Transferring my Company Pension into a SIPP – Part 2

On Saturday the SIPP of choice for my Company Pension transfer was heading towards Interactive Investor and their annual costs of £176.  Valued reader comments plus some more DYOR has instead led me to Hargreaves Lansdown.  Before you Comment that they are an expensive percentage fee broker/platform with annual charges of 0.45% let’s run through my thinking.

Firstly, dearieme highlighted that provided you stick with Shares, investment trusts, ETFs,
gilts & bonds and don’t add any funds Hargreaves Lansdown become a percentage fee broker/platform but with a capped maximum annual expense of £200.  I can work within that no fund criteria.  So now once your pension is greater than £44,444 that 0.45% starts to reduce.  Transfer £100,000 and it’s down to 0.2%.  On top of that John and Cerridwen also raised some red flags against Interactive Investor.

Secondly, even though the SIPP is now capped I hear you saying that it’s still £24 a year more expensive than Interactive Investor and sweating the small stuff matters.  This is where it gets interesting.  Hargreaves Lansdown currently have a promotion running until the 12 May 2015 that provides a cash back incentive for transfers of Stocks & Shares ISA’s, Cash ISA’s, Junior ISAs/Child Trust Funds (CTFs), Funds, Shares and Pensions.  They also advise that “if you need more time to decide please let us know and we will extend this deadline for you (up to three months for ISA, fund and share transfers, and six months for pensions).”  Transfer big sums and it’s a significant amount.  Between £100,000 and £124,999 and its £250 cash back which means you’re now ahead of Interactive Investor’s current annual charges for 10 years.  Transfer £125,000 or more and its £500 which puts you ahead for 20 years.  Dealing costs for me are going to also be £1.95 more expensive than Interactive Investor but I think I can set the SIPP up with 9 trades which would take a bit under 1 year off that benefit.

I highlighted in Saturday’s post that the reason for not just using my current YouInvest SIPP was the all eggs in one basket risk.  I currently have some of my HYP in a Hargreaves Lansdown Vantage Fund & Share Account and so adding a Hargreaves Lansdown SIPP will increase my exposure with this provider from 6% to 21%.  I’m ok with that level of risk.

So by switching from Interactive Investor to Hargreaves Lansdown I can save some money while also moving to a wrapper that I know and am happy with while keeping provider risk to acceptable levels.

Transferring my Company Pension into a SIPP

About half of my current monthly savings are salary sacrificed into my employers Defined Contribution Pension plan.  I do this over adding directly to my own personal SIPP for a few reasons:

• My employer matches contributions up to a certain level;
• My employer adds the majority of the employers National Insurance that they save into the pension; and
• The 2% employee National Insurance that I would have paid is also able to be added into the pension

Wealth Warning: Before I proceed it’s worth reinforcing that my employer pension plan is a Defined Contribution Pension and not a Defined Benefit Pension.  It also provides absolutely zero additional benefits.  If it was or did either of those things what I describe below may not be the right approach.

These benefits definitely outweigh the high 0.6% to 0.76% expenses I'm then paying for trackers and the lowest cost active funds (where a tracker is not available) within the Pension.  That said if I could find a way to get the money in through salary sacrifice as I do today but then transfer at regular intervals into my SIPP I’d get all the salary sacrifice benefits of the company pension as well as all the low cost benefits of a DIY SIPP.  This effect would be noticeable as I've been with my current employer for a large portion of my Financial Independence Retire Early (FIRE) journey meaning some 15% of my total wealth is now held within the company pension.  I estimate it would reduce my total wealth annual expenses from 0.31% per annum to about 0.25%.  0.06% doesn't sound like much until you run the numbers and realise its £60 per annum if your wealth is £100,000 and £600 per annum on £1 million.

Regular readers will know I've been trying to find a way to do this for some time.  I've tried two different angles:

• Get my employer to open me a new Pension policy with them salary sacrificing into that new account.  The old account would then be dormant allowing a trivial SIPP transfer by simply filling out the short transfer form that is available from any SIPP provider.  Unfortunately my employer wouldn't budge here as it was just too much “admin”.
• Ascertain from the insurance company who provides the Defined Contribution pension if and how this can be done.  They obviously have a vested interest in being as slow and obstructive here as possible.

I am however pleased to announce that many emails, phone calls and a lot of time later I have achieved success.  In case any readers are trying to do something similar the form I needed is what is called a Declaration of Claim Discharge which is a simple 2 page form which importantly includes a section called a Partial Transfer Request which enables me to check a box entitled “If you wish to move the ‘maximum amount’, please tick the box opposite”.  All I have to do is complete this form and then attach it to the SIPP transfer form from my chosen SIPP provider and I'm away.

A Retirement Investing Today Q1 2015 Review

The primary purpose of this blog is to hold myself accountable and chart my progress to Early Financial Independence (FI).  At FI my wealth will also be sufficient to make Early Retirement optional at the same time.  This is not a model or demonstration but my real DIY financial life.  Get it right and it’s smiles all round in a short period of time.  Get it wrong and my derisory State Pension is still a long way off and likely to get longer still given the financial and demographic state of this great country.

In line with my Plan, Do, Check, Act (PDCA) strategy let’s today some Checking by examining the three key focus areas that I believe are essential to get over the Financial Independence line - Save Hard, Invest Wisely and Retire Early.

SAVE HARD

Saving Hard is simply defined as Gross Earnings (ie before taxes) plus Employee Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Savings divided by Gross Earnings plus Employee Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.  It’s a different and tougher measure to most of my fellow personal finance bloggers who don’t include tax in the calculation.

Savings Rate for the quarter ends at 53.8% against a plan of 55%.  While a miss it’s a lot better than the 37.2% I managed for the first quarter of 2014.  Additionally in physical pounds, shillings and pence in my pocket it’s more than twice as much as Q1 2014.  The miss was also a conscious decision with the RIT family taking a winter trip to Puglia, Italy to assess the location as a possible Early Retirement location.  At these savings rates I'm also now in the surreal situation where my spending is significantly less than the tax I pay.

Click to enlarge, RIT Savings Rate

Saving Hard score: Conceded Pass.  Savings, including help from a healthy bonus where I saved 100% of the after tax amount, have added 5.7% to my net wealth in this quarter alone.  My big problem remains taxes which I'm struggling to control as I'm a simple PAYE employee.  Any extra £ that I now make is taxed at the Higher Rate of 40% plus 2% National Insurance plus as my non-tax efficient investments continue to grow in size I'm being taxed on these as well.

INVEST WISELY

Investment returns for the first quarter of 2014 were 5.8%.  An incredible amount given the structure of my portfolio.  This return means for only the second time in my investing career investment return has exceeded savings rate.  Is compound interest finally starting to do its thing or has Mr Market just become a little excited?

Click to enlarge, RIT Year on Year Change in Wealth

My investing strategy remains largely in line with that developed at the start of my DIY journey except in recent times I've started making 2 tweaks given my closeness to Financial Independence.  The first is to increase cash like holdings to give the option of a family home purchase.  Cash moves from 8.2% of portfolio value at the end of 2014 to 9.4% at the end of the quarter.  Increasing portfolio dividends to 3% of non-home purchase wealth on the other hand is not going so well even though I continue to add to my HYP.   At the end of 2014 I was at 2.3% and today this has fallen to 2.1%.  Not much I can do here as it’s simply been caused by the Mr Market price rises over the quarter and is not something I can control.  My plan is to just keep at it and see what washes out in the next 12 months or so.  The 3% number comes from a decision to drawdown at 2.5% after expenses which then leaves a little for reinvestment also.  Psychologically I feel this would result in a more relaxed Early Retirement than one where you are selling assets off continually to eat.

18 Months to Go?

6 Months ago, almost to the day, I made the bold statement that I had 2 Years to Go before Financial Independence beckoned and optional Early Retirement was staring me in the face.  If I'm on plan for that then today I need to be writing that I have 18 Months to Go.  So do I?  As always let’s run the numbers.

Saving Hard

One of the key pillars of my overall Retirement Investing Today strategy is to find ways to earn as much as possible while finding ways to spend as little as possible by living healthily and intentionally well below my means.  The difference between the two is savings that can be invested to start working for me.  So how have I done on this front given that to be successful I need to maintain a savings rate of 55% of gross earnings, which I define as Savings plus Employer Pension Contribution divided by Gross Earnings (ie before HMRC takes their portion) plus Employer Pension Contribution?  Against that 55% target I've actually averaged a savings rate of 53.9% over the last 6 months.

Note that here I don’t include any investment returns, EBay sales, savings account interest, credit card cashback or 5p coins picked up on the roadside as earnings.  I do however make it hard on myself by counting the tax from both my salary and investments/interest as spending which encourages me to structure my finances as tax efficiently as possible.

On a chart my savings look like this:

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So I've failed to meet this objective but I'm actually still happy with the result.  Why, because you’ll see the savings dip occurred just before and just after the end of 2014 during which time as a family we conducted some Early Retirement research by spending some time in one of our preferred Early Retirement locations – Puglia, Italy.  We went in the depths of winter as we know that part of the world is beautiful in summer as a tourist but we’re talking about living there permanently and so wanted to see it in its worst light.  The conclusion?  As a tourist location it’s still a pretty impressive part of the world:

Click to enlarge, Trullo in Alberobello, Puglia

Why I Hold Gold in my Portfolio

In my experience if you’re discussing UK Equities as part of an investment portfolio its validity is unlikely to be challenged and any response is likely to be fairly passive.  A typical response might be something like what percentage allocation do you have.  If you say to somebody that you hold Gold then the responses can be far more variable.  At the extreme they can range from I don’t believe in Gold as an investment as it doesn’t pay a dividend because it just sits there looking shiny to I’m 100% invested in Gold, guns, ammo and tinned beans.

Within my own portfolio I target a holding of 5%.  So why do I hold gold?  It’s for the same reason that I buy property or gilts on top of my equities.  To quote Bernstein’s The Intelligent Asset Allocator it’s simply because ‘Dividing your portfolio between assets with uncorrelated results increases return while decreasing risk’ which is a key concept within Modern Portfolio Theory (MPT).  Bernstein continues with ‘Mixing assets with uncorrelated returns reduces risk, because when one of the assets is zigging, it is likely that the other is zagging.’  The keyword in the first quote is uncorrelated.  In the book he works up some examples to validate these statements.

Let’s run a simple analysis looking to see if we can find an example of gold being uncorrelated with another asset class.

My first chart shows how the Monthly Gold Price in Pounds Sterling (£’s) has changed since 1979.  Over the past year its Price has fallen by 0.6%.  We looked in detail at the FTSE100 last week so let’s use that as a different asset comparator as that dataset is up to date.  Over the past year the Price of the FTSE100 has risen 7.0%.

Click to enlarge

Diverting quickly for completeness, as I always like to show charts in Real terms to remove the emotion that comes with the unit of measure continually being devalued by inflation, let me quickly also show the Real Gold Price in Pounds.

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The Investment Products to Build a Portfolio should be Trivial : Time Suggests Otherwise

Once you’ve done plenty of your own research (which in my opinion must include a thorough read of Tim Hale's Smarter Investing: Simpler Decisions for Better Results), decided upon the different asset classes that will form your balanced investment portfolio and then decided on the percentage allocation to those different asset classes it’s time to select (and buy) the Investment Products that will give you that real world balanced portfolio.

The theory says that this should be trivial and achievable with only a small amount of products.  At an extreme it could be nothing more than a Vanguard LifeStrategy Equity Fund.  Having now been at this investing game for over 7 years I've personally found that in its infancy you will need more products than you really should and you’ll also not always be able to select the optimum products so will end up with compromise.  Then as time progresses you will end up with more and more stamps for your stamp collection.

There are many reasons for this but some might include spreading provider (whether wrapper and/or investment) risk, new products that give benefits over what you currently hold, inability to buy your preferred product in a particular account, tinkering because personal finance is a hobby and even as a result of some good old fashioned investing mistakes.

Let me demonstrate with my own investment portfolio.  These are the top level asset classes and allocations to each class I'm currently holding:

Click to Enlarge

Looks simple doesn’t it?  Now let’s look in detail at ALL of the investment products that make up my portfolio.

UK Equities:

• Vanguard FTSE UK All Share Index Unit Trust (Income).  This fund tracks the FTSE All Share Index, has a TER of 0.08% and a Stamp Duty Reserve Tax at initial purchase of 0.2%.  I'm happy with this fund however there is one small consideration that would make me 100% satisfied.  I'm with the ermine in that psychologically during retirement I would very much prefer to live only on dividends rather than having to also sell down capital.  In partial conflict with this the Vanguard fund pays dividends only once per year.  One idea to keep expenses low but increase dividend frequency would be to create a pseudo All Share Index.  85% of the FTSE All Share Index is the FTSE100 Index with the majority of the remainder being FTSE250.  By buying 75% Vanguard FTSE100 UCITS ETF (VUKE) and 25% Vanguard FTSE100 UCITS ETF (VMID) results in a TER of 0.09% but dividends paid quarterly instead of yearly.  At this time I won’t act on this as in retirement I’ll be keeping at least 12 months essential living expenses in cash so should be able to manage with annual dividends.
• My High Yield Portfolio (HYP) which continues to build nicely.  This portfolio has a TER of 0.0% (but it does have buy/sell dealing fees and 0.5% stamp duty on initial purchase) and as a believer of expenses matter that’s fine by me.
• I'm generally happy with what’s going on with the UK Equities portion of my portfolio.

2014 In Review

Retirement Investing Today charts my financial journey to hopefully Early Financial Independence with Early Retirement then being an option at any time thereafter.  This is not a model or a demonstration journey.  It is my real DIY financial life warts and all.  Get it right and it’s smiles all round.  Get it wrong and I have a long compulsory work life ahead of me followed by a derisory State Pension thereafter.

The headline numbers are that in 2014 net wealth has increased by 13.2% and spending has decreased by 5.1% allowing me to move significantly closer to Early Financial Independence.  In line with my Plan, Do, Check, Act (PDCA) approach let’s now Check in detail by focusing on the three key focus areas that I believe are essential to get over the Financial Independence line - Save Hard, Invest Wisely and Retire Early.

SAVE HARD

Saving Hard is simply defined as Gross Earnings (ie before taxes) plus Employee Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Savings divided by Gross Earnings plus Employee Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.

On the Gross Earnings front it’s been a great year with total earnings having increased by 37.7%.  Spending on the other hand has decreased by 5.1% by continuing to challenge all spending.  My one fail is that taxes are up a long way.  This is caused by the earnings increase but also more investment taxes as the portfolio continues to grow and is now significant.  The end result is the chart below which shows an average 2014 Savings Rate of 48.1% against a target of 55%.  The majority of the big gap was all caused by my good friend HM Revenue & Customs making a pigs ear of my taxes in years gone by and then chasing me for it at the start of this year.  By the back half of this year that Savings Rate had recovered to 52.8%.

Click to enlarge

Saving Hard score: Conceded Pass.  Savings contributed 7.8% of my net wealth increase.  I’m also earning more and spending less but my big problem is taxes which I’m struggling to control.  Any extra £ that I now make is taxed at the Higher Rate of 40% plus 2% National Insurance plus as my non-tax efficient investments grow in size I’m being taxed on these as well.  I could solve some of this by increasing personal pension contributions but I don’t want to go there for 3 reasons:

• They’re very open to tinkering by government which includes extending the age at which you can access them.  That’s not conducive to Early Retirement.
• I’m already making big pension contributions.  2014 saw 71% of Savings put into them.
• I may need a big cash or cash like pile to be able to buy (not mortgage) my family home in the not too distant future.

