Monday, June 30, 2008

My UK Pension Plan strategy.

After moving to the UK I have been planning to Invest in my company's Pension Plan.

The benefits are obvious:

1) Company matches my contributions up to a limit.
2) Tax is refunded (40% for me) on my contribution to the plan.
3) If I run up huge gambling debts and declare bankruptcy, they can't touch my pension ;-).

I hate pension plans because:

1) The money is locked up, there is no good way to get the money out until I reach 55 ( far away for me).
2) Pension plan administrators pocket big fees for truly awful performance. Nearly all the funds offered to me in my very restrictive company pension have underperformed their benchmark over the last decade. My Plan provides only mutual funds and does not let me buy Shares.
3) If you leave the UK you can only transfer the money out to an approved scheme in your new country.

Still I feel that I should subscribe to the plan up to the limit my
company matches. There are other tax advantaged ways to invest if it were not for the company's contribution. The main disadvantage to me is that t I can not personally manage my money.

The best strategy I can think of is ..

As soon as I leave the company or move to another one I will transfer the money in the old Pension plan to a SIPP (self invested pension plan) that lets you buy individual shares. Any monkey can manage the money better than the typical funds that lurk in most pension plans. If you really have no ideas I suggest you look at the "RIT" investment trust that can be bought like any share on the London exchange. You can see a List of Investment Trusts at Trustnet. Investment trusts in the UK have historically done better than Mutual Funds.

I can Run a SIPP and a Company pension Plan simultaneously. My company refuses to pay to a SIPP directly and insists that they will only pay their contribution to the approved pension plan. However that does not stop me from transferring the Money to my SIPP soon after it is paid to the Company Pension Plan. So I can minimise the time my money spends in an awful fund in the pension plan. To minimize the damage my fund manager can do I intend to select a "Cash" Fund for my company pension Plan.

Unfortunately the average broker for a SIPP pension plan in the UK only lets you buy on the London Exchange and a few selected stocks ( not ETFs) on the major US exchanges. I feel that the best opportunities however are in small dividend paying companies in Asia and some US listed ETFs and a very few dividend paying OTC/Pink Sheet stocks.

3) If I leave the UK I can transfer my money from my SIPP to an approved scheme in another country.

So to summarize I'll always have two Pension plans. The first is a stocks and shares SIPP and the second is the current company pension plan. As I move from company to company I transfer my previous companies pension plan to my SIPP.

I may also transfer the money from my company pension plan to my SIPP as soon as it is paid in.

If I leave the country I can move my SIPP money to a approved scheme in the new country or even to something in Luxembourg.

All the above assumes low costs for transfers. You will have to check with your company pension provider about cost for transfers ( mine has no cost).

So which SIPP should I choose ? My desire is for zero or low costs ( not a percentage of assets) , zero or low transfer fees, ability to buy shares globally, and low brokerage. Hargreaves is a SIPP provider I have been looking at. If you know of better ones that permit excellent International share dealing please let me know.

Disclaimer: I do not own RIT ( I feel I can do better). I suggest RIT just because its past performance is not too bad and it is globally diversified. I also dislike buying Investment trusts like RIT when they trade at a premium to NAV. They usually trade at a Discount.

No comments: