Yet another pensions thread…increase work contributions or start SIPP?

@mattoutandabout 0.14-0.22% is the range of Vanguard funds.

0.65% extra compounding makes a difference.

0.14-0.22% is the range of Vanguard funds.

There will always be a platform fee on top of that, normally about 0.5%.

Basically you pay Vanguard to manage the fund (the fund fee) and someone to manage the pension that is investing in the fund (the platform fee)

And do those Vanguard funds have any trading fees or similar?

So Vanguard is around 0.64-0.72 in reality?

Whereas my Standard Life is just 0.8 as I’ve no trading fees or anything – just flat 0.8?

So the difference is closer to 0.14-0.08…?

No. Vanguard platform fee is 0.15% capped at £375

https://www.vanguardinvestor.co.uk/what-we-offer/fees-explained

In my workplace pension I have some invested in the bog standard ‘managed’ diversified growth fund – fee 0.35% and some in an international tracker – fee 0.08%. They are actually very similar in performance, struggling to see the point of the managed one at present.

“In my workplace pension I have some invested in the bog standard ‘managed’ diversified growth fund – fee 0.35% and some in an international tracker – fee 0.08%. They are actually very similar in performance, struggling to see the point of the managed one at present.”

The data would suggest you will be better off in the international tracker over the long term. 0.35% isn’t horrendous for a managed fund, but the chances of that fund outperforming a global tracker over 30+ years are not in its favour, statistically.

0.08% Is cheap for a UK domiciled global tracker. If your platform fee is included in that you’re laughing.

OP. Check out what you can do by paying into your workplace pension. Many already described by folks. These could include:

• employer contributions to AVCs
• subsidized management fees
• you will be able to make contributions from your gross pay. Perhaps a bigger amount in your pension with each deposit than you might manage from net pay into a SIPP
• Fund selection for contributions

Unless there’s a reason like terrible fund choices or high fees you may be better off with paying more into your workplace pension than administering a separate SIPP from the employer additions alone.

My provider is Aegon and its currently being paid into a “universal lifestyle collection” fund, which appears to be classed as an average risk with 70% of it going into a diversified fund. 1.03% charge.

If this is your workplace pension then I recently Did My Own Research and found a thread on Money Saving Expert that implied that workplace pensions cannot charge you more than 0.75%. If you look on your statement of benefits or whatever they call it, if it’s like mine you’ll see that they have a charge and then possibly also a rebate that drops it right back down again.

I also looked briefly at what funds I could choose other than the default one, and came to the (possibly incorrect) conclusion that none of them saved me enough in fees to make it worth the hassle and if I was going to play around with different index funds then my ISA would be the place to do it.

I also looked briefly at what funds I could choose other than the default one, and came to the (possibly incorrect) conclusion that none of them saved me enough in fees to make it worth the hassle

IANAE, but my understanding of compounding interest is that relatively small percentage changes can have significant effects on outcome.

IANAE, but my understanding of compounding interest is that relatively small percentage changes can have significant effects on outcome.

I think you’re absolutely right, but I only have the mental capacity/time to sort out one set of investments at once and because the Vanguard ISA is much easier to administer than the god-awful Aegon pension interface that’s the one I chose to look at first.

@soundninjauk a fair point.

My approach is to just do a little bit at a time to improve things.

Also it’s far better to get started than to do nothing at all for fear of doing the “wrong” thing.

Just on the costs thing, I plotted out a few suppliers for their general platform costs on Desmos.  It’s not perfect and it isn’t a complete picture of the market as I did it to cover consolidating my pensions.  There are no transaction costs in this because my need was to consolidate and park my pots without new contributions.

Notable that Interactive Investor (who market themselves as the cheapest because of their flat rate) are not the cheapest because: a) their flat rate isn’t flat; it is tiered b) their flat rate is higher than some others cap their percentage rate.  There also appears to be a tiered transaction pricing hidden in their fees so above a threshold a trade might be £40 instead of £3.99.  That’s a really sneaky bit of sharp practice.  Their costs are also insane if you get an ISA with them alongside their pension.

