Hi! Another question for my most trusted money info site! I am thinking of setting up a SIPP. I currently have a workplace pension and a S&S ISA with Wealthify (also two previous workplace pensions, one of which was 6 years in the Met Police). I am trying to diversify my investments and spread the risk, which is what led me to thinking about a SIPP. I looked at AJ Bell. They look fine, but I'm nervous about doing my own investments, given that Wealthify does all that for me, so I don't really know where to begin. Are there SIPPs which do it for you? Or if not, should I continue investing in my previous workplace pension pot which is with Aviva? Or have I got the wrong end of the stick? Argggg, so many questions! Thanks!
Great to hear you’d like to add to your existing arrangements – and considering how you diversify your money is very sensible.
I don’t know how old you are, nor what your income tax status is, but you say you have 3 workplace pensions, one of which is public sector and I, therefore, assume comes with some salary related guarantees.
The pension you are in at the moment will be receiving at least 8% of your salary from contributions made by you, your employer, and tax relief from the Government.
ISAs vs Pensions
You also have the Stocks and Shares ISA with Wealthify, but don’t say what that is worth.
The first thing to think about, then is the balance of your investments across pensions and ISAs.
A Stocks and Shares ISA may not offer you tax relief on the way in, as a pension does, but it does allow you to take benefits free of tax on the way out. And your money is not tied to any ‘age’ or date.
Notwithstanding the fact investment should never be considered for a timescale of less than 5, ideally 7+ years, if you needed to get your hands on money, you could access your ISA at any time.
With a pension, on the other hand, it is locked up until at least age 55 (age 57 if you are not yet 48 years old) and should actually be left alone until you finally retire. There are additional rules that make accessing it any earlier than actual retirement somewhat unattractive.
When a pension plan becomes attractive...
If you are:
- within 5 or 7 years of retirement,
- have maxed out your ISA allowance,
- or you remain a higher rate taxpayer even after your workplace pension contributions,
then the pension plan does start to become more attractive.
But in the latter case, that question about potentially needing the money is still more important than a bit of additional tax relief.
Your investment approach
For the ISA, you have an approach with Wealthify that you are happy with.
But how do you invest if you do go for the pension option?
Thankfully, virtually every pension plan now offers some form of multi-asset, passive investment approach.
The SIPP and pension designation is almost irrelevant from this point of view. Most workplace pensions are SIPPs these days.
What most SIPPs do now, workplace or otherwise, is segment the features of an all-singing (more expensive) SIPP, from the more basic offering of decent investment funds at a reasonable price. So please don’t feel just to diversify that you must go for an AJ Bell Youinvest-type approach, and manage your own investments within there.
However, to cover that off, AJ Bell Youinvest do offer access to a range of multi-asset passive funds that will do that work for you – from Vanguard, Architas, Legal & General, amongst others – and their own offering, called the Managed Portfolio Service.
Workplace pension top-ups
You should also be aware that your existing workplace pension will accept top ups – and should also offer a managed option.
In auto-enrolment arrangements, these are usually called lifestyle funds. You may already be invested in one of those if your workplace pension is fairly new. These offer the added feature of managing risk exposure downwards, automatically, over the final 5-10 years ahead of your chosen retirement date.
In terms of using a previous workplace plan, or if your current one is quite old, whether to use it will depend on:
- how old and what the terms are,
- ongoing fees & exit fees,
- fund selection
- what flexibility will then be available to you at retirement.
Whatever you decide, make sure you don’t tie yourself up in a high-fee or limited investment arrangement.
In that regard, pensions have (mostly) moved on.
Hope this helps,