So towards the end of last year whilst digging through some old paperwork I came across an old private pension.
On closer inspection I found that it was well over 10 years old and had returned 5% annualised which includes ad-hoc contributions I’d made years earlier.
5% annualised is less than some index trackers I’ve seen which have exceptionally low management fees and no joining fees.
This is when I decided to connect the dots and take action:
- I opened a SIPP (Self Invested Personal Pension) which allows me to not only make my own investments but to add contributions that the UK government under current tax laws provides for tax relief.
- What this means is that if you are a 20% tax payer and you invest £8000 into a SIPP the UK government automatically adds £2000. If you are a 40% tax payer with the same £8000 investment you can claim back a further £2000 higher rate tax relief via your tax return on top
- It was then that I found a low-cost UK broker who allowed SIPP investing – the freedom to choose my own investments and get tax relief from contributions in the process with very low fees for doing so.
Tax laws can change at any time.
To get the most extreme savings in cost reduction via the SIPP I would need to commit to adding contributions every month without fail and pay the following commission charges:
- £1.50 per trade for purchases once a month every month under what my provider calls it’s ‘regular investment service’.
This is very low cost indeed and these low commission charges are also applied to their normal dealing accounts inside an ISA if you need to pursue a retirement strategy outside of a SIPP.
So every month I will need a list of undervalued stocks to choose from that have a large enough margin of safety to make them safe enough to invest inside the SIPP after the proper due diligence.
I have a P2P investment, an S&P 500 tracker and some units in Fundsmith since I believe Terry Smith and his team to be excellent fund managers.
But basically I will be following the formula of the Retirement Investing Today blog of managing a low charge value-orientated portfolio with a good mix of equities and bonds ensuring that there is sufficient diversification across the equities.
Living frugally and squeezing the maximum free cash flow out of the household budget together with increasing earnings as per the Retirement Investing Today formula is also part of the plan.
In so far as bonds I’ll be looking at investing into bond funds as they have exceptionally low costs.
At this point it should be noted that I am not a pensions advisor or registered with the FCA; pursuing this strategy may not be for everyone which is why you ought to seek independent financial advice in regard to your own retirement strategy.
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