Practice Makes Perfect

2007 was the year I started to Save Hard and Invest Wisely for Early Retirement. While today this is a mature strategy (with some 364 posts on this site reflecting that) back then I was an amateur who was reading continuously and running so many Excel simulations that I’m sure at one point I saw smoke rising from my computer.  As it was a year of transition and my financial record keeping was quite sketchy it’s quite difficult for me to say exactly when I started really following the strategy.  I do know that 2008 was the year where the strategy that you see today really matured and I also know that the 5th anniversary of RetirementInvestingToday.com will occur next month.  What however I don’t know is when I really “officially” started living most of the principles that are today mature.

What I do know is that by August 2007 I was already saving large chunks of money while spending little however throughout that month I was also still talking to Independent Financial Advisor’s, IFA’s, who at the time I thought were the secret to success but today firmly believe are not (at least for me, they may be for some).  I also know that it took me until the end of November 2007 to finally sell some funds that were charging me up to 1.78% in fund expenses per annum.  So the “real” Retirement Investing Today anniversary is probably somewhere between September and November.  Given we’re between those 2 dates today I’m going to call October 2007 the date when my journey really began.

October 2014 therefore represents the 7 year anniversary of my journey to financial independence and optional Early Retirement.  The question then becomes has 7 years of practice made perfect?  Well to answer that question I’ve just spent a couple of hours sorting through sketchy old records (this bit wasn’t by choice but rather my better half ‘encouraging’ me to participate in a very late spring clean) which really do make for interesting reading.

A Retirement Investing Today Review 9 Months into 2014

My personal finance life follows a Plan, Do, Check, Act (PDCA) approach.  As I do every quarter it’s time to Check whether my Save Hard, Invest Wisely to Retire Early Plan is working.  It’s important to highlight that unlike many blogs what I write here is a real life, my life, and very serious DIY experiment. If I get it wrong then it’s likely that a ‘derisory’ State Pension awaits.  If I get it right then the world (or Europe in my families case) is our oyster.

SAVE HARD

This quarter I've continued to work very long hours, including a long commute, while as a family we continue to challenge all spending to ensure that every £ will bring improved health and/or happiness.  If it won’t then we don’t spend on it.  The end result is a savings rate for the quarter of 54% of my earnings, where earnings are defined as my gross (ie before tax) earnings plus any employee pension contributions.  This is against a target of 55%.

For the non-regular readers my H2 2014 review details why the target is now 55% compared with 60% when I first started down this road.

Click to enlarge

Saving Hard score: Conceded Pass.  Close, but no cigar.  1% below target means a little more effort required as we head into the Christmas quarter.  A difficult challenge ahead.

INVEST WISELY

My investing strategy remains pretty much intact however with financial independence now fast approaching this quarter has triggered the need to now start increasing my cash holdings which when combined with my NS&I Index Linked Savings Certificates will eventually buy my family a home.  My current asset allocations are:

Click to enlarge

A quick full disclosure in relation to a comment in that last link:  When I first started down this Retirement Investing Today road my family thought that Australia was a preferred early retirement location.  For that reason I divided the “domestic equities” portion of my portfolio equally between Australia and the UK.  That is no longer the case and so I am now actively and gradually reducing my Australia allocation by not investing new money into Australian equities as well as reinvesting Australian equity dividends elsewhere.  The sum of Australia and UK Equity is still aimed to be at target though which simply means my UK Equity portion will increase with time.

I continue to invest as tax efficiently as possible with my tax efficient holdings now consisting of:

• 44.3% held within Pension Wrappers with the majority being within a SIPP
• 14.4% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
• 9.9% held within a Stocks and Shares ISA.  

Tax efficiency score: Conceded Pass.  At the end of June 2014 I was 68.9% tax efficiently invested.  In this quarter that has reduced slightly to 68.5% however with NS&I Index Linked Certificates currently unavailable and a definite unwillingness to expose myself much more to Pensions given the continual risk of government meddling I'm a little stuck.  If any readers have tax efficiency ideas I’d love to hear about them.

2 Years to Go

Only three weeks ago I was writing about my 75% of the wealth required to retire milestone and now as I sit writing this post, drinking a tasty homemade coffee which is helping me save hard ( ), it’s time to write about yet another.

