How do DIY Pensions work?
Think of a DIY Pension as basically a basket in which you can put your chosen investments and, protect them from the taxman.
If a basic rate taxpayer (who currently pays 20%) invests £100, it only costs £80 (higher rate taxpayers, who currently pay 40% tax, would only pay £60). The government contributes that extra £20 and £40. That's one of the big advantages of a Pension.
In a word. Tax.
DIY Pensions can (and should) be completely managed online. Investing by telephone or through the post is still done, but it's archaic to invest this way and do check on costs.
DIY Pensions can be started with nothing, with a lump sum, or you can transfer an existing pension.
There are two ways you can contribute to your DIY Pension:
And there are two types of DIY Pension:
Our website is written around the first type.
You are limited to what you can put into a DIY Pension. Below is a list of what you can invest in:
Here's what you can't put into your DIY Pension:
How much can you invest into your DIY Pension?
There are limits to how much you can invest in a DIY Pension and still get tax relief:
If you are a wage earner:
If you are a non-wage earner:
In addition to annual allowance there is also what is known as your 'growth time allowance'. This is the amount of money you can save, tax-free, into your Pension Plan during your lifetime - this is currently £1m.
If you have any more than that - congratulations. What a nice problem to have :)
So, what will it cost you to start and run a DIY Pension? There are numerous costs involved, and these will vary from provider to provider. You'll need to consider what investments you'll hold.
For example, there may be:
For large portfolios, all these charges can go into £1000s. You must do your own due diligence and consider any, and all, the fees that you may be liable for.
Not all providers charge the above fees. A lot of services are free. Again, you need to check.
So, who's the best provider for your DIY Pension?
It's not easy to decide. Best to take a look at all the options. There are pluses and minuses. Make a table like the one below and do your own "Bonus Malus"
AJ Bell YouInvest
Alliance Trust Savings
Charles Stanley Direct
Fidelity Personal Investor
Halifax Share Dealing
The Share Centre
Selecting a Pension provider is a relatively easy job.
But you must do your due diligence in deciding which one to go for.
It shouldn't take you long.
Consider carefully ALL the costs. Remember, one of the main reasons to start a DIY Pension is because of low fees. So choose well.
Once you've decided, it's a simple matter of contacting them and they will do the rest.
Then, you are all ready to go.
As a newbie, you may want to read the other "Frequently Asked Questions" on this website. Doing so, will give you a good introduction to running your own DIY Pension.
Chris and Clem Meet Up - hopefully, the last time before lockdown easing
Chris and Clem Meet Up - at last! They can meet in the beer garden
Chris and Clem Meet Up and it is Chris' turn to do most of the talking. Chris' little windfall has allowed him to widen his portfolio. Chris vows of more.