1st world problem:

I’m in the fortunate position of having some spare cash to invest in a pension every month. Higher rate tax payer so it makes sense from a tax perpective.

My work pension is DB so I feel I can afford to take some extra risk with my investments, and in early / mid 30’s so think I have enough time on my side to ride out the ups & downs of equities.

I’ve look at my work AVC’s (money purchase) and while the AMC is cheap at ~0.28%, the choice of funds is v restricted. Essentially a global passive fund with sensible allocation to US, Europe, Asia markets.

However I’m hesitant about the 10% allocation to emerging markets – as this is topping up my DB pension, I had wanted a higher exposure to the growth markets (with the associated risks)

So my only option to achieve this is to use a SIPP, which will incur slightly higher costs / increased administration, but give much more flexibility over the investments.

Any thoughts from STW / those that have been through similar?

Depends on scheme, AVCs aren’t underwritten by the PPF, so you could loose them all if you pay into a DB scheme.

I’d go for SIPP (just for some diversity).

EDIT: Looks like your AVCs are DC (Money Purchase), so PPF doesn’t apply.

Essentially a global passive fund with sensible allocation to US, Europe, Asia markets.

This is not necessarily a bad thing to be in, especially at that management fee, but I’m not getting into another argument about the merits of passive funds 🙂

EDIT – and ask yourself, honestly and realistically, which of the following you’re more likely to do over the next 20 years:

a) actively manage any investment portfolio
b) keep meaning to do a), but never really get round to it
c) just put the money in every month and forget about it

If a), get a SIPP. If b) or c), get a cheap passive/tracker fund

I’d go for SIPP (just for some diversity).

Not sure how contributions work into a SIPP as well as work place scheme? Do you get tax relief on both? (up to £40k of course)

I have a SIPP but it was a work place pension I transfered so no contributions.

Footflaps – yeah AVC’s are DC, if I was buying extra years on the DB they’d be no question! 😉

IHN – if I go down the SIPP route will prob stick to passive investing.

No issues with the spread of equities on offer, just think 10% allocation to EM’s is a little stingy given my situation

Not sure how contributions work into a SIPP as well as work place scheme? Do you get tax relief on both? (up to £40k of course)

I have a SIPP but it was a work place pension I transfered so no contributions.

Yes, the SIPP provider will claim back 20% a few weeks after you pay in and then you write to HMRC once a year with the statement from the SIPP provider and they refund you the missing 20% from higher rate relief (if eligible).

NB No need for self assessment, I just send a letter each year. After a while they might adjust your tax code but they’re pretty useless at that, so I get a refund every year even though I pay the same in each year and they could just give me the correct tax code.

IHN – if I go down the SIPP route will prob stick to passive investing.

That’s probably the worst of both worlds in your case, cos I doubt you’ll find a SIPP with a passive tracker for a combined fee (SIPP fee + fund fee) of <0.28%

Fair comment IHN, I know the SIPP will be more expensive (best I’ve found is 0.3% platform fee + fund fee) but was hoping it would be worth it with more exposure to emerging markets.

Perhaps I’ll stick with the AVC and just use an ISA for some extra emerging market exposure.

Yes, the SIPP provider will claim back 20% a few weeks after you pay in and then you write to HMRC once a year with the statement from the SIPP provider and they refund you the missing 20% from higher rate relief (if eligible).

The nuance here is the SIPP provider will buy extra units with the 20%, not refund you the tax. So if you pay £100 a month in AVCs £100 goes out of your gross salary and into your AVC. But if you pay £100 into SIPP from your net income you will end up with £120 in your SIPP and a £20 tax refund at the end of the year.

Edit: assuming you are in the 40% tax bracket

AVCs into a company scheme sometimes get an additional uplift on top of tax relief, e.g. I get a 10% uplift from my employer because it doesn’t pay employers’ NI on the portion of salary that I pay into the pension.

Any AVCs go into my group personal pension alongside the regular monthly employee and employer contributions, then I occasionally make transfers from the GPP into my SIPP.

So check with your HR bods first!

Another thing I’m unsure about on the AVC’s – the only bond fund available is a long term (5yr plus) UK gilt.

From what I’ve read long term bonds should be avoided ATM as the value will shrink as interest rates rise?

Can anyone offer any insight into this? I’ll admit I’ve never really got my head round bonds, tho I understand their role in a diversified portfolio.

If you’re looking to be a bit more adventurous in your investments, as per

so I feel I can afford to take some extra risk with my investments

you needn’t be looking at bond funds. They’re generally a defensive investment because the offer a fixed return. That’s good if you want to know what you’re going to be getting, but you’re right that inflation erodes that amount over time.

People generally move to bonds/cash as they near retirement, as they don’t want a sudden correction in the market the day before they retire scuppering their pension savings.

AVCs into a company scheme sometimes get an additional uplift on top of tax relief, e.g. I get a 10% uplift from my employer because it doesn’t pay employers’ NI on the portion of salary that I pay into the pension.

Is an excellent point; there’s often employer matching/additions if you make extra personal contributions into a company scheme, aka free money. Check that out.

iWeb do a fixed (but tiered) quarterly SIPP management fee, which can work out at under 0.3% for the right amounts (£30k-£50k, £60k+)

you needn’t be looking at bond funds. They’re generally a defensive investment because the offer a fixed return. That’s good if you want to know what you’re going to be getting, but you’re right that inflation erodes that amount over time.

Bonds wouldn’t be a bad strategy at the moment. We have had a 10 year bull run in equities and just about every asset out there is at an all time high. So buying into Bonds with the intention to wait a few years till we get a correction and then moving to equities could be a viable strategy.

Obviously no on can predict the next few years, but it’s highly unlikely the next 10 years continue the same bull run. Any money invested now is probably pretty close to the top.

Fair comment IHN, I know the SIPP will be more expensive (best I’ve found is 0.3% platform fee + fund fee) but was hoping it would be worth it with more exposure to emerging markets.

AJ Bell Youinvest have a platform fee of 0.20% and a massive range of funds and ETFs.

https://www.youinvest.co.uk/sipp

iWeb have a flat quarterly fee, so better for larger amounts.

http://www.iweb-sharedealing.co.uk/Landing-Pages/pre-application.asp

I use Interactive Investor, which is a flat £80 per year for an investment account plus £80+VAT for the SIPP, and the ISA is free if you have a SIPP (fund management fees are on top). It’s by far the cheapest once you’re over a certain portfolio value.

Equities outperform bonds over almost any timeframe you care to pick. Depends on your time horizon, but if it’s a long way off then equities all the way… just sit tight and don’t panic when the crashes occur, which they will from time to time.

Equities outperform bonds over almost any timeframe you care to pick.

Depending which equity you pick, obvs.

Aye, tru dat. I was talking market indexes.

Deciding what to invest in is the most challenging part – much easier to rule stuff out than in