Starting a pension - advice please!

I am in a similar situation, currently a mature student with no earned income but looking to pay money into a pension plan. I saw a financial advisor who said this was an excellent idea as you will get tax relief at the basic rate on your contributions (i.e. an extra 22% paid into your pension).

You will probably have to stop paying into your private pension and join your employer's scheme when you start work as they will most likely also make contributions to that. You will be able to transfer-in to the employer's scheme the value you have accrued in the personal pension plan if you want to keep it all in one place.

I would recommend seeing a financial advisor to select which plan is right for you.

Any plan charging more than this is poor value for money -

"Establishment & administration

Establishment £100 (£50 if member under age 18) Annual administration Free Transfer in from another registered pension scheme £50 Single contribution £15 per single contribution Regular contribution £15 to establish or vary a direct debit Transfer out to another registered pension scheme* £50 Repayment of excess contribution £25 . . . Benefits

Set up unsecured pension (USP), including paying any lump sum benefits £150 Set up alternatively secured pension (ASP) at age 75 £150 Pension payment £10 per instalment USP and ASP Reviews £75 per review Payment of death benefits Time cost basis Annuity purchase £75 Insufficient funds e.g. to pay benefits or charges £25"

Consider using ISA's.

Then he mislead you.

Not necessary

But pay for their time otherwise they are more likely to ignore options that pay little no or little commission.

Daytona

I think it's probably quite a bad idea. The guy is going to be an investment banker. They get paid quite well. The likelihood is that he will have a large pension at the end of his career, mostly taxed at 40%. Yet he is only getting basic rate tax relief on contributions at the moment. He's better off with an ISA.

Yes that is true. I have already paid the maximum I can into ISAs this tax year so paying extra money into a pension was possibly only suggested to me because of this.

I would reiterate, he needs to speak to a financial advisor in order make an informed decision.

Dyatona, I thought you'd been here for a while I knew your stuff - someone is asking about personal pension and you're quoting SIPP fees, modern day personal pensions should charge by AMC only, also everyone gets at least 22% tax relief.

Matt.

What's wrong with that ?

So ?

I never said otherwise.

Daytona

I've decided I want to invest with monthly contributions into an ISA. I want to invest in the JPM New Europe, Jupiter European Opportunities and Gartmore China Opportunities funds through Fidelity. I already have a Fidelity PEP and I have had very positive experience with them. However, this was in Fidelity funds only.

So I'm wondering how Fidelity's charges (and discounts on initial charges) compare with other providers.

Many thanks!

Dunno - give us a clue - what are they ?

To reduce charges, consider Intelligent Money, Cavendish, Chartwell, Hargreaves Lansdown -

Try searching The Motley Fool -

Use Trustnet to compare fund performance - look for consistent outperformance, but even that's no guarantee. As most managers fail even to beat the index consider Exchange Traded Funds (ETF) such as Barclays iShares range. These are the only open ended (ie Unit Trusts and OEICS) type funds that I use as investing directly into shares is much better value for money (effectively £10 + 0.08-0.8% spread initial, £0 annual charges) and easy if you follow proven successful strategies such as value/high yield - &

hth

Daytona

Hmm. Can you explain your reasoning, please?

Duh. It's obvious, innit? You want to maximise its value to you, not minimise its value to the provider.

It's the same reasoning as lies behind the idea that you should not strive to minimise your tax bill, but to maximise your after-tax income or gain. Or that you should not seek to minimise your estate agent's fee, but to maximise your house sale proceeds after all such (and other) expenses.

All people should be caring about is money out compared with money in

UT1 Performance 10% Charges 6.5% Net result 1.5%

UT2 Performance 8% Charges 2% Net result 6%

Daytona

Because it's quite open that they're ripping people off compared with those people who buy from discount brokers.

Why do they persist in this ?

Daytona

"Daytona" wrote

But... [Even ignoring the apparent typo for UT1...]

How do you know that the *future* performance of UT1 will be 10%, and that of UT2 will be 8%?

How would you even know that the *future* performance of UT1 would exceed that of UT2?

Well, I agree with that. But to do that, you have to maximise the *future* performance net of charges. Given that past and future performance are uncorrelated, how do you do that?

In message , GB writes

Yes, a better performing high charging fund can produce better net returns than a low charging poor performer. Therefore, when looking at past performance be sure to look at that performance after the payment of all charges.

Because, although past performance is no guarantee that future performance will be similar, to say they are uncorrelated is simply rubbish. Good fund managers achieve, on average, good performance year after year.

Their acumen which brings this about is worth paying for, and thus funds which return consistently good performance tend to charge more (but not so much more as would cancel the benefit of using them).

Unfortunately the converse is not generally true, i.e. just because a fund manager has high charges, doesn't mean he's worth it.

Oh dear. In two words 'simply rubbish' you give us your apparently considered verdict on dozens of academic research papers plus the advice of the FSA to private investors.

And how do you know they are good managers? Because they have a string of good years behind them, I guess. And next year they have a 50/50 chance of having another good year. And those that do, you say 'see, he's a good manager'. And those that don't, you forget about, or you find some excuse, or you fall back on the 'on average' part above.

Really, it's the same type of fallacy that gamblers have, remembering the good wins and forgetting the losses.

Yes, of course it would be, if it's repeatable in the future and not just a string of luck.

Last time I looked, there were several thousand unitised funds listed. If you divide each year's performance into above average and below average for its sector, then each fund has a 50% chance of being average in any one year, even if the process is completely random.

So, on average, out of 1024 funds, one of them will be above average for 10 straight years in a row. 45 of them will have 8 out of 10 good years, and so on. This is all on a completely random basis.

You can surely see that this random process could make people think that certain managers were outstandingly gifted.

The investment industry knows this, and any consistently underperforming funds just get quietly lost, ie closed, merged with other funds, or restructured.

If it's random, as nearly all the academic research suggests, then this would be a con, of course.

I am afraid that you are just repeating yourself. You are not explaining why you think that past performance is a guide to the future.

In message , GB writes

I didnt say that.