Cutting your nose off to spite your face!


Cutting your nose off to spite your face!

One of my colleagues had the weirdest potential client meeting in his life last week, when the opening salvo from the “gentleman of mature years”, was that all financial advisers were liars and cheats and that if he had turned up in a flash German car, he would not have been allowed in!

From that low point it only went downhill; there was no meeting of minds, no understanding of the issues and an offer of a £500 bung to just sign some papers and walk away. My colleague decided that the most sensible action was to withdraw briskly to a safe distance and talk to someone sensible.

Pension Freedoms have produced some bizarre outcomes and this was one of them. All our “gentleman of mature years” wanted was to withdraw all of his pension fund as cash, now. That the pension scheme with a reputable provider had a guaranteed annuity rate of 12.2%, cut no mustard with our foolish gentleman as he “did not trust any of them”. That he would pay 40% tax of some of his pension fund did not reduce his zeal, as his mind was made up and he wanted it done, regardless of the consequences.

We do not work like that. We analyse, plan and recommend to place you in the best position you can be in, given your situation and resources.  We also reserve the right not to do something if we feel it is not in your best interests.

The problem with Pension Freedom is that it is superficially attractive; you can suddenly have a comparatively large sum of money in your hand to do what you like with. Unfortunately, that sum of money has to last you from now, (say 55 years old or later), to your ultimate demise, anything up to 45+ years later.

In this particular case, the current pension provider was offering a guaranteed annuity of £122 per £1000 of pension fund, a guaranteed rate of return of 12.2%, more than double what might be obtained on the open market and massively more than the returns available from any other guaranteed investment, (and potentially more than many non-guaranteed investments). Not taking this is rather like shooting yourself in the foot.

The second big disincentive to taking all of your pension money in advance is the taxman; it is all earned income and will be taken at your highest marginal rate. Most initial payments from pensions are taxed on an emergency basis, so paying 40% is highly likely and you will than face the pain of reclaiming overpaid tax. Many pensioners will never pay tax, so throwing your money at the taxman because you are impatient seems ridiculous!

As for signing bits of paper with “no names or pack drill”, we will not do it. For one thing, it is insulting. For another thing, what is to stop you blaming us in ‘X’ year’s time, when you have blown your money on high living or some hare-brained investment scheme and want someone to sue?

Financial advice works best with a long term relationship with an adviser who understands your objectives and can take a wider view of the world and your needs within it. Transactional one-off tasks underutilize us and can lead you up the wrong path.

If you would like to know more about how we can help you plan and realise your financial goals, then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.