Bonus: What you need to know about investing in a Sipp

0:02Simon Lambert: Welcome to a special bonus episode of the This Is Money podcast. I'm joined today by George Mantilas, Chief Operating Officer of Trading 212. And today we are going to be talking about SIPs, Self-Invested Personal Pensions. What you need to know about investing in them, why people choose to invest in them alongside their workplace pension, how to make it as easy as possible, and, you know, how you can build your wealth long term. George, welcome to the podcast. First of all, SIPs. Why do they matter? Why do people like them? Tell us a bit about them. Thank you, Salman. Great to be here. I just want to say that this is a really important conversation for savers.

0:42Certainly one that would have benefited me tremendously if I had known about this and taken initiative at a much earlier age. So, self-invested personal pension. It's no different to any other pension product other than you take control. You are the one that decides what goes in it. Actually, a really good comparison is the Stocks and Shares ISA. It has a tax wrapper. You can put a number of investment products in there, whether it's cash, shares, exchange traded funds, mutual funds, bonds. There's a wide list and it depends on the provider. Ultimately, it's a pension product. So you have to think about your saving for your retirement vehicle.

1:16And it has a number of key benefits.

1:19Simon Lambert: and people most people will be employed and they will save into a pension through their workplace scheme obviously the people who are self-employed need to take responsibility for this themselves but thanks to auto enrollment where people get enrolled into a pension and then they have to choose to opt out rather than opt in we've got loads more people investing in workplace pensions Why do people decide to invest in a SIP as well as their work pension? Look, workplace pension is a really, really important thing for individuals. And, you know, obviously it depends on your employer and you have to look at the sort of, you know, what is on offer, what benefits they have.

1:57But that's the starting point. Everyone should think about their workplace pension. The SIP is really a tool that allows you to then maximise what the government is obviously is offering as part of, you know, your the tax benefits you can claim. So the average basic tax payer will have a£60 ,000 allowance or the maximum of 100 % of their earnings. So whichever is lower. It will allow you to make lump sums, depending on what your personal circumstances are, just to maximise, you know, take full effect of the tax relief that's available to you. So I would say you really need to think of the SIP as a supplementary.

2:30It's like a private pension. It's something else you can have on the side that ensures that you're making the most of tax relief that's available to you.

2:37Simon Lambert: And what are those tax reliefs for a pension? Yeah, OK. So, I mean, you already touched on the fact that, you know, you get the automatic tax relief. That is the effectively HMRC will top up by on a gross basis. It's 20 percent, but effectively it's grossed up. So you put in 100 pounds and you'll get an additional 25 as tax relief. And that with the SIP gets paid in automatically. I mean, if I look at how to trade in 212 operates that you will receive that every month based on whatever contributions you've made. We take care of that for you. Of course, it's got the same benefits as you have with the ISIS.

3:10So it's free from capital gains, free from income tax, whilst the money is inside SIP. And the other key benefit, you have complete control. My general view has been that, I guess, the younger you are, the further you are from retirement, the less likely it is that you need those funds and you can sort of weather the storm. We all know the market runs in cycles. There are peaks and troughs throughout. The longer you can plan for this, the better you can weather those storms. And so you can probably afford to take a bit more risk in terms of what you're investing in, not in how much you contribute.

3:41That always needs to be proportional to your lifestyle, what your expenses are, how much you're earning, etc. And that's always something you should be aware of. But starting early means you can take a bit more risk in the type of investments, knowing that there's time for the market to recover and for you to yield the maximum benefits. And with a SIP, obviously, you've got complete control of that. And as you move through your financial journey, through your life, you can then tailor that as you reach retirement or approach retirement, you can start to move into less risky assets, which is sensible considering you might be needing those funds soon.

4:18Simon Lambert: And investing in a pension is by its very nature somewhere where you need to think long term, isn't it? Because you get that wonderful benefit of the tax relief on the money that you put in. And there aren't many places you can get an instant 25 % uplift on your investments that are actually legit. But then you can't take that money out until much later on. So 55 at the moment, it's going to be 57 in the near future. Does that mean that for people taking full advantage of a SIP over their lifetime, they need to be doing that kind of starting early little but often, and then they can just watch it build and compound?

