WEBVTT 00:00:00.680 --> 00:00:04.799 Let me tell you why I've moved my pension. Now, 00:00:04.799 --> 00:00:08.060 I've always lived by one crucial piece of pension 00:00:08.060 --> 00:00:12.800 advice. Contribute percentage amounts equal to 00:00:12.800 --> 00:00:16.460 half your age. For example, if you're 50, then 00:00:16.460 --> 00:00:19.300 you should aim to contribute 25 % of your salary 00:00:19.300 --> 00:00:23.179 into your pension. And if you're 20, 10 % is 00:00:23.179 --> 00:00:27.039 sufficient. I constantly followed this rule and 00:00:27.039 --> 00:00:31.539 it allowed me to retire age 55. and my 55 -year 00:00:31.539 --> 00:00:35.159 -old self was incredibly grateful. Well, the 00:00:35.159 --> 00:00:38.520 most common way to manage a pension is through 00:00:38.520 --> 00:00:42.880 your employer. Now, many employers offer flexibility 00:00:42.880 --> 00:00:46.640 in how much it contributes, while some others 00:00:46.640 --> 00:00:51.640 are actually really fixed on an amount. So, Jordan 00:00:51.640 --> 00:00:54.579 McIntosh and I is a P2C and Deloitte. I mean, 00:00:54.659 --> 00:00:57.219 their pension schemes were really flexible and 00:00:57.219 --> 00:01:01.280 they actually allowed me to adjust the contributions, 00:01:01.340 --> 00:01:05.159 how much I paid annually as I saw fit really. 00:01:05.739 --> 00:01:08.760 However, when I moved on to other organizations, 00:01:08.980 --> 00:01:11.700 their pension plans weren't quite as adaptable. 00:01:12.140 --> 00:01:15.939 I found that if I wanted to contribute say 20 00:01:15.939 --> 00:01:19.420 % of my salary, my employer capped the amount 00:01:19.420 --> 00:01:23.260 I could pay in 10%. So at this point, I only 00:01:23.260 --> 00:01:25.400 had one option really, and that was to invest 00:01:25.400 --> 00:01:29.299 in a self You invested personal pension on a 00:01:29.299 --> 00:01:33.959 SIP. Now, at this point, I really discovered 00:01:33.959 --> 00:01:37.480 the advantages of the SIP. It was only actually 00:01:37.480 --> 00:01:40.760 after I opened one that I realized how flexible 00:01:40.760 --> 00:01:44.200 they really are. I mean, this sparked a new interest 00:01:44.200 --> 00:01:48.420 for me in how pensions work overall. I began 00:01:48.420 --> 00:01:52.379 comparing my company pension performance and 00:01:52.379 --> 00:01:55.859 the fees that they charged. And actually, the 00:01:55.859 --> 00:01:58.879 long -term average nominal return from a company 00:01:58.879 --> 00:02:04.019 pension was up 6%. So after factoring in inflation 00:02:04.019 --> 00:02:08.039 that left a real return of about 3%, then you 00:02:08.039 --> 00:02:10.740 have to then duck the one and a half percent 00:02:10.740 --> 00:02:13.580 fee to charge as a pension company for running 00:02:13.580 --> 00:02:16.780 the pension. And I was left with me a one and 00:02:16.780 --> 00:02:19.719 a half percent real return. That's not a great 00:02:19.719 --> 00:02:22.639 return, or I don't think. So when I open my SIP, 00:02:23.340 --> 00:02:26.139 I researched the performance of the various index 00:02:26.139 --> 00:02:29.340 funders over the same period. I was particularly 00:02:29.340 --> 00:02:32.300 interested in one fund which was the Vanguard 00:02:32.300 --> 00:02:35.979 FTSE Global All Cap Index Fund that mistracks 00:02:35.979 --> 00:02:40.139 about 5 ,000 different companies. Effectively, 00:02:40.539 --> 00:02:44.560 it covers the entire globe. Now, the long -term 00:02:44.560 --> 00:02:48.580 nominal retail on this index was 9%. Now after 00:02:48.580 --> 00:02:51.159 deducting about 3 % from inflation per year, 00:02:51.240 --> 00:02:55.639 that left 6 % real return. Now take away the 00:02:55.639 --> 00:02:59.159 less than half percent they charged as a SIP 00:02:59.159 --> 00:03:02.599 provider annually. This left me with five and 00:03:02.599 --> 00:03:05.659 a half percent real return, which is significantly 00:03:05.659 --> 00:03:09.300 higher than the 1 .5 real return I was getting 00:03:09.300 --> 00:03:15.099 from my company pension. Let's talk about company 00:03:15.099 --> 00:03:17.759 pensions though. So the other half of the story. 