Frequently Asked Questions About PensionCraft UK Investing From Scratch Framework
22 answers covering everything from basics to advanced usage.
// Basics
What does TER stand for and why does it matter?
TER stands for Total Expense Ratio — the all-in annual percentage cost of holding an investment, including fund manager charges, platform fees, and advisor fees. It matters because every pound in fees is a pound that stops compounding forever, growing exponentially in the wrong direction. After savings rate, it's the single most important number to minimise. Target 0.15–0.25% for your core portfolio.
What is a Lifetime ISA and who is eligible?
A Lifetime ISA (LISA) is a UK account offering a 25% government top-up on up to £4,000/year, usable for a first home or retirement from age 60. Only those aged 18–39 can open one, and the window closes permanently at 40. Open it early to start the 12-month clock. It's planned to be replaced by a first-time-buyer-only ISA around April 2028.
What is a glide path in investing?
A glide path is the shape of the shift from equities to bonds across your lifetime. There are three valid shapes: conventional descent (high equity early, more bonds with age), late derisking (hold high equity through accumulation, derisk only near retirement), and a rising glide path (start cautious, add equity through retirement). The right one depends less on age and more on whether you'd sell in a crash.
What is the zero test for a Fun Pot?
The zero test asks: 'If my Fun Pot went to zero tomorrow, would I still be on track for a good retirement?' If yes, your speculative allocation is sized correctly. If no, it's too large and must be reduced. It's the litmus test that separates a genuine Fun Pot capped at 10% from a casino that could derail your retirement.
// How To
How do I audit an existing investment setup with this framework?
Start by calculating your current savings rate and total TER, then run the TER through GULP to see the pound cost. Check the account sequence for gaps — missed employer match, no emergency fund, unopened LISA. Verify your platform type matches your pot size. Then scan for the five silent mistakes: home bias, stock picking, cash drag, leverage, and crypto in the Core.
How do I choose between a workplace pension and a SIPP?
Always capture the employer match in your workplace pension first — it's an immediate 50–100% return before tax relief and the highest-returning step in the sequence. Beyond the match, a SIPP gives you wider fund choice and control over fees. Both are powerful tax shelters, especially for higher-rate taxpayers, but both lock your money until your late 50s.
How do I set my equity-to-bond allocation?
Start with the '100 minus age' heuristic as a rough anchor for equity percentage, then pick a glide path shape based on your volatility tolerance rather than age alone. If you'd panic-sell in a 40% crash, hold more bonds. If you can hold through drops without selling, a higher equity weighting through accumulation captures more long-term real return.
How much should I be saving each year?
Aim for the highest savings rate you can sustain without abandoning the plan. As a reference, saving 2% more of income over 30 years on a £40k salary produces roughly £53,000 more at retirement. If you haven't started, calculate the catch-up cost — a 10-year delay roughly doubles the annual contribution needed to reach the same pot.
// Troubleshooting
I already pay a financial advisor 1.2% — should I keep them?
Run that 1.2% TER through GULP first — on a typical pot over 30-plus years it can leak £60,000–£80,000. Then ask whether the advisor delivers value beyond what a cheap global tracker on a flat-fee platform achieves. If they're just selling you an expensive fund, you're paying a large recurring sum for something you could replicate at 0.15%.
I'm 42 and just found out I missed the LISA window — what now?
The LISA is gone once you pass 40 and cannot be recovered, so refocus on the accounts still open to you: max your Stocks and Shares ISA (up to £20,000/year, tax-free forever) and use a SIPP or increased pension contributions, which are especially powerful if you're a higher-rate taxpayer. Also check your platform type — at a larger pot, flat-fee likely beats percentage-fee.
My portfolio dropped 30% and I want to move to cash — what should I do?
Moving long-term money to cash locks in the loss and exposes you to cash drag, where inflation erodes purchasing power. If you have an emergency fund, you shouldn't need to sell investments during a downturn. This reaction is also a signal your glide path is too aggressive — consider a higher bond weighting so you can hold through future crashes without selling.
