Like many of our clients, we are constantly updating our Continuous Professional Development (CPD). One of the many pieces of reading material we were looking through had the title of 'Advisers Have Vital Role As Persuaders'. This was based on the results of a survey which asked both individual investors and advisers 5 questions about retirement planning success.
Like many of our clients, we are constantly updating our Continuous Professional Development (CPD).
One of the many pieces of reading material we were looking through had the title of 'Advisers Have Vital Role As Persuaders'.
This was based on the results of a survey which asked both individual investors and advisers 5 questions about retirement planning success. Fidelity, an investment group, asked these 2 groups to rank 1-5 the factors below:
The survey aimed to identify how well educated a typical investor is, and to stress how important an advisers job was to ensure that the message they want to get across does indeed communicate itself to individuals. The context for this was that there is a lot of talk about the coming 'pension crisis', and how vital it is that investors get the right advice.
Priority / Advisers / Individuals
Amount saved over a lifetime / 1 / 2
Date at which saving started / 2 / 4
Getting the right asset allocation / 3 / 5
Picking the right funds / 4 / 3
Finding the best pension plan / 5 / 1
If we simply concentrate on the first and last factors, we see that the priorities here are reversed. Whilst individuals did understand that the amount saved over a lifetime, identified by advisers as the most important factor, was indeed important, they still rated 'finding the best pension plan' as number 1.
Now, we have written many articles on this subject, and are certain that no regular reader will have made this mistake! However, this survey has once again shown that the idea that there is a 'best pension plan' out there is still prevalent with individual investors.
We do not have space to reiterate our investment process here, but the long and short of it is that, whilst the pension wrapper is important (as it is tax efficient), the investments within the pension are what really matters.
When we first looked at the results of this survey, it reminded us of a recent experience we had when a new client contacted us after finding our website via Google. He explained that he was concerned about the advice he had been given by his Independant Financial Adviser (IFA), and could we give our view on his situation. When Graeme met him, it became clear that with very little evidence as to why, the IFA was advising the client to invest over £2,600 per month into a Personal Pension. When asked why, the IFA said that it would allow the client to retire earlier, and that this was the 'best' pension that he could recommend.
When Graeme asked:
- Were your goals in life discussed properly?
- what risk questionnaire/assessment was used?
- what was the result of the cash flow forecast?
- Have the NHS Pension and State pensions been taken into account?
- where is the expenditure template showing what you need at 60?
- Has the sale of the practice been taken into account?
- Have any possible inheritances been factored in?
- Have the existing investments been built in?
The answers were that none of these had been discussed in detail or at all!
Many things concern us here, including the probability (based on many clients' case work) that if such planning were implimented, the client would possibly have 'too much' for their needs age 60 plus, and in a wrapper which restricts what you can do with it (75% of the proceeds have to be used to provide an income - 25% is available as tax free cash as a lump sum).
This can of course also be at the cost of the client's life now - what's wrong with enjoying life and spending money now if more money does not need to be invested?
The key word is measurement - or the lack of it in this case.
To cap it all, the dentist had a copy of the quotation that had been left with him for the Personal Pension. For the few hours work that had been carried out for the client, the last page showed a very interesting remuneration figure for the IFA. This money would be taken from the clients pension account in the first year.
£19,432 to be paid as a lump sum when the client signed up!
The Financial Tips Bottom Line
Be aware that there is no 'best pension', and if anyone says there is it's probably time to take a step back and ask the adviser what form of measurement they have used to arrive at the decision they have.
Action Point
If your adviser has not taken into account the above factors as a minimum to your overall retirement planning, then we recommend you do so now. Retirement planning is not just about pensions - building in all factors and having a life now is quite important!
Also, even if you intend to simply buy policies instead of comprehensive planning, be aware of advisers who charge large amounts of commission and talk about the 'best pension'.
Can You Get Your Income Tax Refunded? - The EISy Option
It's only being human to feel that it would be great to be able to somehow get some of the considerable amounts of income tax we paid back to us. In the past, investors have been encouraged to fund more pensions because of the lure of getting tax relief and many doctors and dentists paying higher rate tax have taken advantage of this option.
Compound Interest, The 8th Wonder Of The World!
Wikipedia describes compound interest as: Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding.
The 7 'Must Do' Steps When Planning For The Worst
It's sad that some people do die young, either through illness or via external factors such as an accident. Whilst you may not wish to think about premature death right now, I do think it's a responsible person who leaves their affairs in an orderly manner as possible so that their next of kin, who have the pain and grief to deal with, do not have to deal with a financial mess.
