The power of AND

Putting the scores on the doors reveals that I progressed to my Financial Independence number at a rate greater than 0.9% per month.  In hindsight this wasn’t because of any one particular silver bullet but instead was made possible by focusing on the personal finance many, rather than a few, or even the one talked about so often, investment return.  Putting it another way I focused on the personal finance AND.  Mechanically that included earning more and spending less and an appropriate portfolio and minimising taxes and minimising expenses and investment return.  Psychologically that included starting and determination and accepting I’ll make mistakes and never becoming a victim to name a few.

Over the last couple of weeks I think I’ve shown this trait again by maximising pension contributions while also minimising expenses.

I have two low cost SIPP’s (two rather than one is for risk minimisation reasons) in which I buy low cost tracker products.  This is my method of minimising pension wrapper expenses and investment product expenses.  However, even though I have these and they would enable me to defer tax if I invested in them directly I choose not to use this route.  Instead all my contributions enter pension wrappers via my employer’s expensive defined contribution old school insurance company group personal pension.  I do it this way as in addition to deferring tax like I could also do in the SIPP this maximises my contributions in a few more ways:

• My company does an employer match up to a few percent, which of course I take advantage of, however I also contribute a lot more than this for the two reasons below;
• My company allows salary sacrifice which means I get an extra 2% contribution into my pension rather than it being lost to employee national insurance contributions;
• My company adds 10% of the 13.8% employer national insurance contributions that they save if I sacrifice into the pension. 

So I’ve maximised contributions but my employer’s pension scheme then has the big elephant in the room - Expenses.  I try and keep it to a minimum by buying into their tracker funds but even this means I’m paying annual expenses of between 0.6% and 0.87% depending on fund selected.  I can do much better than that in my SIPP’s.  So the trick is to complete a partial transfer into my SIPP when the pot becomes a reasonable size.  The last time I did this it could only be described as a palaver however this time the more appropriate description would be a doddle.

Of my two SIPP’s my Hargreaves Lansdown SIPP was the one with the least wealth in it.  They also now offer the option of an electronic transfer process which includes partial transfers.  I wanted a partial transfer as I don’t want to close my employer’s pension as I still need to contribute into it for a few more months yet.  I took advantage of this which required a simple online form to be completed, no interaction with my employer’s pension provider and I kid you not the funds were in my Hargreaves Lansdown SIPP in 11 calendar days.

The purchases I’ve then made within the SIPP save me significant expenses:

• Sold expensive insurance company Property Fund with annual expenses of 0.76%.  In the SIPP I topped up my Hansteen (HSTN) REIT with purchase stamp duty of 0.5% only.
• Sold expensive insurance company State Street Global Advisers (SSgA) Emerging Markets Equity Index Fund with annual expenses of 0.87%.  In the SIPP I topped up my Vanguard FTSE Emerging Markets UCITS ETF (VFEM) with an Ongoing Charges Figure (OCF) of 0.25%.
• Sold expensive insurance company State Street Global Advisers (SSgA) Europe ex UK Equity Index Fund with annual expenses of 0.6%.  In the SIPP I topped up my Vanguard FTSE Developed Europe ex UK UCITS ETF (VERX) with an OCF of 0.12%.
• Sold expensive insurance company State Street Global Advisers (SSgA) Japan Equity Index Fund with annual expenses of 0.6%.  In the SIPP I topped up my Vanguard FTSE Japan UCITS ETF (VJPN) with an OCF of 0.19%.
• Sold expensive insurance company State Street Global Advisers (SSgA) Index Linked Gilts Over 5 Years Index Fund with annual expenses of 0.6%.  In the SIPP I topped up my iShares £ Corporate Bond ex-Financials UCITS ETF (ISXF) with a TER of 0.2%.  Note: I am aware these are very different beasts which was a conscious decision given my current bond allocations.

Positively, I’m also incurring no extra pension wrapper expenses as I’ve only bought shares / ETF’s which pension wrapper expenses wise are capped at £200 in Hargreaves Lansdown.  An expense cap I had already reached previously.

The end result of this piece of work is my overall portfolio expenses have reduced from 0.276% per annum to 0.254% per annum.  Doesn’t sound like much?  How about if I said that’s £234 per annum.  Still doesn’t sound like much?  How about if I said that given my portfolio generates dividends of 3% I’d need £7,806 of wealth to support just those expenses from dividends if I didn’t transfer.

It’s all about the AND.  In this instance maximising contributions and minimising expenses.

As always DYOR.