Best Laid (Pension) Plans
We came across this picture and thought it graphically illustrates the reality of the world we are in.
The graphic was originally intended to reference investment returns and how markets can move against people. However, with only 60 days to go until pension freedom day on the 6th April, it has a dual purpose.
For the 6th April, People who believe we can get to April and then simply take what we want, when we want from our pensions, are going to be in for a bit of shock.
Through our many years of experience we also find Pareto’s 80/20 rule holds true. So taking this principle, 20% of people may well be able to do what they want come the 6th April and get a satisfactory result. They will be able to take their pension fund with no hiccups from the scheme they hold and it will be plain sailing.
On the flipside 80% won’t.
But maybe 80% of the 20% who are able to do this, will subsequently find out, they have been taxed too much on the payment due to the month 1 tax basis, or they have lost on benefits due to guarantees inherent under the scheme, or taken the whole fund when it was better and more efficient to leave some in the pension due to the tax.
For the 80% who find out they cannot do what they planned, it could be the plan does not facilitate what they want, the tax implications are far worse than expected, there are delays due to their schemes, their funds may fall in value, the scheme may not allow payment before age 60 or any number of issues. They then need to regroup and come up with a new strategy and maybe transfer the pension to a plan which will allow them to meet their objectives in a tax efficient and timely manner. This is where the road is suddenly not so smooth.
In terms of Investment, we all know interest rates are low. Investing in stocks and shares carries risk, and will lead to ups and downs.
Hence the chart!
As Independent Financial Adviser’s we do have access to investment products for ISA’s and Bonds, as well as pensions, which aim to deliver the smoother returns you maybe want, giving a much better return than cash, without the volatility associated with Stocks and Shares.
These funds are not some dodgy scheme based on carpark spaces or storage facilities, hotel rooms and rainforests. They are fully FCA regulated, FOS protected, daily prices, liquid and provided by some of the largest and best known Insurance companies and Investment houses in the UK.
As always this is food for thought, and should you wish to simply ask a question about your own plans or discuss what options are open to you, please get in touch.