HL get two plot lines depending on whether you’re in stocks/ETFs or managed funds.  The funds option is the orange line that is far and away the most expensive on the graph, but it is really an all inclusive price.  Their stocks/ETFs pricing is actually quite acceptable (but trading charges are known to be high at £11.95).

https://www.desmos.com/calculator/6qi8hd3hnb

^^^ the plot is percentage of pot plotted on the y axis vs size of pot.  On this analysis, AJBell and Aviva were joint cheapest above a threshold size of ~£92,000.  (Caveat: do your own research)

Youtuber Chris Palmer does a round up of pension platform costs that he publishes as a Google Sheets spreadsheet.

https://docs.google.com/spreadsheets/d/1I04rPygSWLJhdMx8aBJuJfluhJmACtHOcJm4I9MZXuA/edit?gid=0#gid=0

I did some more digging around these and really didn’t feel the Fidelity pricing was accurate because at the bare price it is so limited it is almost inevitable you’ll incur some of the heftier costs (i.e. choice of ETFs)

Vanguard is cheap for small pots and massively expensive when they get big.

InvestEngine have not yet built the ability to transfer in (maybe October).

Halifax are sneaky bastards who invent charges when you’re accessing your pension (others don’t) so I wouldn’t want to give them the business

Some will not manage a pot in drawdown, so you’ll be transferring out at retirement.

I’m also keen on something that can be viewed on a wealth consolidation dashboard app like MoneyHub.  After all of the analysis, AJBell seem right for me, but I haven’t moved anything yet and YMMV.

Nope. Diversified trackers with minimal charges are the best strategy for investing.

after considering advice on the MSE forum, ive just moved over from HL to II (interactive investor) for this reason after realising HL’s quarterly charges are higher than most.  II seem to be capped at a lot less.  i had 6 different funds in HL so sold them all to transfer the cash to II, and now have that cash waiting to be invested.

my aim is to set up a DD for around £100 p/m into II, and invest it in just one diversified fund/tracker (?).  i dont really understand financial terms so youll have to excuse me if i get the wording wrong.

i assume something like vanguards lifestrategy 80 is a ‘diversified tracker’?  so i aim to invest in something like that, and keep adding £100 to it each month.

question is, is this the most cost-effective way of investing?  i dont mean the LS80, i realise nobody can predict which one is best, i mean the investing each month by DD.  im not sure if theres a charge each month, or whether id be better off still chucking the money in each month, but then waiting 12 months and investing that lump sum in just one transaction and one fee.  gut feeling is pay the monthly charges but just curious as to whether theres a better method.

thanks

Lifestrategy 80 is a decent fund. It’s a global tracker with a slight home tilt and 20% in defensive assets (gilts and bonds).

Not sure about the interactive investor fee system, but generally you’re better off putting money into the market as soon as possible rather than waiting so that it has longer time compounding, however over the long term the difference isn’t huge.

The professionals call it “pound cost averaging” and it’s a perfectly reasonable way of putting money into the market as you will buy a few more units if the markets have been weaker (and therefore become cheaper) and you’ll buy a few less units if markets have risen (and therefore look a bit more expensive).  It saves you having to decide if the time is right and regretting it if the you get your timing wrong.

looking at monthly fees https://www.ii.co.uk/our-charges#monthly-fees

https://media-prod.ii.co.uk/s3fs-public/pdfs/ii-Rates-and-Charges-Dec2024.pdf

you are paying a fee to hold the account pretty much £5-6 each for an isa or sipp under £50k value, and then double that for £50k plus.

you are paying a fee to hold the account pretty much £5-6 each for an isa or sipp under £50k value, and then double that for £50k plus.

thanks, so yep, £13 per month for II now.  i was paying quarterly charges of £75+ before, so have halved my monthly fee now.  and that wasnt capped with HL so the more my SIPP was to grow the more it would rise.  i wasnt sure if id pay more for each monthly DD transaction/investment but i dont think they charge for that.

is this the most cost-effective way of investing?…., i mean the investing each month by DD. im not sure if theres a charge each month, or whether id be better off still chucking the money in each month, but then waiting 12 months and investing that lump sum in just one transaction

You’re correct to buy on the set day each month.

