One thing to do
Start your own personal pension
Last time we wrote about maxing out your employer match pensions. This week, more pensions, but for a wider audience: Not Just The Employed.
- Open a SIPP on a ‘pension platform’ that is low cost
- Invest the money in a Vanguard Lifestrategy fund that’s suitable for your appetite for risk or age
- Pay into it regularly, get your tax credits and just wait while it grows
We managed to leave out a bit of the intended content from our last email, which said:
If you can try to look after yourself a bit while you’re working, you’ll be a lot better off in older age. There is a rule of thumb that the amount you should save into your pension is the half the age you are when you start saving. You’re 25? Save 12.5% of your take-home salary. 40? Start saving 20%. Stick to it until you retire.
There’s a big gap between those percentages because the 25 year old has an extra 15 years of saving into their pension and an extra 15 years of compound interest working its slow magic. This means, of course, that it’s easier to start saving for retirement when you’re young. Just when you don’t want to be thinking about it. If you have young-ish people in your life who have just started working, perhaps mention this to them gently, or get them subscribed to Checksies!
So if you’re employed, and you sorted out your employer pension last week, what’s the total percentage that’s going into your pension? If it’s less than half your age, you should consider topping it up with a personal pension.
There are a few types of pension, but here we’re going to focus on the Self-Invested Personal Pension (SIPP), which is easy to set up and offers a lot of choice about what investments it contains. Anyone can set up a SIPP, whether employed, self employed or not employed. As with employer pensions, there are rules about how much you can contribute each year (and in total) and when you can access your pension.
OK, how to do it.
1. Choose a pension platform
You can open a SIPP on a ‘pension platform’. It’s like opening a bank account except the website designs are pretty clunky. These platforms all have low fees:
If you love numbers, there are useful comparisons of pension platforms and their various fees at both LangCat and Monevator - they’re both detailed but informative reads. The gist is: if you have a large pension pot, a fixed-fee platform will probably be cheaper; if it’s small a percentage fee platform may be cheaper. But you do have to keep an eye on things like trading fees and exit fees.
You’ll have a do a little bit of paperwork to set up your SIPP, but it’s not too onerous.
Next you need to put some money into the SIPP. You can do this by making a one-off or regular bank transfer from your bank account to your pension provider. Again, there may be a bit of paperwork if you’re making a one-off contribution. (Or you can transfer an existing pension, but it’s not straightforward so you should talk to a financial advisor about it - you have to be careful about exit fees and the loss of benefits that are unique to your current pension.)