Saving for retirements at 28 - Advice

My company matches up to just 4% which gives me a total of 8% towoards my pension, but I have increased this to a total of 14% (half my age as a percentage rule). Is this the best option or should I be investing this in the likes of S+P 500 Global?

It will depend on what investment strategy the pension provider has as well as charges on the scheme.
My employer pays 8% I pay 8%. Changing from the preset strategies over last 5 years has allowed good growth compared to colleagues who have not selected anything other than the standard allocation.
Additionally are you a 20% or 40% taxpayer as this can make a difference.

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Maybe I should give my pension company a call and change things up, I am a 20% taxpayer.

I would only pay in your pension scheme up to the maximum amount that your employer matches.

The rest is best invested in another investment scheme with lower fees. Something like Nutmeg or Wealthsimple for example. The reason: normal pension providers usually charge an arm and a leg in fees. They sell ease of use and hope that people just invest with them because it’s so “easy”. You will loose a lot of future return. Skim through the book “Money” from Tony Robbins. He explains really well why even small differences in fees can make a big difference in the long run. Here is a quick video:

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There isn’t really any rule as to how much and when. Obviously if your employer matches your payments to a certain point then you should absolutely do this, ESPECIALLY early on in life. Getting your pension savings started 10 years earlier can mean you (assuming a steady rate of growth) will have far more by the time you retire thanks to compound interest. (I did some rough excel sheet illustrations with one of my colleagues who was 25 vs my 38 assuming paying into the same and retiring at the same and his end of year was over 3 times mine!

Just remember though pension money is locked in there until you retire, so if you wanted to put that money to use in the real world, property, investments, and so on its gone. So weigh up your future goal, use that match to its full.

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2 bits of pension advice I was given many years ago:

  1. At the age you start paying into your pension take your age and half it to give you the amount you need to be putting in. Start at age 20 you need to put in 10% of your income, start at 40 years old it needs to be 20%.

  2. Each time you get a pay rise share it with your pension, you can’t miss what you never had.

This is really bad advice.

  1. Robo-advisors like Nutmeg and Wealthsimple charge an arm and a leg in fees.
  2. Robo-advisors sell ease of use, but their fund performance is bad
  3. It’s possible for your place of work to get fee discounts from your pension provider, so that you could be getting a really good deal

If the company scheme has high fees or bad funds, then for anything above the match level it might be worth looking at a low cost SIPP and investing in a global index tracking fund with a low OFC.

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Yikes, this is really bad advice. I second everything Sendu says.

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I’d say everyone to their own.

It’s always better to have a mix of investments and not to invest with just one provider. Always look for performance after fees.

And it is also important what you compare: if you compare robo advisors to investing in the ETFs yourself, yes, in that case they charge a “high” fee.

Compare it to a traditional fund provider with a similar investment strategy, suddenly the fee seems not soo high.

I don’t mean to be rude, but this is terrible advice. To begin with, there’s actually a legal cap on the fees auto-enrolled workplace pensions like the one OP is describing can charge and it’s lower than what Nutmeg charge - it’s actually impossible for this suggestion to save OP money in fees and it might cost them a lot. Nutmeg and Wealthsimple are NOT cheap platforms.

Whether the fee seems small compared to a “traditional provider” depends entirely on which “traditional provider” you mean. Take Vanguard, for example. Their platform fee is one third of Nutmeg’s cheapest starting rate AND they cap that fee, which Nutmeg won’t. Even when Nutmeg gets cheaper after the first 100000 Vanguard charge less than half what they do. Or try Interactive Investor - a capped charge at just under a tenner a month gets cheaper in annual fees than a managed Nutmeg portfolio at 0.75% after the first 16000, before fund fees on either side. Nutmeg looks pretty expensive by comparison, I’d say!

But the bigger point is that by opting to use another provider, while you can still get income tax relief through SIPP products, OP might be missing out on saving NI contributions and student loan repayments as well if the workplace do salary sacrifice - this could total up to 21% (plan 1 loan minimum repayment at 9%, class 1 NI at 12%).

You can always transfer the contents of the workplace pot to a service you prefer at a later date, if their strategy or fees are really that bad (but for goodness sake find out what they are first, rather than assuming - if it’s anything like mine most of the strategy will be passive anyway). But advising someone to take up to a 21% hit at the outset is beyond nuts.

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I would suggest: if your employer does salary sacrifice, use that as your means of saving for your pension. It means that not only will you avoid paying income tax on the contributions, you will also avoid paying NI contributions and student loan repayments (if applicable). You can generally rest (relatively) easy over fees since these days there’s a cap on what they can charge you all-in for the default fund choice. This might still be more than you’d pay at such-and-such an alternative provider you find, but it won’t be gouging. More important than agonising over the provider is to get saving.

It is worth looking at how your provider actually invests these contributions. You may find it actually quite closely matches your suggested strategy of using trackers (in practice it won’t just be S&P500, it’ll usually be global with a UK tilt). You’ll also almost certainly find that you can ask to change fund with the same provider if the default is not to your taste - although bear in mind alternatives might be pricier.

If that provider doesn’t have any option you like, or you think you can save money by taking your pension elsewhere, by all means transfer the contents of that pot to another provider at a later date - it’s your money and that’s your right. But I’d really think twice before passing up the opportunity to avoid paying 12% NI and (possibly) 9% student loan on your contributions - up to 21% at the outset is not to be sniffed at.

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