Today my top level asset allocation looks like this:

 Click to enlarge

The detail behind this is still very much in line with my strategy that I first published in 2009.  Between the 04 January and 02 August 2014 (funny dates as I record my financial position weekly) this investing wisely portfolio returned 3.9%.  Move forward to today and that year to date return has morphed into 7.0% in around a month.  Should long run history repeat to average this portfolio should return about 4% per annum in real inflation adjusted terms over the long term (it’s returned exactly that since I started this journey in 2007) going forwards.

On top of that I continue to work on methods to save hard:

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A Retirement Investing Today Review 6 Months into 2014

The June distribution laggards have now paid up so let’s take a pause to validate whether the tools and techniques from this site actually work in the real world.  This is achieved by my living the Save Hard, Invest Wisely, Retire Early mantra.  I'm a real life guinea pig putting my own money where my mouth is.  A mistake in one of my concepts could affect not only me but also my family greatly.

SAVE HARD

It’s now my sixth year of aiming to save 60% of my earnings, where earnings are defined as my gross (ie before tax) earnings plus any employee pension contributions.  Changes over the past six months mean that this target is now out of reach and a revision to a 55% target is needed.  Before you start flaming me I confirm that I haven’t been a hypocrite and started a consumerist lifestyle.  Instead the change has been caused by a healthy salary increase which is taxed at the 40% Higher Rate plus 2% National Insurance making 58% the most I could save from this new money.  Additionally, to keep my better half and I on the same financial independence trajectory this increase means I now need to cover all of the household costs as well as direct some of my savings to my better half’s investment portfolio.

In addition this half year saw HM Revenue and Customs change tune and make some aggressive demands for a tax error that they made in the 2012/13 tax year which enabled me to regularly save in the high sixties/low seventies.

Click to enlarge

Saving hard first half score: Conceded Pass.  Without the HMRC recovery, which I’d already saved in previous periods, the savings rate would have been held.  Since sorting this the new 55% savings rate has been sustained.

Birthday Greetings, Bottle of Wine (+ Strategy Defined Adjustments)

I’m not quite 64, for those who picked up on the song lyric reference within the post title, but I have just recently aged another year and now enter my 42nd year.  This requires two adjustments to my portfolio, as defined by the Retirement Investing Today Low Charge Strategy, which was first published in December 2009 and later refined in September 2012.

Target Retirement Income

Back in 2007 after plenty of research I set myself an income that I wanted in early retirement.  That number is greater than I need to live and leaves room for some enjoyment given I could be in retirement for a longer period than I have already been alive.  This became my Planned Income.  From this I could then calculate the amount of wealth I had to acquire through Saving Hard and Investing Wisely by taking this number and dividing it by my Safe Withdrawal Rate (SWR).

With the Low Charge Strategy defined which includes my savings rate, asset allocations and predicted returns from those asset allocations, plus armed with a Planned Income and SWR I was able to build an Excel model that predicts my retirement date based on the future being “average”.  I prefer to think in today’s money, rather than devalued by inflation future money, and so all of the calculations are based in Real (ie inflation adjusted) terms.

Obviously, we live in an inflation based society and so every year I need to increase that 2007 income by a cost of living adjustment to account for inflation over the past year.  Back in 2007 I decided that adjustment would be the Retail Prices Index (RPI).  The chart below tells me that my retirement “annual pay” is increasing at a much greater rate than the average punter out there but for me the model seems to be realistic as my retirement date has hardly moved since 2007.  When I started the blog in November 2009 I predicted 7 years until retirement (work becomes optional) and today I’m predicting that the day will appear some 2.5 years  putting me ahead of the game at this time.

Click to enlarge

Uprating my planned income results in a decrease in my progress to retirement given the formula:

A Retirement Investing Today Review 9 Months into 2013

This is the regular quarterly feature that demonstrates the progress a person living the tools and techniques that this site details can make towards early financial independence.  It is important to note that unlike many books or other websites out there this feature is not a simulation or model.  It is my life so you can say I have plenty of skin in the game and a big incentive to get it right.