00:03:18.039 --> 00:03:21.819 is really important. Now based on what I've just 00:03:21.819 --> 00:03:25.439 explained, you might assume that I stopped contributing 00:03:25.439 --> 00:03:28.319 to the company pension because of the high fees 00:03:28.319 --> 00:03:32.560 and put my entire 20 % into the SIP. However, 00:03:32.580 --> 00:03:35.000 that's not what I did. It's not happened because 00:03:35.000 --> 00:03:37.620 as I said, it's only half the story that really. 00:03:38.639 --> 00:03:42.360 So typically with a company pension, your employer 00:03:42.360 --> 00:03:46.680 will match a proportion of your contribution. 00:03:47.280 --> 00:03:51.039 For example, if you're in a minimum scheme, you 00:03:51.039 --> 00:03:55.280 might pay in 5 % of your salary and your employer 00:03:55.280 --> 00:03:59.580 will then top this up and add 3 % to make a total 00:03:59.580 --> 00:04:03.599 of 8%. And many employers also then offer the 00:04:03.599 --> 00:04:07.159 option to double your contribution to 10 % and 00:04:07.159 --> 00:04:10.539 they will double their contribution to 6%. That'll 00:04:10.539 --> 00:04:15.120 give you a total of 16%. You don't receive this 00:04:15.120 --> 00:04:17.649 kind of employer match. Obviously, if you're 00:04:17.649 --> 00:04:19.930 in a SIP, you're pretty much on your own in terms 00:04:19.930 --> 00:04:22.689 of contributions you make. Another factor to 00:04:22.689 --> 00:04:24.970 consider is that many company pensions offer 00:04:24.970 --> 00:04:28.029 some additional benefits as well, such as enhanced 00:04:28.029 --> 00:04:32.769 death in service or improved spouse's pensions. 00:04:33.329 --> 00:04:38.089 So the story isn't as simple as SIPs being inherently 00:04:38.089 --> 00:04:41.509 better than company pensions. For me, though, 00:04:41.509 --> 00:04:45.149 I didn't have a choice. I couldn't increase my 00:04:45.149 --> 00:04:47.879 company. pension contributions above that 10 00:04:47.879 --> 00:04:52.480 % limit. And this really forced me into opening 00:04:52.480 --> 00:04:57.639 the SIP. So how about navigating your way around 00:04:57.639 --> 00:05:00.360 a SIP then? What's it all about? So when I open 00:05:00.360 --> 00:05:03.860 my SIP, I have to be really careful because the 00:05:03.860 --> 00:05:06.600 marketing that comes from the SIP when you open 00:05:06.600 --> 00:05:10.560 a new one, they often try steer towards one of 00:05:10.560 --> 00:05:15.329 their recommended funds. While these funds are 00:05:15.329 --> 00:05:18.610 often actively managed by a pensions expert, 00:05:19.129 --> 00:05:21.810 which actually sounds good doesn't it? They also 00:05:21.810 --> 00:05:25.490 come with a management fee and crucially the 00:05:25.490 --> 00:05:29.050 vast majority of these actively managed funds 00:05:29.050 --> 00:05:32.709 perform actually worse than an unmanaged fund 00:05:32.709 --> 00:05:36.750 which of course doesn't have a management fee 00:05:36.750 --> 00:05:40.509 attached to it. Now, I might as well avoid signing 00:05:40.509 --> 00:05:43.529 up for one of their default funds that they were 00:05:43.529 --> 00:05:46.050 recommending to me, and what I did is I chose 00:05:46.050 --> 00:05:51.050 a low -cost index fund instead. Now, many people 00:05:51.050 --> 00:05:54.930 who prefer to keep their investments simple will 00:05:54.930 --> 00:05:59.089 just open a SIP, pick a single fund, and a common 00:05:59.089 --> 00:06:01.569 choice is the one I mentioned is that all -world 00:06:01.569 --> 00:06:05.480 index fund. And that historically has returned 00:06:05.480 --> 00:06:09.620 about 9 % over the long term. More adventurous 00:06:09.620 --> 00:06:13.019 investors might opt for something like the S 00:06:13.019 --> 00:06:18.339 &P 500, the American biggest 500 companies, which 00:06:18.339 --> 00:06:21.199 generally offers a higher return than 9 % but 00:06:21.199 --> 00:06:24.480 also comes with higher risk as well. Now for 00:06:24.480 --> 00:06:27.699 me, I wasn't interested in kind of high risk 00:06:27.699 --> 00:06:31.259 option. I mean, the All World Index for me. offered 00:06:31.259 --> 00:06:34.839 greater diversification because it covered more 00:06:34.839 --> 00:06:39.620 countries on the world. And 9 % for me was an 00:06:39.620 --> 00:06:42.639 average balance between risk and reward for me. 00:06:43.000 --> 00:06:46.060 So when I opened the zip -up, a whole world of 00:06:46.060 --> 00:06:49.519 investment becomes available. I could invest 00:06:49.519 --> 00:06:51.319 in individual companies, I could be Shell, I 00:06:51.319 --> 00:06:54.980 could be Unilever, anything that I thought would 00:06:54.980 --> 00:06:58.879 perform well. There's also the low -cost index 00:06:58.879 --> 00:07:02.339 funds. There's bonds and treasuries and these 00:07:02.339 --> 00:07:05.819 actually loans of your money into governments 00:07:05.819 --> 00:07:08.060 and companies for which they pay you a return. 