I do this with II. Even if it’s a lump sum I’m investing, for example if I sell some Sharesave at work, I set up my following month DD to buy the fund for free rather than buying the fund at the time.  This is why the big flashing menu item at the top of your screen says “Free Regular Investing!”

I presume they do it for free as they have hundreds of people buying the same stocks on that exact date and time each month so they just buy the total amount and then split it between the hundreds of people

Next buy in is 9 January BTW so you have a while left to set it up

🙂

Do hope I haven’t included any info I shouldn’t ! 🙂

So you set up a DD into the account each month if you want

Them you chose a set of funds/shares that you want to purchase an amount of each month.

Then order them by priority ( in case your wishes are  bigger than your means)

Then you can also specify an additional one off payment each month on top.

Then on the 9th of every month it buys what you’ve told it to buy. And doesn’t charge for the privelige

thats really helpful thanks.  is the 9th a date youve set, or is that their set date for trading?  so do you set your DD to go in a week earlier say, so its in there waiting to be invested?

 is the 9th a date youve set, or is that their set date for trading

They set the date. ( TBH I’m not 100% sure it is the ninth, but you can easily check,,). My guess is that it’s a few days after month end to allow people time to shift the cash

so do you set your DD to go in a week earlier say, so its in there waiting to be invested?

I don’t do DDs. I just chuck a bit in every now and again if I’ve not wasted it all on ice climbing gear and holidays:-)

But yes, that’s what I’m suggesting you do ( the DD not the ice climbing)

I don’t actually use the system the way it’s supposed to be. I use it to avoid paying transaction fees. But it’s exactly what you’re after IMHO

< Edit to say that I messed up when I wrote this:

I set up my following month DD to buy the fund

I should have said

I set up my following month subscription to buy the fund

I put the money into hand account via Debit card rather than DD.  Like I said above, I’m just abusing the system 🙂

Generally speaking, the bigger the company you work for, the lower the fees you will get from the fund provider.

i work for BA, and with over 50,000 uk employees, our Aviva scheme is ridiculously cheap. I pay 0.09% platform fee, and with a the in-house black rock trackers, the TOTAL fee is 0.1%. I had to check as it sounded too good to be true. That includes a US tracker, a global tracker and a money market fund.

I also pay no trading fees, and all tax relief is worked out at source. It is Salary Sacrifice too, including any extra contributions I make.

I don’t actually use the system the way it’s supposed to be. I use it to avoid paying transaction fees. But it’s exactly what you’re after IMHO

I put the money into hand account via Debit card rather than DD.  Like I said above, I’m just abusing the system

sorry, i dont really understand that.  i suppose i dont need to if im setting up a DD anyway, but why would i not pay transaction fees via DD, but you should if you just input wedge manually?

and er….. why dont you just set up a DD anyway if youre still putting the same in each month anyway? :-). i dont really understand why/how youre ‘abusing the system’.

and that screenshot ^^^^ is that your ‘subscription’ then?  you tell them you want to ‘buy’ those amounts each month, and then manually put the money in, and they use it to fulfil your wishes?  and if you forget to put any in then they just dont, simple as that?

just a bit confused by it really, altho as you say, it doesnt affect me if i set up a DD anyway.

thanks

I’m with Aegon too. I just stick my entire pension into the Aegon Blackrock Global Equity Index. Its a decent enough fund and fees are low. Certainly there’s no better fund that beats the NI/Student loan savings I get from salary sacrifice so I personally wouldn’t consider a SIPP.

sorry, i dont really understand that. i suppose i dont need to if im setting up a DD anyway, but why would i not pay transaction fees via DD, but you should if you just input wedge manually?

You’re right. The way the money gets in the account is immaterial.  The transaction fee comes into play when you buy the funds/ shares. Basically on occasions when I want to buy a fund, instead of doing it there and then, and paying £15 or whatever it is, I just log in, ensure there’s some cash available and set up my free regular investment to buy that fund on the next monthly occasion, which is 9th.

and er….. why dont you just set up a DD anyway if youre still putting the same in each month anyway? :-). i dont really understand why/how youre ‘abusing the system’.

