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How to invest a £150,000 pension?

Retirement | Investment Choice Helpful? 44

Asked by Princess, submitted 10 November 2014.

Open Quote I have just acquired approx £151,000 pension pot on divorcing my ex husband. I do not propose to add to this pot & I would like to retire & draw a pension at 60; I am 43 years old.

I have a small pension from my ex employer (defined final salary scheme) which will be paid to me at 60, at approx £8,000 pa.

Ideally, I would like to retire at 60 on an income of £18,000 in today's money. How & with whom would you recommend I invest please?
End Quote

Answered by Justin on 15 November 2014

Let’s start with a simple calculation. You are seeking total income of £18,000 a year at age 60 and expect £8,000 a year from your ex-employer pension, so this pension pot needs to generate £10,000 a year. We’ll ignore state pension and other pensions or savings you might accumulate between now and age 60.

Taking an income of around 4% a year from a pension is currently a pretty good rule of thumb if wanting to leave scope for income and capital to try and keep pace with inflation longer term in retirement. So to generate £10,000 a year you might need around £250,000 in this pension. It’s currently £151,000 which means average annual growth of around 3% plus inflation would be required over the next 17 years to hit your target.

While by no means certain, this is a not unrealistic target assuming you invest sensibly across a range of asset types, for example stock markets, fixed interest, commercial property and maybe commodities.

As for pension provider, with a £151,000 fund you’ll probably find it cheaper to use a pension that charges a fixed annual fee rather than percentage based, for example Interactive Investor, iWeb and Alliance Trust Savings – take a look at www.comparefundplatforms.com to get a feel for charges. However, these are ‘self-invested’ personal pensions (SIPPs) that offer a very wide range of investments, so you’ll have to choose from around 1,500 investment funds when deciding what to hold within the pension (funds have annual percentage charges to consider too). If you are a novice investor this could prove daunting.

A simpler alternative might be to use a stakeholder pension. The annual percentage fee will normally include underlying fund charges and the limited range of funds to choose from much easier to digest. Although many stakeholder pensions charge around 1% a year, you can get them cheaper via discount brokers such as Cavendish Online. There are also some personal pensions offering relatively low charges these days if you want a wider choice of funds without taking the SIPP route.

If all this sounds like double Dutch then perhaps consider speaking to a financial adviser. However, beware. Many will probably try and sting you for an initial advice fee of around £3,000 to £4,500 and annual advice fees of around 1.00% on £150,000, both of which are far too high. So shop around to ensure you get a fair deal if you opt for this route.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (1) - To post a comment please register or login .


Comment by Princess at 7:30pm on 15 Nov 2014:

Thank you for responding to my query - your comments are extremely helpful especially with regard to high financial adviser fees & types of plans to consider or avoid. You have confirmed exactly what I was thinking. I had in fact sought advice from an adviser who was trying to hard sell a costly actively managed SIPP from a wrap provider which gave him an initial fee of £4k plus half a percent for himself every year on top of fees to the wrapper & the fund managers as well; this sent alarm bells ringing to me as it seemed overly complicated & far too high in fees for my fixed limited pot. However as a complete novice, it is hard to know if your gut instinct is serving you well or not! So thank you as you have provided me with a sensible, honest steer. And I will give that adviser his marching orders!