00:07:08.379 --> 00:07:10.160 So there's lots and lots of different ways you 00:07:10.160 --> 00:07:13.660 can invest. However, we need to remember here 00:07:13.660 --> 00:07:17.600 that we're talking about pensions. Now a pension 00:07:17.600 --> 00:07:21.439 is not, well, it is something that we'll heavily 00:07:21.439 --> 00:07:24.800 rely on as we get older, but it's not something 00:07:24.800 --> 00:07:28.339 we should be gambling with. For me. investing 00:07:28.339 --> 00:07:31.399 in individual companies is something I might 00:07:31.399 --> 00:07:34.079 do outside of a pension with some extra cash 00:07:34.079 --> 00:07:37.579 in my tab, but not for a significant portion 00:07:37.579 --> 00:07:40.980 of my actual pension. That said, I do actually 00:07:40.980 --> 00:07:44.540 allocate 5 % of my pension funds to what I call 00:07:44.540 --> 00:07:49.360 fun investments. And with this 5%, I try and 00:07:49.360 --> 00:07:52.300 beat the market. I don't then mind if I've got 00:07:52.300 --> 00:07:57.750 lots of safe index investments to using 5 % in 00:07:57.750 --> 00:08:00.730 higher risk investments. In my experience, that 00:08:00.730 --> 00:08:04.649 5 % I've had in higher risk has performed pretty 00:08:04.649 --> 00:08:09.670 poorly compared to the 95 % are having safe, 00:08:09.889 --> 00:08:13.310 low cost index funds. This is not unusual, it's 00:08:13.310 --> 00:08:16.069 fairly standard. There's not many people consistently 00:08:16.069 --> 00:08:18.689 beat the standard index funds and if they do, 00:08:19.069 --> 00:08:21.310 it's only by a tiny amount and it's usually due 00:08:21.310 --> 00:08:27.040 to luck. Why have I moved from pension? I actually 00:08:27.040 --> 00:08:30.420 bought the title of this video is why I had to 00:08:30.420 --> 00:08:34.440 move my pension. So let me explain why that became 00:08:34.440 --> 00:08:38.360 necessary for me. So the issue with my provider 00:08:38.360 --> 00:08:41.159 that I initially chose, which was free trade, 00:08:41.580 --> 00:08:45.259 was that I didn't allow pension drawdown. Now 00:08:45.259 --> 00:08:47.440 pension drawdown is when you reach retirement 00:08:47.440 --> 00:08:51.340 age, which was 55 for me, you can take your money 00:08:51.340 --> 00:08:54.570 out of your pension fund. as and when you like. 00:08:55.570 --> 00:08:59.009 Well, Everard Draw gives 25 % tax free, which 00:08:59.009 --> 00:09:03.090 is a real bonus. And although free trade is a 00:09:03.090 --> 00:09:05.750 wonderful platform, and I really do like using 00:09:05.750 --> 00:09:10.850 it, it doesn't offer drawdown. So I moved a significant 00:09:10.850 --> 00:09:13.909 proportion of my funds to another SIP provider, 00:09:14.169 --> 00:09:16.870 which is Interactive Investor. Now, I chose that. 00:09:16.909 --> 00:09:21.100 I did quite a lot of research. I found for me 00:09:21.100 --> 00:09:23.360 that they offered the best value for money and 00:09:23.360 --> 00:09:26.299 quality as well for what I was looking for and 00:09:26.299 --> 00:09:28.480 they provided the drawdown accounts as well. 00:09:28.899 --> 00:09:32.000 Now as it happens, I haven't actually used their 00:09:32.000 --> 00:09:36.340 drawdown facility yet because I've also got some 00:09:36.340 --> 00:09:39.379 defined benefit pension that actually pays me 00:09:39.379 --> 00:09:42.039 some lump sums directly. I'm currently using 00:09:42.039 --> 00:09:46.519 these lump sums to fund my retirement and actually 00:09:46.519 --> 00:09:51.509 leave my SIP invested. so it can grow. Therefore, 00:09:51.549 --> 00:09:54.950 I can't really comment on how good their drawdown 