I don’t pay the same each month. Most months it’s nothing but every now and again mine or missus’ shares might mature and I’ll have a chunk spare.

and that screenshot ^^^^ is that your ‘subscription’ then? you tell them you want to ‘buy’ those amounts each month, and then manually put the money in, and they use it to fulfil your wishes? and if you forget to put any in then they just dont, simple as that?

Yep. Exactly that.

The screenshot probably shows what I bought last time around. As you say, there’s no cash in the account at present so each month it just ignores my instructions.

I’m with Aegon too. I just stick my entire pension into the Aegon Blackrock Global Equity Index. Its a decent enough fund and fees are low. Certainly there’s no better fund that beats the NI/Student loan savings I get from salary sacrifice so I personally wouldn’t consider a SIPP.

Are you sure about that?  Anyone who has a workplace pension should look at this short video – https://youtu.be/m3n58E3ypx0?si=vE8fgMDOIKPGZPip

I’ve just watched that video and it’s misleading at best. A workplace pension doesn’t have to be one stock fund. You can have an index tracker inside the wrapper of the workplace pension.

If he was slagging off default funds, I would agree, but the whole workplace pension market……..?

Looks like a sales pitch to me.

Just to clarify ref II – the platform fee is £12.99 per month. Assuming you use regular monthly investments there are no other fees apart from the standard fees for whichever funds you end up investing in.  As soon as you have more than a certain amount invested, it becomes cheaper than most other options, including Vanguard.
To use Vanguard as an example, fees are 0.15% capped at £375 per year. II flat rate is £155.88 per year. So as soon as you have more than £104,000 invested, the platform fee is cheaper than Vanguard, and if you want you can still invest in Vanguard funds. So provided you have enough to invest, it is cheaper to invest in Vanguard via II than it is to do it direct with Vanguard, plus you have access so loads of other global funds and ETFs.
I’m not sure there is much value in trying to time investments to beat the market so I have never paid any transaction fees, just leave it to free monthly investing and then when tax relief comes through I just assign that as an extra top of my free monthly purchases.
Perhaps there are some fees hidden away if you use other ways of investing but if you use the SIPP as it is designed, fees are very low.

I would agree ref ISA though, the extra fee for an ISA doesn’t make it worth my while to transfer. I use InvestEngine for that.

sounds like im on the right track then with II, as thats what i intend to do, invest in vanguard lifestrategy 80 through them, and keep topping up monthly.

out of interest, i was just about to press Go on investing the full balance (135k) and it prompted me to look at the charges, so thought id have a quick look even tho i believe the costs will be £12.99 pm to II, and 0.22% of LS80 fund only.

im guessing that last one is the 0.22%.  middle one is negligible anyway but i still dont understand it, but that top one shows a fee of £291 (for 100k, so more for my 135k).  are these extra charges that ill be hit with too?  or can i indeed ignore them and just press ahead and yes, the fees will be £12.99 plus 0.22%?

thanks

I have some Vanguard funds in my II and as far as I’m aware I just pay the overall £12.99 but the standard fund management fee which for one funds I’ve got is 0.1%. I’m not aware of any other fees.
Worth considering other global tracker funds – I’ve got L&G global 100, Fidelity Index Workd and Schroder QEP Global Core which are all similarly low fees and have performed better than the Vanguard 80% Equity blended funds. Also if you want you can go with some market trackers – S&P 500 Info tech trackers have done particularly well in the last few years although potentially are due a downward correction.
I did consider sticking just with Vanguard blended funds (I came from a Vanguard Target Retirement fund) but spreading investments across global funds and trackers has so far produced much better returns than I would have achieved had I stayed with Vanguard alone.

I’ve just watched that video and it’s misleading at best. A workplace pension doesn’t have to be one stock fund. You can have an index tracker inside the wrapper of the workplace pension.

If he was slagging off default funds, I would agree, but the whole workplace pension market……..?

Looks like a sales pitch to me.

Its just his style and the key point is making sure you know what you are invested in which many people don’t or just assume the employer is doing the right thing.  As I’ve said before nobody cares more about your pension than you.