This site is all about Save Hard, Invest Wisely, Retire Early so as with the 2012 Review let’s continue to use those 6 words as a theme.

SAVE HARD

I am now into a sixth year of aiming to save 60% of my earnings, which I define as my gross (ie before tax) earnings plus any employee pension contributions.  The game is all about finding ways to Earn More and Spend Less with the difference between the two being the Save Hard that can be put to work within my investment portfolio.

During my first few years it was all about getting to that 60% savings rate but having achieved it the real challenge now is to stay there.  It really is starting to become difficult to maintain that savings position.  The main reason for this is that I measure my savings rate against gross income and I'm a 40% taxpayer.  This means that if I get a pay rise to even partially compensate for inflation I have to save all of it to keep to the 60% savings rate.  This is because of the stealth tax practised in this country known as fiscal drag which doesn't up rate tax brackets with inflation.  I therefore have to continually find ways to offset 100% of the inevitable inflation in my spending which given the current economic climate I'm sure you will agree is difficult.  Let me give just 2 simple examples, which I’ll likely expand on in subsequent posts:

• This week we've had the announcement that SSE is to raise gas and electricity prices by 8.2%.  Last year I only used my central heating for about 4 hours so I have already minimised the elephant in the room for most people.  On top of that I still need to cook meals as it’s cheaper than eating out plus have the lights on when it’s dark but already use energy efficient bulbs (and only have the light on in the room that I am using).  Where do I go next?  Note I have a vested interest here as energy price rises hurt me but I own SSE in my HYP so I also want them to maximise profits.
• To maximise both my better half and my savings I choose to commute a long distance to work which means I burn quite a lot of fuel and we all know fuel prices are rising.  I'm already using a fuel efficient car and always ensure tyres are correctly inflated, I'm carrying no excess weight plus have developed a very light right foot combined with the ability to coast rather than brake.  Where do I go next?  Here I actually have some ideas.  They seem to be working but I want to ensure they are sustainable before I post about them.  

Year to date my savings rate is still above target at 61%.  This might sound like I'm meeting target but I see trouble ahead given that in quarter 1 the rate was 67% and in half 1 it had slipped to 64%.  The problems are all coming from my good friends HMRC.  As I detailed 3 months ago HMRC made a large mistake which resulted in an underpayment of tax which they are now collecting but having now just lodged my tax Self Assessment I can see there is further trouble ahead.  This is coming from the fact that my net wealth is now a not inconsiderable sum with 32% of it not being tax efficiently invested (not in a SIPP, ISA or NS&I Index Linked Savings Certificate).  This means my annual tax bill on those investments is also now not inconsiderable.  By the time the underpayment is recovered and I've paid tax on those investments I can easily see my savings rate falling into the low 50%’s by year end.

Saving hard 9 months in score: Conceded Pass. Ok for now but definite trouble ahead.

A Retirement Investing Today Review 6 Months into 2013

This is the regular quarterly feature that demonstrates the progress a person actively living the tools and techniques mentioned on this site can make towards early financial independence.  It also forces me to hold true to those tools and techniques because if I can’t live by them then this site becomes hypocritical like so many other sites out there and I become nothing more than a hypocrite like so many others with vested interests.    

My own personal situation follows everything I talk about on this site to the letter.  The site is all about Save Hard, Invest Wisely, Retire Early so as with the 2012 Review let’s continue to use those 6 words as a theme.

SAVE HARD

I am now into a fifth year of aiming to save 60% of my earnings, which I define as my gross (ie before tax) earnings plus any employee pension contributions.  This remains a very tough target in the current age where we have increased taxes and prices due to unrelenting inflation.  I feel fortunate to have been given some respite here earlier in the year with a 3.5% salary increase after receiving nothing in the previous year.

To maintain my Save Hard focus I continue to looking for ways to both Earn More as well as Spend Less which certainly requires frugal living and little to no consumerism.  This continues to be a very positive experience however when you live in a city, London, where it appears as though everyone thinks the world is going to end tomorrow it can become difficult to stay on the path I have chosen.

