![Ben Uttley, 56](/https/www.telegraph.co.uk/content/dam/money/2024/06/27/TELEMMGLPICT000383125146_17194977153090_trans_NvBQzQNjv4BqRo0U4xU-30oDveS4pXV-Vv4Xpit_DMGvdp2n7FDd82k.jpeg?imwidth=680)
‘My £800k Sipp is underperforming – should I drop it?’
Money Makeover: as retirement looms, our reader feels his money should be doing better
![Ben Uttley, 56](/https/www.telegraph.co.uk/content/dam/money/2024/06/27/TELEMMGLPICT000383125146_17194977153090_trans_NvBQzQNjv4BqRo0U4xU-30oDveS4pXV-Vv4Xpit_DMGvdp2n7FDd82k.jpeg?imwidth=680)
With a career in financial services, it was only natural Ben Uttley wanted to have a say in how his pension is invested.
The 56-year old is one of almost a million self-invested private pension (Sipp) holders across Britain.
Unlike ordinary workplace pensions, a Sipp allows savers to choose exactly what they put their retirement savings into. Those hoping to maximise the value of pots can opt to take on more risk, with the potential for higher returns.
But after a run of investments turned £635,000 into a little under £800,000 in the six years since he first opened his Sipp 2018, Mr Uttley feels his money should be doing better, especially now that retirement is beckoning.
“It hasn’t returned a particularly good amount to me over the past few years,” he says. While his account tells him he is ahead of his target, up 4pc in a year, he says he is considering dropping his Sipp altogether.
He asks: “Does it make more sense to self manage or is there a better fund manager out there?” His Sipp is his “single biggest asset” he has but he’s “not sure whether it has been particularly well managed.”
A glance at his asset allocation reveals roughly 40pc is allocated to companies listed in America, while 12pc is in Europe and 9pc in Britain, with the remainder split evenly between Japan and emerging markets.
Mr Uttley, a higher-rate taxpayer, says he puts aside between £7,000 and £8,000 a year into the portfolio for later life. He hopes to retire by the time he is 60 at the latest.
This month, he will pay off the last £70,000 on his mortgage for his home in Sheffield. Once he’s mortgage-free, he plans to live on a modest £2,500 every month.
He stands to inherit about £500,000 in the next few years, as well as two rental properties in the local area which he foresees will generate £12,000-a-year to supplement his income.
His remaining cash is held in a private limited company to the tune of £70,000.
Henry Anderson, financial adviser, Parallel Wealth Management says:
Mr Uttley should be commended for building a Sipp balance that appears healthy for his circumstances, but his investment returns have not outpaced inflation since 2018, highlighting the need for some strategic adjustments.
The ideal benchmark for investment performance is whether the returns are sufficient to fund your personal goals, but the minimum benchmark should always be inflation.
The Sipp has grown at an average annual rate of 3.72pc, whereas the retail prices index (RPI) increased at an average annual rate of 5.29pc in the same period. Despite an increase of over £155,000 in nominal terms, the real value (spending power) of Mr Uttley’s Sipp has, therefore, decreased quite significantly.
These six years have been turbulent, with global events such as Covid-19 and the invasion of Ukraine affecting markets. Nonetheless, the MSCI World Index, which tracks over 1,400 global companies, reported average annual growth of 10.52pc over the same period (5.23 percentage points above RPI).
Had Mr Uttley invested in a portfolio comparable to this index, and stayed invested throughout, his Sipp could be worth approximately £1.12m – over £324,000 more than its current value.
But the Sipp remains an exceptionally tax-efficient investment vehicle. To get better value from it – and as an adviser I would say this – he should take professional advice to establish the ideal balance of assets for his circumstances and avoid common self-investor pitfalls, such as moving funds out of equities during market downturns.
His current annual charges are around 1.1pc. He could continue to invest using a Sipp but with the help of a regulated adviser for total charges and fees of around 1.6pc annually.
As a higher-rate taxpayer, Mr Uttley benefits from immediate basic-rate tax relief on personal Sipp contributions, with higher-rate relief available through self-assessment. Annual contributions are limited to his earnings, capped at £60,000.
He should maximise Sipp contributions to make full use of the generous tax reliefs whilst he still has sufficient earnings, subject to affordability. This could include pension contributions from his limited company, which would also reduce any corporation tax liability.
Although we don’t know his exact income, if Mr Uttley was to inherit a property portfolio and it increased his income to over £100,000, his tax-free personal allowance would be reduced, so he would effectively pay 60pc tax on any income between £100,000 and £125,140. Sipp contributions could protect him from this, by maintaining his “adjusted net income” below £100,000.
If he receives a cash windfall whilst he is still working, subject to having earnings over £60,000, he could potentially use unused annual allowances from the previous three years. This can save a higher-rate taxpayer up to £45,030 in a single contribution.
By making these adjustments, Mr Uttley can significantly enhance the likelihood of achieving above-inflation returns, increasing his wealth in real terms. A well-balanced portfolio, disciplined investment behaviour, and maximising tax allowances will set him up well for a prosperous retirement.
Bradley Russell, senior investment manager at wealth manager, RBC Brewin Dolphin says:
First, it’s worth saying that having around £800,000 in a Sipp leaves Mr Uttley in a fantastic position to enjoy a comfortable retirement when the time comes, particularly if he feels his requirements are reasonably modest.
That said, anything he can do leading up to retirement will only help his cause, particularly as a higher-rate taxpayer. One small hack here is contributing as a higher-rate taxpayer, then drawing the pension as a basic-rate taxpayer, in just a few short years. From this perspective, he is in a great spot to maximise the tax advantages.
When it comes to investment performance, we can only base this on the current asset allocation of the Sipp, which looks to be around 73pc invested in the stock market, so reasonably adventurous, without being overly exposed.
Looking at a comparable benchmark, he should expect his investments to have increased by around 40pc over this time, compared to the 26pc he’s actually received.
Now, some of this can be explained by fees, but not that much and the fees do not seem excessive, at around 1pc of the total pot.
Finally, Mr Uttley mentions that he is set to inherit around £500,000 in cash and some rental properties within the next few years.
The rental properties will provide a reasonable level of income, which can supplement what is taken from the pension, whereas the cash could be used to either invest outside of the pension (through Isas in the first instance) or to replace an income, allowing for increased pension contributions to be made, subject to the necessary advice and calculations being sought from a financial planner.
As always, the crucial thing here is to seek quality financial advice, as there are a lot of moving parts and Mr Uttley is in a really strong position to implement some good planning in advance of retirement.
From the assets at his disposal, he should be able to produce an income well in excess of his stated goals, without accounting for the state pension, which should kick in at age 67.