Let me tell you why I've moved my pension. Now,
I've always lived by one crucial piece of pension
advice. Contribute percentage amounts equal to
half your age. For example, if you're 50, then
you should aim to contribute 25 % of your salary
into your pension. And if you're 20, 10 % is
sufficient. I constantly followed this rule and
it allowed me to retire age 55. and my 55 -year
-old self was incredibly grateful. Well, the
most common way to manage a pension is through
your employer. Now, many employers offer flexibility
in how much it contributes, while some others
are actually really fixed on an amount. So, Jordan
McIntosh and I is a P2C and Deloitte. I mean,
their pension schemes were really flexible and
they actually allowed me to adjust the contributions,
how much I paid annually as I saw fit really.
However, when I moved on to other organizations,
their pension plans weren't quite as adaptable.
I found that if I wanted to contribute say 20
% of my salary, my employer capped the amount
I could pay in 10%. So at this point, I only
had one option really, and that was to invest
in a self You invested personal pension on a
SIP. Now, at this point, I really discovered
the advantages of the SIP. It was only actually
after I opened one that I realized how flexible
they really are. I mean, this sparked a new interest
for me in how pensions work overall. I began
comparing my company pension performance and
the fees that they charged. And actually, the
long -term average nominal return from a company
pension was up 6%. So after factoring in inflation
that left a real return of about 3%, then you
have to then duck the one and a half percent
fee to charge as a pension company for running
the pension. And I was left with me a one and
a half percent real return. That's not a great
return, or I don't think. So when I open my SIP,
I researched the performance of the various index
funders over the same period. I was particularly
interested in one fund which was the Vanguard
FTSE Global All Cap Index Fund that mistracks
about 5 ,000 different companies. Effectively,
it covers the entire globe. Now, the long -term
nominal retail on this index was 9%. Now after
deducting about 3 % from inflation per year,
that left 6 % real return. Now take away the
less than half percent they charged as a SIP
provider annually. This left me with five and
a half percent real return, which is significantly
higher than the 1 .5 real return I was getting
from my company pension. Let's talk about company
pensions though. So the other half of the story.
is really important. Now based on what I've just
explained, you might assume that I stopped contributing
to the company pension because of the high fees
and put my entire 20 % into the SIP. However,
that's not what I did. It's not happened because
as I said, it's only half the story that really.
So typically with a company pension, your employer
will match a proportion of your contribution.
For example, if you're in a minimum scheme, you
might pay in 5 % of your salary and your employer
will then top this up and add 3 % to make a total
of 8%. And many employers also then offer the
option to double your contribution to 10 % and
they will double their contribution to 6%. That'll
give you a total of 16%. You don't receive this
kind of employer match. Obviously, if you're
in a SIP, you're pretty much on your own in terms
of contributions you make. Another factor to
consider is that many company pensions offer
some additional benefits as well, such as enhanced
death in service or improved spouse's pensions.
So the story isn't as simple as SIPs being inherently
better than company pensions. For me, though,
I didn't have a choice. I couldn't increase my
company. pension contributions above that 10
% limit. And this really forced me into opening
the SIP. So how about navigating your way around
a SIP then? What's it all about? So when I open
my SIP, I have to be really careful because the
marketing that comes from the SIP when you open
a new one, they often try steer towards one of
their recommended funds. While these funds are
often actively managed by a pensions expert,
which actually sounds good doesn't it? They also
come with a management fee and crucially the
vast majority of these actively managed funds
perform actually worse than an unmanaged fund
which of course doesn't have a management fee
attached to it. Now, I might as well avoid signing
up for one of their default funds that they were
recommending to me, and what I did is I chose
a low -cost index fund instead. Now, many people
who prefer to keep their investments simple will
just open a SIP, pick a single fund, and a common
choice is the one I mentioned is that all -world
index fund. And that historically has returned
about 9 % over the long term. More adventurous
investors might opt for something like the S
&P 500, the American biggest 500 companies, which
generally offers a higher return than 9 % but
also comes with higher risk as well. Now for
me, I wasn't interested in kind of high risk
option. I mean, the All World Index for me. offered
greater diversification because it covered more
countries on the world. And 9 % for me was an
average balance between risk and reward for me.
