I have a rough total of £30,000 in two separate company pensions from previous employers. For the last 12 years I have not contributed to a pension. I am now 44 and know I need to put money into one. I'm not financially aware and the robo providers sound tempting but, obviously, I want the possibility for the best return at medium risk. I aim to invest about another £30k immediately. Your Q2 2018 results update showed Nutmeg’s Portfolio 10 as returning 7.92%, but the Best Buys page for Nutmeg says it returned -5.9% in 2018 - I read at as a 5.9% loss. Please can you advise why the figures are so different? I've also heard that things like Vanguard Lifestrategy 60 are also a good choice but they don't have a SIPP - but then I don't know if I need a SIPP - I just want a good, solid pension. Many thanks.
It is not going to be possible to tell you what you should do in your situation – sadly, this is because we don’t know each other well enough.
However, I can give you some facts that might help guide you.
Your point about whether you need a SIPP? Self-Invested Personal Pensions originated from rules that allowed people to manage a range of different assets and investments, all under one umbrella. Including property. And even fine art.
The flexibility idea took off but sadly, that flexibility came with a high price tag. And when people didn’t use the flexibility – most people as it happened – that price was definitely not one worth paying.
Personal pensions – and stakeholder pensions – on the other hand, have always been more straightforward, offering only a few funds, but with a lower overall price tag.
Today, however, the lines are becoming more blurred.
Price competition is increasing across the pension landscape. As long as the fees you pay for your situation are competitive, the question of whether that is via a SIPP or a Personal Pension is generally less important.
In terms of the actual investment...
The idea of targeting a multi asset, passive fund is a good one. You can choose something that suits your risk profile, benefit from great diversity AND keep your costs down, all within a single fund. After making the decision to save in the first place, these are three of the most important factors in your potential for future wealth.
The Vanguard LifeStrategy funds are excellent examples of multi-asset, passive funds. But they are not the only examples.
And no, Vanguard do not currently offer a SIPP (or any personal pension) via their own platform. But… You can access their funds via another provider (and the Best Buy tables on here include some providers that will allow that) or you can consider the equivalent fund offered by the provider(s) which do not.
Either route, with the appropriate amount of risk, should provide you with a good foundation for that solid pension plan.
Holly Mackay adds:
So you've got about £30,000 to put into a pension.
One of the first things...
You'll need to choose is where go. Our Best Buys tables will help you.
A robo adviser could be a good idea because they will do a lot of the investment heavy-lifting for you.
When it comes to selecting the type of portfolio you choose, you'll need to work out what your risk profile is.
Nutmeg who you mention, have a questionnaire online which will help you to think about where you sit on the risk spectrum, between their Portfolios 1 - 10.
With the higher risk portfolios you would typically expect to make more over the long run, but it will be a bumpier ride, so there will be some years where they will do much worse than the mid risk lot. There will also be sometimes when they will be much better.
So the Nutmeg Portfolio 10 is their highest risk portfolio. You can see that over the short time frame you talk about, in one year it did make nearly 8%.
While our Q2 2018 update shows Nutmeg’s Portfolio 10 returned 7.92%, our Nutmeg Best Buys page says it returned -5.9% in 2018 - you're right to read this as a 5.9% loss over 2018.
- So, in the 12 months between 1st July 2017 to 30th June 2018, Nutmeg's highest risk Portfolio 10 returned 7.92%.
- Meanwhile between 1st January 2018 – 31st December 2018, Nutmeg's mid risk Portfolio 5 returned a loss of 5.9%.
There's a few things to note here, however:
- These are two different portfolios, with Portfolio 10 being higher risk than Portfolio 5.
- In the last quarter of 2018, markets fell significantly - the FTSE 100 fell by nearly 10% and globally the MSCI All Country Index fell by 13%. So this would have had a significant effect on the 2018 performance of Nutmeg’s portfolios.
- Both these figures are just looking over a 12 month period, which is a very short time-frame from an investing perspective. To get a better idea of performance, you need to compare years of returns.
At this stage I wouldn't focus too much on specific and short time frames. I would just spend my focus on making sure that you're in the right risk portfolio for you.
You're 44, so we're looking at a minimum of a 13 year time frame - the minimum age for access to a pension is rising from 55 to 57 in 2028.
With this time frame, you can afford to take a decent amount of investment risk, so make sure you factor this in to account. Don't just plump for the 'middle toaster' in a range of investment returns, make sure you're really thinking about what's best for you and you will be comfortable with.
The Vanguard LifeStrategy range is a similar type of investment, as in it's pre-packaged and assembled by the experts.
As you say they don't yet have an online pension, although we believe this is launching imminently.
As well as the robo advisers which you can read up about online, you can think about more mainstream investment and pensions companies, such as Aviva, which offer ready-made pre-packaged pensions. Again, see what you think in our Best Buys.