The Importance of Financial Education – The Pensions Perspective

Pensions suffer from a few key features that can be problematic.

 

Pensions are really important

They constitute some of the major financial decisions of your life. The decisions individuals make through their working lifetime will directly determine the timing and quality of their retirement years.

Pensions are often complicated

Pensions are complicated (sometimes unnecessarily so) and come into contact with an individual’s ability to make a number of decisions around:

·         budgeting (how much to save)
·         planning (when to save)
·         strategy and risk assessment (investment choices)

Pensions are boring

I am amazed but when I mention I work in pensions at parties (yes we pensions people do go out sometimes) when I mention the industry I work in people glaze over. The main reason that pensions are boring is that procrastination power is very strong and other more immediate calls on an individual’s income will always seem to be more attractive, and in some cases they’ll be right, but it is clear that the earlier you start the better the outcome will be.

Pensions will affect nearly everyone

All of us will have some aspiration to stop work at some point and while many think their house is their pension (it isn’t, it’s your home!) having a pension fund is the most efficient method to plan for that eventuality. To have a pension you need to defer your income now (in the most simplest that’s what a pension is, deferred income).

There are lots of different types of pensions and employers are now obliged to get involved and provide them for most of their workforce via the Government’s auto-enrolment legislation. So a pension should be a everyday occurrence for almost all of us. Understanding what is happening and why will make sure that people make the informed and correct decision.

Financial Education is the answer

To my mind the answer to all of these problems is clear, and that is through education. People should be given the skills to evaluate the importance of planning their financial future by appreciating some of the benefits of pensions (tax breaks, the employer contribution and compound interest). This begins with the skills to budget, plan and assess strategy all the things that MyBnk do for their young people. Okay, I concede that pensions will still be boring but if young people are given the ability to understand the importance of starting early, deferring some of their income for their future, together with taking some extra money from their employer and the tax man, then we will have people that will be able to enjoy their retirement years. As a pensions consultant that it is at the heart of what I do and I see the work that MyBnk do as key to achieving that.

David Brooks

Pensions Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

Auto Enrolment: Thinking about data & systems yet?

My dad is a systems integration engineer and right now I can really empathise with him! His job basically involves taking a number of components that were never intended to work together and trying to force them to work seamlessly as part of a process.

The parallels are there for auto enrolment pensions at the moment, with trying to integrate the HR systems with payroll system to get all the necessary employee information out to input into the auto enrolment system. Sounds simple when you start to talk about it, right? Then you realise that yes, these systems can export some of the data (usually not everything that you want), but never in the format required or quite in the right way to make the job straightforward.

I find that conversations about pensions data & systems early in the auto enrolment planning stage are an absolute must.  Have a call or a meeting with your payroll provider, auto enrolment consultant and pension provider as soon as possible to understand the challenges ahead.

 

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

Budget 2014: Trivial Pension Pots – an inappropriate use of words?

Whilst everyone is digesting the impact of the Budget announcements, there is little doubt the overall relaxation and potential reduction in the ‘tax take’, from our pension funds, has been well received.

Sadly, the use of the word ‘trivial’ with regard to smaller pension funds is at best inappropriate and at worst unavoidable due to our modern working practice and a more transient population. No matter how small a pension pot it is important to acknowledge that its owner has worked hard to build up these funds and certainly deserves better recognition for their efforts than – ‘trivial’.

That said, these same individuals have potentially been handed one of the most favourable retirement planning strategies in the Budget.

The ability to withdraw 100% of a fund, below £10,000, as a lump sum (up to three times in their lifetime) with 25% of the fund being tax free and the remainder being taxed at their marginal rate increases an individual’s overall retirement flexibility - especially as there will be no requirement to purchase an annuity.

Amassing several small pension funds, over a lifetime, is currently the norm and not the exception. But with auto enrolment gathering momentum the likelihood for everyone to have several small funds in the future highlights that retirement planning will become more important and possibly more complex in future.

For some withdrawing 100% of their pension funds, as cash, may be wholly appropriate; whilst for others the decision may not be as clear cut.

Whichever side of the fence you sit on in the current retirement planning debate and no matter the size of your pension fund there has never been greater need for independent financial advice than at present.

 

Helen Wilson

Consultant

Telephone:  +44 (0)20 7893 3456

Email:  getintouch[@]broadstoneltd.co.uk

 

 

Budget 2014: Thinking about retiring? Where to get advice.

One of the key areas that the Chancellor announced was the Government’s wish that everybody should get impartial advice when retiring.  As someone who has now long worked in and argued for a professional, independent financial planning sector, this was music to my ears.  However, there is now a huge gap in who is going to provide this advice, how it’s going to be provided and what is going to be provided.  Where should prospective retirees get advice now?

I have to declare a bias. I am the managing director of the country’s largest independent fee based financial planners.  I will obviously be saying that clients should seek the advice from a fee based adviser.  As a professional, clients should seek the help of highly qualified individuals who will for a defined and clear fee give them advice as to what to do next and help them through the next steps.  Obviously, professional advice provided by people who have spent many years studying for qualifications and gaining experience does cost money.  Whilst many clients are only too happy to pay for the value of the advice and peace of mind that they get, we need to be clear that in certain circumstances the cost of independent advice becomes marginal or even detrimental where clients have less money.  What can these people do?  To an extent the sources of advice now have become limited. 

The Government has launched and heavily marketed the Money Advice Service.  The MAS is to an extent a misnomer.  Legally you can’t provide advice in the UK on financial planning without being regulated by the Financial Conduct Authority.  The website gives useful information and but is essentially an information portal.  It tells you what you could do as opposed to what you should do.

Many of the high street banks have now stopped providing financial advice, and when they do they will normally be restricted.  This means that they can only provide advice in certain areas and for them this will be limited to the products that the bank provides.  As most banks do not provide pension provision or advice heading here may mean that the retirees get some cheap advice but expect it to be limited.  Individuals working in any regulated business have to comply with FCA’s 11 principles of business conduct, which includes dealing with clients with integrity and due skill and care.  Whilst many individuals in the banking world do and have always adhered to these principles it is stating the obvious that up to now the culture in many banks has led to mis-selling and a general lack of trust that these institutions are now having to address.

There are some online services but nothing that at the moment has got any traction and this is still very much in its infancy. 

Finally, the insurance companies may well provide you with generic advice but this again will either be limited or information.

As you can see there are only a limited number of places that retirees can go to.  The advice gap does exist and so it will be interesting to see how the Government intends to bridge this gap to provide advice to retirees in 2015.

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456

Email: getintouch[@]broadstoneltd.co.uk