So when I opened the zip -up, a whole world of
investment becomes available. I could invest
in individual companies, I could be Shell, I
could be Unilever, anything that I thought would
perform well. There's also the low -cost index
funds. There's bonds and treasuries and these
actually loans of your money into governments
and companies for which they pay you a return.
So there's lots and lots of different ways you
can invest. However, we need to remember here
that we're talking about pensions. Now a pension
is not, well, it is something that we'll heavily
rely on as we get older, but it's not something
we should be gambling with. For me. investing
in individual companies is something I might
do outside of a pension with some extra cash
in my tab, but not for a significant portion
of my actual pension. That said, I do actually
allocate 5 % of my pension funds to what I call
fun investments. And with this 5%, I try and
beat the market. I don't then mind if I've got
lots of safe index investments to using 5 % in
higher risk investments. In my experience, that
5 % I've had in higher risk has performed pretty
poorly compared to the 95 % are having safe,
low cost index funds. This is not unusual, it's
fairly standard. There's not many people consistently
beat the standard index funds and if they do,
it's only by a tiny amount and it's usually due
to luck. Why have I moved from pension? I actually
bought the title of this video is why I had to
move my pension. So let me explain why that became
necessary for me. So the issue with my provider
that I initially chose, which was free trade,
was that I didn't allow pension drawdown. Now
pension drawdown is when you reach retirement
age, which was 55 for me, you can take your money
out of your pension fund. as and when you like.
Well, Everard Draw gives 25 % tax free, which
is a real bonus. And although free trade is a
wonderful platform, and I really do like using
it, it doesn't offer drawdown. So I moved a significant
proportion of my funds to another SIP provider,
which is Interactive Investor. Now, I chose that.
I did quite a lot of research. I found for me
that they offered the best value for money and
quality as well for what I was looking for and
they provided the drawdown accounts as well.
Now as it happens, I haven't actually used their
drawdown facility yet because I've also got some
defined benefit pension that actually pays me
some lump sums directly. I'm currently using
these lump sums to fund my retirement and actually
leave my SIP invested. so it can grow. Therefore,
I can't really comment on how good their drawdown
facility is to use, but my analysis at the beginning
showed that most users actually found it was
really good. And my main penching part is currently
split them between free trade and interactive
investor. I intend to move all my funds from
free trade to interactive investor when I start
using the drawdown facility. But if you are interested
in the research I put together when I decided
to go with a SIP and then pop along to my website
at time to retire .com and on there you'll find
my email address. Just drop me a line and I'll
send a cross for you. Now it's important to remember
though, I'm not a financial advisor in any way
and the research I did just gives you some general
information about the costs and type of facilities
I have. There's no kind of recommendation in
there or anything like that. Obviously everyone's
situation is different, so what worked out best
for me probably will be best for you. If you
do need some advice on choosing a SIP or anything
to do with your pensions really, it's best to
speak to a financial advisor before you make
any decisions on your pension. Now, it was important
for me to remember though that if my employer
had have had a flexible company pension, then
This might have been the best option for me,
particularly if they'd offered a good maxed amount.
It's worth also understanding how tax works with
pensions. So when you pay into a company pension,
the employer will generally take out your contribution
and pay it into your pension account. before
they deduct any tax. Now, this effectively means
the amount paid into your pension avoids income
tax. Now, if you pay into a SIP, you'd think,
oh, well, I'm going to lose out on that because,
you know, I've paid the tax and paid into my
bank account, now I need to pay it into my SIP.
But if you're a standard rate taxpayer, say 20
% taxpayer, a few weeks after you've paid your
money in from the bank accounts into your SIP,
They will add, HMRC will add an extra 25 % of
the amount you paid directly into the SIP. Now,
it's easy to think, well 25 % and get an extra
5 % there, but it's not. You're only a 20 % taxpayer
and therefore defectively the same amount as
a refund getting paid rather than the amount
you've saved at the beginning. Now, if you're
a 40 % taxpayer, to get that extra refund you'll
need to complete a tax return and this amount
will then be paid directly to you by HMRC or
might be adjusted in future tax code and that
depends really on how much they actually owe
you as a refund. It was important for me to consistently
pay an amount that was half of my pension age
and that's got me to retire at 55.