Checksies ✅

Hello

Hi, this is Checksies. It’s about how to do money. It’s not about vouchers. It’s written by @annagoss and @rod, who are not financial advisors. This is issue 2: please send us your feedback.

Three things to read

1. A strategy for life: Vanguard Lifestrategy - lots of info about the Vanguard Lifestrategy funds. (And more from us on Vanguard below.)

2. Household income falling at fastest rate since 1976 as UK savings rates crash.

3. Think hard before buying a London property.

One thing to do

Start your own personal pension

Last time we wrote about maxing out your employer match pensions. This week, more pensions, but for a wider audience: Not Just The Employed.

TL;DR:

1. Open a SIPP on a ‘pension platform’ that is low cost
2. Invest the money in a Vanguard Lifestrategy fund that’s suitable for your appetite for risk or age
3. Pay into it regularly, get your tax credits and just wait while it grows 

We managed to leave out a bit of the intended content from our last email, which said:

If you can try to look after yourself a bit while you’re working, you’ll be a lot better off in older age. There is a rule of thumb that the amount you should save into your pension is the half the age you are when you start saving. You’re 25? Save 12.5% of your take-home salary. 40? Start saving 20%. Stick to it until you retire.

There’s a big gap between those percentages because the 25 year old has an extra 15 years of saving into their pension and an extra 15 years of compound interest working its slow magic. This means, of course, that it’s easier to start saving for retirement when you’re young. Just when you don’t want to be thinking about it. If you have young-ish people in your life who have just started working, perhaps mention this to them gently, or get them subscribed to Checksies!

So if you’re employed, and you sorted out your employer pension last week, what’s the total percentage that’s going into your pension? If it’s less than half your age, you should consider topping it up with a personal pension.

There are a few types of pension, but here we’re going to focus on the Self-Invested Personal Pension (SIPP), which is easy to set up and offers a lot of choice about what investments it contains. Anyone can set up a SIPP, whether employed, self employed or not employed. As with employer pensions, there are rules about how much you can contribute each year (and in total) and when you can access your pension.

OK, how to do it.

1. Choose a pension platform

You can open a SIPP on a ‘pension platform’. It’s like opening a bank account except the website designs are pretty clunky. These platforms all have low fees:

• If you have less than £50k, start a SIPP at Cavendish Online
• If you have £50-250k, start a SIPP at iWeb or Halifax Share Dealing
• If you have more than £250k, start a SIPP at iWeb or
  Interactive Investor

If you love numbers, there are useful comparisons of pension platforms and their various fees at both LangCat and Monevator - they’re both detailed but informative reads. The gist is: if you have a large pension pot, a fixed-fee platform will probably be cheaper; if it’s small a percentage fee platform may be cheaper. But you do have to keep an eye on things like trading fees and exit fees.

You’ll have a do a little bit of paperwork to set up your SIPP, but it’s not too onerous.

Next you need to put some money into the SIPP. You can do this by making a one-off or regular bank transfer from your bank account to your pension provider. Again, there may be a bit of paperwork if you’re making a one-off contribution. (Or you can transfer an existing pension, but it’s not straightforward so you should talk to a financial advisor about it - you have to be careful about exit fees and the loss of benefits that are unique to your current pension.)

2. Invest the money in something

When the money is in your SIPP, you can choose where it’s invested. That could be in individual stocks (owning a bit of a company), in funds (owning a bunch of different stocks), or bonds (lending money to companies or governments, and getting it back at a guaranteed interest rate), or a few other things. There are a million things you can invest in. We’ll talk about Investment 101 soon. In the meantime we’re going to make it easy by suggesting something that’s sensible and low cost:

• If you’re in your 20s or 30s, buy Vanguard’s Lifestrategy 100 or Lifestrategy 80. Buy the Accumulation version (“ACC”) which reinvests dividends - it’ll grow more than the Income one (“INC”) which pays dividends out to you. (Lifestrategy 100 is 100% stocks and is for people with a higher appetite for risk or a long investing life ahead of them. Higher risk usually means higher growth. Vanguard Lifestrategy 80 is 80% stocks and 20% bonds - the bonds are there to even out the risks of the fund’s value going up and down wildly. If in any doubt, talk to a financial advisor!)
• If you’re in your 40s or 50s, buy Vanguard Lifestrategy 60, again the Accumulation version (“ACC”) which reinvests dividends.  
• If you’re in your 60s, talk to a financial advisor.  

More on Vanguard Lifestrategy here. We like the Vanguard Lifestrategy funds because they’re globally diversified across stocks and bonds, and they’re low cost. They’re a good place to start.  Why different Lifestrategy funds for different age groups? It’s about your “risk appetite”. If you’re in your 20s you have a long investment life to even out the ups and downs, so you might take on more risk. A key thing: we don’t know how you feel about risk, so you should talk to a financial advisor.

Once you get into the habit of regularly investing into pension you can learn more about investing and optimise your plan…or just leave it to grow.

3. Pay into it regularly and make sure you get your tax credit