Pension freedoms are the right course to follow

Andrew-Bailey-BBA-Conference-2012-700x450.jpgSo says FCA chief executive Andrew Bailey.  He says the pension freedoms are the right approach to help individuals deal with the increasing complexities of retirement.

In a speech delivered recently about the watchdog’s view on pensions, Bailey argued the context in which individuals have to make decisions about retirement is becoming more nuanced.

He said the basic pattern where individuals typically move from being net debtors to net asset owners across their working lives and then draw down on those assets in retirement has not changed.

However, he pointed out the contours of the pattern have changed and argued there is now more uncertainty about how those contours will take shape as generations and individuals age.

He added, “Moreover, the increase in uncertainty poses very clear challenges not just for the provision of pensions, but also for the provision of advice to individuals on the decisions that go with pensions.

“There is no doubt a tension, even a contradiction, between the degree of uncertainty and the apparent certainty embedded in the design of financial instruments.”

In the speech, Bailey questioned if pension freedoms are the right approach.

He said, “The freedoms remain the right course to follow, but supplemented by an expansion in the scale and scope of auto-enrolment, so it isn’t a total free-for-all.”

He added, “My reason for taking this view is that while the contours of the lifetime model will always change, it is unlikely that we will turn the clock back in the foreseeable future, and greater freedom of choice over decumulation – when and by how much and in what form pensions are put into payment – makes a great deal of sense in terms of the shifts in and uncertainty around the lifetime model.”

However, Bailey said it must be kept in mind that the responsibility for a “very complex area of decision-making” has transferred to individuals.

He said, “We need to do all we can to help people make those decisions. And that is where the FCA, among others, comes in.”

We as Advisers are among the “others” which Andrew Bailey refers to and agree wholeheartedly with him.


The most underrated financial planning advice – Part 4

In my last blog, I talked about getting things the wrong way round and not diversifying as mistakes people make in their financial planning.   Let’s finish off this little series by being a bit more positive.

Firstly, be the tortoise, not the hare. “How can I become a millionaire by 35?  How can I become wealthy in five years?”  The answer of course is, “What’s the hurry?  Just make sure you become wealthy by 65.  That’s enough of a challenge.   And the only one you really need to accomplish.”

Secondly, enjoy life as it is.  “I want to retire at 55 and see the world. Then I can really enjoy life.”  Unfortunately, I’ve learned life goes by freaking fast.  If you put off enjoying it even to 55 you’ll miss most of it.  Instead enjoy the journey.  Enjoy building your wealth.  Enjoy the game. Take little steps everyday.  And enjoy it with those you love.

The most underrated financial planning advice – Part 3

Last time, I talked about timing as a mistake people make in their financial planning.   Here’s two more.

“Investing is easy,” a friend told me, beaming.  “Really?” I responded.  “Sure, buy low and sell high.”  There was nothing I could say.  She’d discovered the secret.  But there was only one little problem.  Most people do exactly the opposite because of emotion, in this case usually better know as fear or uncertainty.  But you have to be bold when everyone else is fearful.  On the other hand be cautious when everyone else is euphoric.

Another mistake is not spreading the risk. “I’m putting everything into… You can’t lose money in…”  Fill in the blanks. In the ‘old days’, we used to invest 100% in a UK Balanced Fund.  Nowadays, I’ve seen people go all in to dotcom stocks, gold, real estate, and now the latest – Bitcoins.  And double their fun by leveraging.  And I’ve seen many go broke.  Diversifying the risk certainly isn’t nearly as exciting. But then going broke isn’t all that much fun either.

The most underrated financial planning advice – Part 2

Last time out, I talked about luck not being a solid strategy and the Get Rich Quick scheme, as mistakes people make in their financial planning.   Here’s another couple.


Later is now.   I’ve heard, “Right after I get our new car paid off.    Or after we finish the house remodel.   Or we needed the new boat for the family.   Or he kids need braces.  Or we need that motor home for family vacations.  Or when the kids finish University.  Then I’ll save.”  But at 55, it really is too late to start.   START TODAY.

Also how many times have I heard,  “I’ll want to switch to cash because the market looks bad and I’m already down so much.  And I’ll get back in when the markets settle down.” My response always is, “Tell me exactly what the world will look like on the day you know it’s ok to get back in.  If you can’t do that, it isn’t a plan only a fantasy.”   After thirty years in this business, the markets have NEVER settled down.  Stick with and stay the course.