4:52Yeah, absolutely. I think this is the really key point. And I think the reasons why this is such a great product for trading 212 and its target market. But if I give an example, you know, let's just say your average basic rate taxpayer, and this is just for an illustration, you were to contribute£250 a month. So that is effectively£200 from you plus£50 tax relief. And you do that for 30 years. So that's a total of£90 ,000 paid in. And again, obviously, market, you don't know how it's going to perform necessarily. But if you were to assume over a 30-year period, you can fairly safely say a 5 % assumed year-on-year growth is not out of the question and an unrealistic expectation.

5:34That would amount to a 205 ,000 pot after your 30-year period. So that's a significant gain. And that changes materially if you start much, much later because you don't get the benefit of that compounding year after year.

5:47Simon Lambert: and if you've built up that kind of pot alongside a workplace pension that you've been investing in for example that's going to make a really big difference to whether you manage to enjoy a comfortable retirement having that you know extra pot on the side absolutely and actually something that we've seen with a lot of our customers and i had to am a customer of trading 212 and i've done this myself well you all know what it's like you've worked at previous jobs and you've got pensions with all you know different workplace pensions that you've built over the years it's a great way to then consolidate them and then you can start to more actively be aware of well actually what would they charge me in terms of fees and i think fees is a really key point here because in that same example that i just gave depending on different providers obviously they have different fees and i can't speak for all of them of course but a one percent fee which is not abnormal that's over the 30 years a cost of 33 000 pounds so on that 205 000 that i mentioned before that's a significant chunk that you've lost on fees.

6:43And so when obviously we were designing the trading do you want to sit fees as you know is part of our brand we have very very low fees we don't charge custody we don't charge platform fees and that is then completely saved. So you would have the full 205 ,000 in this illustration I gave.

7:01Simon Lambert: And I must admit I always say to people that that is somewhere that they need to watch out with their old work pensions which is generally speaking your workplace pension that you have at the moment will tend to have pretty low fees on it it's generally across that the board that tends to be the case but those fees can change when you're no longer an employee and people can suddenly find that actually what was once a cheap pension when they work there is no longer actually such cheap pension and there's always things you should look out for whether there's something built in that's going to you know mean you should keep it in the same place for example you might have a protected pension age but many people would benefit from looking at those old pensions and seeing if they could make them cheaper.

7:44Simon Lambert: And I guess also there's that benefit of just being able to see everything in one place, because I'm unusual. I've actually only got one workplace pension because I've worked at This Is Money for such a long time that that's the only workplace pension I've ever had. But you know, I would imagine you said to yourself, you've got quite a few, haven't you? Being able to see them all in one place is definitely going to help absolutely yeah and that was i mean i was one of the lucky few that was able to be to test the product as soon as we you know internal employees got to test the product out first to make sure it was all working nicely and um yeah i couldn't wait to sign up and first thing i did was look at my old workplace pensions transferred them over i'm guilty of i didn't start early enough really thinking about it you know if you know what we're trying to achieve we're trading two on two um the way we've sort of you know constructed our product And actually, you see it in our numbers.

8:34We have probably, you look at the demographic of our customer base, the average age is about 10 years younger than the typical pension saver, you know, at other providers. And this is the thing, this really sort of ties in with our audience that, you know, we want them to thinking about planning for their retirement much earlier. It's good for them. And what we're seeing with younger audiences is that they actually like the idea of taking charge of their own investment decisions. and we sort of have the tools the platform that give all the information the breadth of asset classes that you can invest into in different instrument types so individuals feel empowered that you know they could get the information they need to make the right decisions and people have

9:17Simon Lambert: a lot more choice about what they can invest in in a sip than often they might do in their workplace pension where it might be sort of gated to a certain number of funds you know there might be a bit of a walled garden built in there um obviously that choice is great because you know you can invest all around the world in all kinds of different things but do you think that sometimes people get baffled by the choice and actually you know is there a way that they can open a sip and make it simple for themselves yeah it is a little bit daunting there are vast different um offerings now i think the vast majority of our customers these use the etfs there's some great selection of different ETFs out there that give you a diverse exposure to whether it's something like the FTSE All World or if it's S &P 500 type funds that can then give you that diversity without being concentrated into a particular name.

10:09And there's always a lot more risk when you just invest in a single, you know, it might do great. You know, you could invest in the next big tech company that takes over the world. And in fact, fantastic if you did. But there's also significant risk for doing that sort of thing. That's not really the objective of your SIP, right? Your SIP is there to safeguard you for your retirement. And so what we see is heavy focus of our clients investing in those funds. Global funds are ideal for this sort of thing.

