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I want to start learning about investment funds now. How should I do this? Should I start paying into a SIPP to "learn the ropes?"

28 September 2021

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Question by David

I'm 49 years old and plan on retiring at 55. I am paying into a final salary pension scheme and plan on transferring it into a SIPP when I turn 55. My CETV for this is currently £600k. I also have an old final salary pension which I haven't paid into for 20 years and that CETV for this is currently £250k, I do not plan on putting this into the SIPP at 55, purely for security reasons, and will make a decision on what to do with it matures when I turn 60. I also have a small amount of AVC's invested, currently worth £30k but I have increased my payment into this to £500/month and expect this to remain this way until I am 55. I have started researching SIPP's and the charges involved, I understand the risks of self managing versus having an investment manager and the costs involved. At this point in time I have no experience in investments so would need a fund manager however rather than wait until I am 55 I want to start learning about investment funds now. How would you advice doing this? I Have enough disposable income currently to start paying into a SIPP now, is this a good way to "learn the ropes?"


Answered by Andrew Neligan

Hello David,

Thank you for your question. There are a number of considerations here.

Firstly, it's good to see that you are a member of two final salary pension schemes and even better that you are an active member of one, there are not many of those around these days!

It looks like that you are aware of the benefits of them given you are planning to keep the deferred one for "security reasons". Final salary pensions are an extremely valuable benefit and so should only really be given up in certain scenarios. For most people, most of the time, transferring them may prove to be an unwise move. In fact, the Financial Conduct Authority has introduced new regulations over the past year to ensure members are protected against advisers who recommend a transfer away without strong evidence it is in the best interest of the member.

It also sounds like you know the CETV is not fixed but will change over time, possibly higher, possibly lower. There are a number of factors actuaries use in their calculations, one of which is Government Bond yields, and because these yields change daily there is no way to be sure what the capital value of your pension will be when you are 55.

The biggest determinants of our financial security and independence in retirement are how much we save when we are working and how much we need to draw out in retirement to maintain our lifestyle. The more you can do of the former and the lower you can keep the latter, the stronger the position you will be in. By putting in an additional £500 a month in your pension will certainly help. A good rule of thumb is to save at least 10% of earnings and 50% of any pay rises. If you are able to do even more than that your future self will be very grateful.

In terms of how can you go about learning the ropes of investing, the good news is there is no shortage of information available to you now. Investing is actually fairly simple, it's just made to look more complicated by the 'experts'. A really good starting point would be to check out Pete Matthew's Meaningful Money. He has a podcast, You Tube channel and book. He's has probably done more than anyone in the UK to make personal finance consumer-friendly.

Also lookout for the Maven Money podcast by Andy Hart, again a very accessible and helpful resource. Martin Bamford is another popular podcaster, You Tuber and writer.

In terms of books, Enough by Paul Armson will introduce you to the concept of financial planning and why it is important to have a plan for your money. The Geometry of Wealth by Brian Portnoy is another good read. Nick Murray is a US investment writer who many of us financial planners like to refer to, but his books are not readily available in the UK so you might find them harder to come by.

If you would also forgive me for a bit of self-promotion, I have a number of articles, videos and guides on my website under the learn section (check out www.neliganfinancial.co.uk).

I hope all this helps and gives you a good starting point.

Andrew

Answered by

Andrew Neligan

Chartered & Certified Financial Planner

Typically, I work with individuals and couples who have got to the point in their lives that they have important questions about money they want answering. They may be thinking about retirement in the next 5 to 10 years but they are worried they won’t have enough so they want to make sensible decisions now. Or, they really want to retire sooner, but either they don’t know if they can afford to, or they are afraid they will make decisions that they may later regret.