How To Start A Personal Pension
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Freelancers fear not! Just because you’re not a regular 9 to 5-er (oh the freedom!) doesn’t mean you can’t join the pension party. Same goes if you’re self-employed. You’ll simply need a personal pension. This is also an option if you want a second pension on top of your workplace scheme. The advantage? Going personal means you have more choice since you’re not tied to one pension provider. Hurrah to that!
So what’s on offer?
There are many pension providers such as Hargreaves Lansdown, nutmeg, AEGON, ... and the list goes on. With each, you have a choice of funds and some offer a Self Invested Pension Portfolio (SIPP), which allows you to also make more specific investments, like buying shares of a company. The provider will arrange your £25 government top-up (aka tax relief) for every £100 you deposit and if you're a higher-rate or additional-rate tax payer you'll simply have to reclaim the extra tax relief.
What are the best deals?
You're looking for a low annual fee and a decent choice of funds. We’ve cut down your hours of Googling with this list of UK providers. You’re welcome.
|0.45% or less
|0.35% to 0.75%
|£2,000 or £200/month
|0.30% or less
|0.40% or less
Some pension providers limit you to investing in funds only. Others offer a SIPP account allowing you to invest in many more things like shares in a specific company or commercial properties. They’re ideal if you’ve got investment experience or if you’ve got a specific investment in mind. If you're not experienced, you can still invest in a fund via an SIPP.
Finding a pension provider is easy, however choosing a fund is not. You can swot up on this in our guide 5 Steps to Choosing a Fund. If you feel you can’t go it alone you may want help from a financial advisor. You pay for this service but the good news is that they do most of the work. Phew! Advisors are normally happy to give the first meeting for free. This is when you can ask about their fees and decide if you like them (the advisor, not the fees, or both really!)
How much does a financial advisor cost?
Fees vary, A LOT. We caught-up with a few in the MOXI network and asked what they charge to set up a pension. They all require a set-up fee ranging from £500 to £1000 where they'll also help you choose your fund. This sounds like a lot but it’s normally taken in stages from your first year’s contributions. Some FA’s also charge an on-going fee as a percentage of your pension ranging from 0.5% to 1.0% (that’s £50 to £100 a year for each £10,000 you have in the pot). A heads up: If your FA asks for an ongoing fee you should expect ongoing advice. So if you only need help with choosing your first fund then only pay the one-off set-up fee.
Worried about the fees? Take the time to meet a few advisors before you settle with one.
Is this my only option for expert advice?
Not anymore. Enter robo-advice. This new ‘advisor’ cuts out the human element and gives you fund suggestions based on a set of online questions. Many new, tech-savvy companies, such as Nutmeg, offer this type of high-tech help. Try its tool to tweak retirement age, contributions and the risk level to see the potential size of your retirement pot and a guide to relevant funds. The only pitfalls of Nutmeg are that they don’t offer a large selection of funds and their fee as a pension provider is on the higher end of the scale. But they don’t charge you for their “robo” advice and they try to keep fund management fees low so we still think it’s a cracking service.