00:09:54.950 --> 00:09:58.309 facility is to use, but my analysis at the beginning 00:09:58.309 --> 00:10:00.269 showed that most users actually found it was 00:10:00.269 --> 00:10:03.389 really good. And my main penching part is currently 00:10:03.389 --> 00:10:06.389 split them between free trade and interactive 00:10:06.389 --> 00:10:10.629 investor. I intend to move all my funds from 00:10:10.629 --> 00:10:13.669 free trade to interactive investor when I start 00:10:13.669 --> 00:10:16.889 using the drawdown facility. But if you are interested 00:10:16.889 --> 00:10:20.789 in the research I put together when I decided 00:10:20.789 --> 00:10:24.450 to go with a SIP and then pop along to my website 00:10:24.450 --> 00:10:28.129 at time to retire .com and on there you'll find 00:10:28.129 --> 00:10:30.590 my email address. Just drop me a line and I'll 00:10:30.590 --> 00:10:34.289 send a cross for you. Now it's important to remember 00:10:34.289 --> 00:10:36.590 though, I'm not a financial advisor in any way 00:10:36.590 --> 00:10:39.490 and the research I did just gives you some general 00:10:39.490 --> 00:10:42.230 information about the costs and type of facilities 00:10:42.230 --> 00:10:44.649 I have. There's no kind of recommendation in 00:10:44.649 --> 00:10:48.490 there or anything like that. Obviously everyone's 00:10:48.490 --> 00:10:51.210 situation is different, so what worked out best 00:10:51.210 --> 00:10:54.549 for me probably will be best for you. If you 00:10:54.549 --> 00:10:58.090 do need some advice on choosing a SIP or anything 00:10:58.090 --> 00:11:00.509 to do with your pensions really, it's best to 00:11:00.509 --> 00:11:02.710 speak to a financial advisor before you make 00:11:02.710 --> 00:11:07.309 any decisions on your pension. Now, it was important 00:11:07.309 --> 00:11:11.330 for me to remember though that if my employer 00:11:11.330 --> 00:11:15.450 had have had a flexible company pension, then 00:11:15.789 --> 00:11:18.789 This might have been the best option for me, 00:11:18.870 --> 00:11:22.309 particularly if they'd offered a good maxed amount. 00:11:24.110 --> 00:11:28.409 It's worth also understanding how tax works with 00:11:28.409 --> 00:11:34.350 pensions. So when you pay into a company pension, 00:11:34.710 --> 00:11:39.289 the employer will generally take out your contribution 00:11:39.289 --> 00:11:42.559 and pay it into your pension account. before 00:11:42.559 --> 00:11:46.299 they deduct any tax. Now, this effectively means 00:11:46.299 --> 00:11:49.820 the amount paid into your pension avoids income 00:11:49.820 --> 00:11:53.659 tax. Now, if you pay into a SIP, you'd think, 00:11:53.879 --> 00:11:56.440 oh, well, I'm going to lose out on that because, 00:11:56.440 --> 00:11:59.179 you know, I've paid the tax and paid into my 00:11:59.179 --> 00:12:02.379 bank account, now I need to pay it into my SIP. 00:12:02.759 --> 00:12:04.840 But if you're a standard rate taxpayer, say 20 00:12:04.840 --> 00:12:07.759 % taxpayer, a few weeks after you've paid your 00:12:07.759 --> 00:12:10.159 money in from the bank accounts into your SIP, 00:12:10.679 --> 00:12:15.519 They will add, HMRC will add an extra 25 % of 00:12:15.519 --> 00:12:18.419 the amount you paid directly into the SIP. Now, 00:12:18.659 --> 00:12:21.120 it's easy to think, well 25 % and get an extra 00:12:21.120 --> 00:12:27.580 5 % there, but it's not. You're only a 20 % taxpayer 00:12:27.580 --> 00:12:31.740 and therefore defectively the same amount as 00:12:31.740 --> 00:12:33.799 a refund getting paid rather than the amount 00:12:33.799 --> 00:12:35.759 you've saved at the beginning. Now, if you're 00:12:35.759 --> 00:12:39.200 a 40 % taxpayer, to get that extra refund you'll 00:12:39.200 --> 00:12:42.720 need to complete a tax return and this amount 00:12:42.720 --> 00:12:46.820 will then be paid directly to you by HMRC or 00:12:46.820 --> 00:12:49.139 might be adjusted in future tax code and that 00:12:49.139 --> 00:12:52.240 depends really on how much they actually owe 00:12:52.240 --> 00:12:56.200 you as a refund. It was important for me to consistently 00:12:56.200 --> 00:12:59.799 pay an amount that was half of my pension age 00:12:59.799 --> 00:13:02.460 and that's got me to retire at 55.