10:37Simon Lambert: And how important is it for people who are self-employed to be thinking about using a SIP? Because obviously we focus mainly on people who are employed doing this on the side of their workplace pension. But if you're self-employed, you don't benefit from that auto-enrollment. absolutely people with no employee pension this is this is the ideal way to to build up your effectively your private pension not get the benefits that you would otherwise um in terms of tax relief and again it's that that little but often element for them and and trying to keep up those those payments because i mean i know you know i know lots of people who are self-employed my wife's self-employed for example and your income is lumpy it's difficult to commit to it but just trying to make sure that you get that money in there regularly even if it's you know every year rather than every month is going to make a really big difference to people over the long term and one of the other interesting elements that we're seeing quite a bit or certainly seeing talk about is the idea of investing into a pension for your children um so for example you know this kind of idea of the little but often again is you know inheritance is a big issue you know in the country at the moment.

11:49Simon Lambert: The younger generation are probably struggling more financially than the older generation. So they've got things set against them. And not necessarily children themselves, but maybe like young adults going into their 20s and work and things like that. Are you seeing this coming through with your customers? Parents deciding to be putting a small amount into SIPs for their children each month? At the moment, we don't offer any kind of junior accounts. It's definitely something that we have on our radar. And I hope, you know, I'll be able to give some positive news in the near future. But I'm a father of three.

12:24I know exactly what it's like. And again, yes, I think that planning ahead is really key. The point that you made with your wife, it should always be a case of deposit frequently based on what you can, you know, take that little piece that you think, actually, I don't need to need those funds for, you know the next 20 years or whatever the period is and just lock it away do it gradually you don't have to invest everything into the market at one time in fact i think that would be a little bit dangerous because you could be unless you're fantastic at trading the market the advice would be you just drip feed it in gradually over a period of months and you know that way you sort of where there are any sort of immediate fluctuations um that the market might face

13:03Simon Lambert: finally talk us through the opening a sip and actually getting your money process for for our listeners were thinking okay right great i'm sold i want to invest in a sit but how how easy can you make it for me tell us that the the easiest way that you can make it for people to do this look um truthfully that is what trading 212 do best right so i think and i'm very proud of our product um the onboarding process is very streamlined and you can do it by your mobile phone you can do it by the website um everything is embedded in there in terms of you know uploading your your documents you know obviously we have to go through the the kyc the knowledge you know so the know your customer type um onboarding but that could be done in minutes and then that's it you're set up and that from that point on you deposit as you'd like you know whichever payment method you want um you can set up uh automated you know i'll tell you how i do it i've i've picked a various few etfs that i think are sensible for me but personally um i've obviously got some funds on the account and I say, you know, every Monday, let's do a small investment.

14:11And that just makes it really easy for me. And so I don't really have to worry about it too much. I get notifications, I can see all the information's there. And we've got a number of different products. So something we have on the platform is called a pie. And pies are really popular with our customers. So simply just means you can select from a number of different instruments, you create a portfolio that you give a name, you know, per your choice. And that can be a mixture of funds, it can be a mixture of individual stocks, whatever you like. And again, you can say, right, in this pie, I'd like to invest this portion of money every second Wednesday.

14:42It's really flexible, really customizable per your choice. And then you can see the projected gains that you might have over a five-year period. Again, illustriatively only, but it helps customers understand what they might achieve based on what they're doing now.

14:57Simon Lambert: And where in that simple process do people tend to fall down? Is it that they open the account and then they don't put the money in or they open the account, they put the money in, but then they don't invest it and it sits there in cash? Where are the places where people tend to trip up? Actually, I mean, look, we've only had our SIP product going since April this year. So it's not been around very long for us. But we've seen some really positive metrics coming through. The vast majority of our customers' funds that sit on their SIP are invested, which is great. You know, that's what the government is pushing, you know, at the moment that, you know, people should be investing more and not holding their money just in cash.

15:38Even though we do pay an exceptional rate on, you know, uninvested cash, if you do want to park your money there and gradually invest it. But no, we're not really seeing significant bottlenecks. I mean, look, like I say, it's still early days. You know, we've only recently launched this. We're seeing, you know, patterns coming out. But we have a really solid support center for our customers. If they've got questions, they can speak to us on the phone. They can write in. They can speak on chat. We've got lots of information on the website as well. So hopefully clients find it easy to understand and navigate the complexities.

16:11Simon Lambert: Great. George, that's all we've got time for. Thank you very much for joining us on This Is Money Podcast. I think it's been a real pleasure. Hope to speak to you again soon.