By tracking my net worth on a weekly basis, which also gives me a % towards early retirement figure, plus before making any purchase taking some time out to ask myself if I really need what I am about to purchase which includes considering will it help improve my health or increase happiness I typically don’t stray for very long.  Particularly as I carry the knowledge that by deferring that spend I get one step closer to early retirement which will mean a big reduction in stress plus the option to only work when I want and then only because I enjoy it.

Last quarter I managed a savings rate of 67% of earnings however I also advised that a large portion of that was caused by a HMRC error.  They are now in the process of recovering the “interest free loan” they provided me with which has caused a fall back in savings rate to 64% for the first half of 2013.  These savings have gone into both my own investments plus a portion has been provided to my better half to help keep her financial independence goal on track and in sync with my own.  The payback to HMRC still has some way to run so I’ll need to stay focused if I’m going to keep that savings rate above 60% in 2013.

So where did the money go:

• 22% was invested into Pension Wrappers
• 36% was invested into ISA’s and non tax efficient locations 
• 6% was used by my better half

Saving hard half quarter end score: Pass but I need to stay focused with the current increased tax pressure on my shoulders.

A Retirement Investing Today Review of Quarter 1 2013

For all UK based readers a Happy New Financial Year to you.  I wasn't sure if I should have put the Happy in front because for me a new financial year carries both a positives and a negatives.  The positive is that a new ISA year is upon us meaning I can again begin working hard to fill my full Stocks and Shares ISA allowance which for this year is £11,520.  The negative is that HM Revenue & Customs (HMRC) will soon send me a request to complete a tax return where as always I will be sent a bill because of my now considerable investment sum.  This however is not as bad as it could be as I continue to push hard to minimise taxes paid through tax avoidance schemes such as ISA’s, Pensions and NS&I Index Linked Savings Certificates (ILSC’s).  Over time continual energy to take advantage of these when possible (remember ISA’s are an annual use it or lose it allowance, NS&I ILSC’s come and go on an ad hoc basis and for this financial year the pension contribution limit is for me a very large lower of 100% of earnings or £50,000 which is called the annual allowance) really add up and mean this year I will only be taxed on around one third of my total investment portfolio.  Therefore on the whole I’ll call it a Happy New Financial Year.

In the past I have only tended to publish my own personal financial position on an annual basis even though I track value weekly and performance monthly.  I now intend to publish my own situation on a quarterly basis for 2 reasons:

• My 2012 annual review showed that in the metrics that I measure myself against I had one conceded pass and one fail.  By publishing more regularly I hope that it will force me to hold myself more accountable to my objectives plus also allow more time for recovery should I fall off the rails.
• The 2012 annual review sparked some good discussion so was clearly worthwhile to both myself and some readers. 

My own personal situation follows everything I talk about on this Site to the letter.  The site is all about Save Hard, Invest Wisely, Retire Early so as with the 2012 Review let’s continue to use those 6 words as a theme.

SAVE HARD

I am now into a fifth year of aiming to save 60% of my earnings, which I define as my gross (ie before tax) earnings plus any employee pension contributions.  This is a very tough target particularly in the current age where we have increased taxes and prices going up due to unrelenting inflation while at the same time my salary is not moving in nominal terms.  My company is currently at the point of annual “salary reviews” but even though I have worked hard over the past year and delivered a lot I expect the same increase as last year which was a large 0%.  I did however manage to this year secure a bonus so I can’t really complain as many of my fellow UK residents I'm sure received nothing.


In addition to hard work Saving Hard has also required me to live frugally and opt out of consumerism. This on the whole has been a very positive experience however every now and then I come close to straying from the path. For example I don’t own an Apple iPhone, Nokia Lumia or Samsung Galaxy mobile phone which I'm told are the current must haves. Instead my personal phone is on a Pay As You Go contract which does not include data and is carried for emergencies only. To be honest I don’t covet a modern smart phone but I would love one of these to simplify reading when on the go and to make staying in touch with the world a little easier. Instead I stick with good old fashioned books and an old laptop which seems to get slower and slower every day.