He is correct that loads (if not the majority) of workplace pensions have terrible performance. There are a few decent ones like Scottish Widows and Royal London that have performed well but there are a lot of terrible ones. Plus he’s quite correct that a lot of people just assume that they’re good products and don’t look at available funds / performance etc.

I did consider sticking just with Vanguard blended funds (I came from a Vanguard Target Retirement fund) but spreading investments across global funds and trackers has so far produced much better returns than I would have achieved had I stayed with Vanguard alone.

does the vanguuard LS80 not cover global funds then?  when i switched from HL to II, i ‘cashed in’ 6 funds with HL and thought id just consolidate all of that money into one fund with II which covered a wide variation.  is that not the case?

thanks

With a Vanguard product like LS80 or Target Retirement you’re just sticking with Vanguard products. Plus obviously a fair percentage of bonds, which are doing better now but tanked for a few years across Covid.
I don’t currently have any bonds as I’m happy with potential volatility for now. Plus even if you look just at Vanguard LifeStrategy, the performance of the 100% equity one is by far the best.
I’m not sure about the II blended fund options – I’m sure they do have ready made portfolios you could use.
Edit – looks like for ready made portfolios they’re now just recommending Vanguard or Royal London.
I do have a significant amount of my pension in Royal London funds which have higher charges but have done extremely well.

I guess with a work place pension, your employer matching your contributions up to a certain percentage is a huge benefit.. Even if the scheme itself isn’t the best?

But if you are already doing that I guess a sipp in addition would then start to make more sense.

The only thing about sipps is you can’t access the money until a certain age so it depends on your circumstances and goals.

So at the moment I’m maxing out my ISA allowance but it’s just a cash ISA currently, so I’m thinking of doing an S&S ISA in addition to that next year with new money probably some sort of global fund without too much exposure to the US tech market.

A lot of them seem heavily weighted toward US tech companies and I’d rather spread my bet a bit wider, even if it means potentially lower returns, as to me the SP500 seems to be a bit of a narrow spread..

But if you are already doing that I guess a sipp in addition would then start to make more sense.

I think I posted this earlier, or on another thread, most workplace pensions allow a once a year transfer out to a SIPP, so best of both worlds !

My point is that it isn’t “Aviva” or “Royal London” that is doing badly, it’s a particular fund chosen as the default by the scheme trustees. There  will be plenty of Aviva and RL funds doing amazingly well. The message of “workplace pensions are sh@t, join a SIPP instead” is very dangerous advice. Giving up salary sacrifice NI gains, plus at source Higher Rate tax relief. Is not good.

if he had said “check the default fund of your workplace scheme and see if you can move it to better options” I’m with him, but it came across as “buy my book & put it in a SIPP”

I think the article on which the video is based makes some questionable points and the video doubles down on them. For instance:

The latest analysis by Investing Insiders revealed that 26 out of the 29 funds analysed underperformed the FTSE All Share tracker over the past five years.

That’s what you’d expect since the FTSE all share is 100% equities while pension funds typically contain some bonds. Bonds are a drag on long term returns but act as diversifier which reduces volatility so that investors don’t have to feel the full force of equity crashes. Bonds themselves had a rare crash in 2022 which makes their recent performance look particularly bad but the purpose of them in a portfolio is still valid for the majority of investors, who may be inclined to make bad decisions in the midst of an equity crash when their portfolio is down 40%+.

The data published exclusively today (November 25) by FT Adviser also found that 13 of the funds investigated did not beat the benchmark aligned to their fund risk category.

So when you compare like for like, 16 overperformed and 13 underperformed. Again you’d expect the performance of index funds to be clustered around the benchmark with some slightly above and some slightly below over any given period. Unless there’s evidence that some funds are continuously and significantly underperforming a valid benchmark then there’s no problem.

FTSE all-share is not a great benchmark – when I first looked into my pension rather than assuming my financial advisor had my best interests at heart was when I realised that using this as a benchmark is comparing to a globally poor performing index, in order to make a fund look good even when on a global scale it is doing terribly.
FTSE all share index has gone up by 25% in 10 years!