarded once per year and are also treated as dividends.

Currently I am paying just over 20% of my weekly pay towards my mortgage (which includes an overpayment), investing 45% for retirement, and then living off of the rest. Any bonuses or extra dividends will also be invested into my FIRE fund.

As I mentioned I am only intending to put 25% into a SIPP anyway and the remaining 75% will continue to go into my Stocks and Shares ISA, so it sounds like I am doing the right thing by contributing to both a SIPP and ISA. Thanks foir the confirmation.

And thanks frugaldoc for the fund recommendations