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

Protecting and Cascading Wealth Through the Generations

One area where the BROADSTONE Private Office has been advising a number of families recently is the area of succession planning.

 

The UK tax regime has consistently encouraged planning for Inheritance Tax but rarely is much thought given to the consequences of cascading wealth to the next generation.  In this blog I’d like to give you some ideas on what to consider. 

One of the key components to a successful succession plan is preparing the next generation to the consequences of wealth inheritance.  If assets are passed without clear thought and education, the recipients are often stressed by the responsibility or become care free about their own life aspirations.   I have seen a number of situations where poor planning has proven the Lancashire proverb of “clogs to clogs in three generations”* - an aphorism based on the observation that it takes one generation to found a business, the next to build it, and the third to spend it.

The obvious place to start a planning conversation is wills and their effectiveness in the event of an untimely death.  In addition pre-nuptial and post-nuptial agreements are now receiving more favourable consideration by the courts and so should always be discussed with older children. We have a financial education programme where we discuss these in more depth with families.

Another important point to remember is that plans must be reviewed on an ongoing basis.

Like all good financial planning the subject of inheritance starts with a conversation with advisers. If you are interested in taking the first steps, please do give me a call.  Our team would be delighted to provide further information or introduce the appropriate adviser.


Mike Batchelor
Private Office

Telephone:  +44 (0)20 7893 3456
Email:  getintouch[@]broadstoneltd.co.uk

* Dryden's Fables Ancient and Modern (1700), ‘Seldom three descents continue good.’