I put my whole ISA into individual stocks — is that a problem?
Likely yes. Bessembinder's research found 57% of US stocks underperformed cash from 1926–2016 — a handful of winners drive markets and the odds of picking them are poor. Individual stock picking belongs in your Fun Pot, capped at 10% and passing the zero test. Move the bulk into a cheap global tracker as your Core so structure carries the outcome.
// Comparisons
How does this framework compare to using a robo-advisor?
A robo-advisor automates allocation but often charges more than a self-managed cheap global tracker and doesn't force the correct account sequence or emergency fund. This framework prioritises the structural decisions — savings rate, fees, account order — that robo-advisors typically assume are already handled. You can use a robo-advisor for the Core, but check its total TER against a DIY global tracker first.
How does this compare to generic 'just buy an index fund' advice?
Buying an index fund is only step seven of nine. Generic advice skips the emergency fund, the employer match worth an immediate 50–100%, the LISA window that closes at 40, the platform crossover, and the glide path. This framework treats the index fund as the easy part and focuses on the sequencing and fee decisions that generic advice leaves out.
How does a percentage-fee platform compare to a flat-fee platform?
Percentage-fee platforms charge a proportion of your pot (around 0.4–0.45%), which is cheap while your pot is small but grows expensive as it compounds. Flat-fee platforms charge a fixed amount regardless of size. The crossover is around £16,000–£18,000: below it percentage fees win, above it flat-fee saves thousands. On a £95,000 pot, flat-fee can save around £355/year that itself compounds.
Is a Lifetime ISA better than a pension for retirement?
It depends. A LISA gives a 25% top-up and is accessible from 60, while a pension gives tax relief at your marginal rate — better for higher-rate taxpayers but locked until late 50s. The framework sequences LISA before wider pension contributions (after the employer match) precisely because of the guaranteed top-up and the closing age-40 window. Use both where eligible.
// Advanced
Why should I hold a global tracker instead of a UK-focused one?
Because the UK is only about 4% of global equity markets and has underperformed global equities over the last century. A UK-tilted portfolio is an active bet that compounds negatively over decades — this is home bias, one of the five silent mistakes. A cheap global equity tracker captures worldwide growth and proper diversification without requiring you to guess which country outperforms.
Where does crypto fit in this framework?
Crypto belongs only in the Fun Pot, never the Core. Held as up to 10% of total investments in a separate account, it's an acceptable speculative position that must pass the zero test. As a core holding it's potentially ruinous — the volatility can derail retirement. The rule is simple: fine as a Fun Pot bet, dangerous as a foundation.
Why is leverage discouraged even though it can amplify gains?
Because leverage amplifies losses faster than gains and the mathematics are stacked against retail investors. A leveraged position that halves needs a 100% recovery just to break even, and forced margin calls can wipe you out at the worst moment. For a long-term compounding plan, leverage introduces ruin risk that no expected return justifies — it's named as one of the five silent mistakes.
What is a real return and why does the framework use it?
Real return is investment return above inflation — the actual increase in your purchasing power. The framework uses real returns (e.g. 5% real) in projections to keep them inflation-honest, so a £1 million pot in 30 years reflects what it can actually buy. Nominal returns overstate wealth; real returns give a truthful picture of your future spending power.
Should I fill my ISA or my pension first after the employer match?
The framework sequences the LISA (if eligible) and Stocks and Shares ISA before the wider pension, because the ISA is accessible anytime and tax-free forever, while pension money is locked until your late 50s. However, if you're a higher-rate taxpayer, the pension's marginal-rate tax relief can be so powerful it's worth weighting toward — but never at the expense of the emergency fund or employer match.
Does fund selection really matter less than everything else?
Yes — structure does almost all of the work. Once your savings rate, fees, account sequence, and allocation are right, the specific fund is a second-order problem. Two cheap global trackers with near-identical TERs will produce near-identical outcomes over 30 years. The framework deliberately avoids naming a single 'best' fund because cheapest options change; it points you to a regularly updated cheapest-funds tracker instead.