I've received £22k after my former SIPP provider went illiquid. Should I put it into my nest workplace pension or open an account with Vanguard Lifestrategy?
22 September 2021
Question by Craig
I've received £22k from the FSCS after my former SIPP provider went illiquid. I'm now wondering whether to put it into my nest workplace pension that has 10k in it (sharia) or open an account with Vanguard Lifestrategy 80/20. I'm 48 and also wondered at what age should you become more risk averse.
Answered by Boring Money
Hi Craig, thank you for your question.
Sorry to hear about your experience with your previous SIPP provider. I am sure this has knocked your confidence in the finance profession. Hopefully we can repair that.
It is always difficult to answer these questions without knowing full details about your circumstances, but the information below will help.
If you have no plans for the £22k then investing these funds could be an option. You should think about paying off bad debt first (credit cards) and ensuring you have an good emergency fund in the bank (3-6 months of outgoings is sensible). If this is in place, then investing your funds might work but I cannot say for sure without knowing your circumstances in more detail.
By contributing the funds to your NEST pension (or any pension) you will receive tax relief on top; 20% if you're a basic rate taxpayer or you can claim further relief if you're a higher rate taxpayer. One thing to be aware of when investing with NEST, is their charging structure. The annual management charge is quite low at 0.3% per annum, but every contribution attracts a charge of 1.8%. This is different to almost every other provider on the market. That said, if you go through a platform to access Vanguard, you will probably be paying higher ongoing fees.
You should think about how you'll access your funds in future, as this will impact where you invest/what you do. What are your future plans/what lifestyle do you want at age 60 or 65 for example. how much will this cost and where will the income come from?
Vanguard Lifestrategy funds are certainly popular and receive plenty of press coverage. However, there are other options with a similar strategy. Some of the Vanguard Lifestrategy funds are underperforming over the long-term.
As I am sure you’re aware, the Vanguard Lifestrategy funds are not sharia compliant like your NEST fund.
In terms of your question about being risk averse, this will depend on many factors. Any financial planner will assess your risk level using an attitude to risk questionnaire, to get an idea of your thoughts on risk. This will help to consider where your funds are invested initially. In terms of becoming risk averse, this will depend also on how you plan to access your funds. Historically, people used to ‘de-risk’ as they approached retirement to purchase an annuity. With annuities becoming less popular and more people opting for flexible drawdown, de-risking might not be required. This will all depend on your plans, the lifestyle you want and how you will funds this in future. It will also depend on other assets you hold and other sources of retirement income.
I hope that helps for now.
This answer is of course for information purposes only and should not be considered advice. Always seek professional advice if you are unsure.