While I appreciate Christmas is looming and tis the season to be merry please read this tale about Pensions.  You never know.  Somebody you care about may receive a surprise gift from you.

Now unless you’ve been copying Rip Van Winkle this year you’ll have heard about “older investors” being conned out their life savings.  Yes, “unscrupulous advisors” have been phoning out the blue convincing the over 55s to free up their pension pots from their “straitjacket” ones.

According to the FCA (UK’s Financial Regulators) a third of over 75s and a fifth of over 55s have been targeted by “scammers” (or crooks as they’re better known).  So what happens if you take their calls and fall for their patter?  You’ll say goodbye to your life savings.  It’s as simple as that.  And with no redress.  Gone for good.

A report says that victims lost £32,000 on average this year.  Ouch.  I heard of one poor soul handing over his £360,000 pension fund to a crook who cold called him convincing him that investing in car parking spaces in the Sahara Desert was too good to pass up.  Too good to be true more like.  Sure enough his money’s now gone.

You may wonder how we got into this mess.  Well like pensions options these days it’s all rather complicated.  It starts with the astonishing fact that we’ve never had any structured financial education at school, college or university.  Decade after decade young adults leave full time education without having a scooby about taxes, interest rates, inflation, saving or investing.  Fact.

Even worse is there’s too many of us who never grasped simple arithmetic, never mind maths.  Actuary Ned Cazalet who writes in plain English puts it neatly… “the problem with investing is that 50% don’t know what 50% is”.  Quite.

Add to that a crazy system where to give independent pensions advice we’re required by law to have the equivalent of a university degree in the subject and then prove a structured process of continuous learning.  Whereas journalists and commentators, despite being completely unqualified, are exempt from such rules so can “give advice” to their heart’s content with no accountability when things go wrong.

As they probably will.  Because thanks to 30 years of UK Governments tinkering with and changing pension rules constantly while breaking their promises left right and centre nowadays Pensions are a dog’s dinner.  Unless you really know what you’re doing of course.  Sadly few do.

If all that wasn’t bad enough, the 2008 Financial Crisis drove interest rates so low that annuity rates (which turn pension pots into guaranteed income) have fallen by three quarters since 1982.

Then last April George Osborne, realising he could simultaneously win votes and pile taxes into Gov’t coffers suddenly whipped “Pensions Freedom” out of his magic budget hat.  Bingo- no need to buy guaranteed income anymore.  Dip into your pension pot as much as you want anytime and pay him extra tax.  Magic.  Except it’s left over 55s vulnerable to big mistakes and mis-selling.  And I said so publicly at the time.

After all we’d seen it all before in the previous much heralded “Pensions Freedoms” of 1988 when you didn’t have to be in a Final Salary Scheme.  How many retirements were ruined by that mistake?

But hey we’re OK now.  The FCA have declared “cold calling” is illegal.  But only regarding pensions.  That’ll fix the problem then, eh?  No chance.  Have you noticed that burglary is illegal?  Still happens though.

Research carried out in August found that pension investors who have financial advisors reach retirement with 41% more income than those who don’t.  And think of this… the FTSE index fell twice by an average of 50% in the last 17 years.  A 60 year old female alive today has a 50% chance of living beyond 85.  How confident are retirees they can manage their pension pots for life given these facts?  So if you know anybody with pension plans trying to decide what to do next what should they do?

1)  Be very careful;  2) Ask for recommendations.  However research from the US offers extra guidance.  Their “Centre of Applied Research” identified a factor within the investment industry measuring the integrity and client friendliness of firms.  It’s called a Phi factor. (Phi as in mincemeat pie, just to be festive).  The higher the Phi the better the client satisfaction and employee engagement with clients.

It’s an alignment of Purpose, Habit, and Incentives.  The Centre found even a small increase of 1% (one hundredth in old money) in a Phi factor was associated with 55% greater odds of client satisfaction.  Wow.

So if somebody’s looking for pension advice they can trust, how do they find a High Phi firm?  Here’s a few things for them to look out for……

A culture of long term relationships, solid leadership, a staff who buy into the firm’s caring culture, clients being treated as people not numbers, humility, emphasis on continued education and learning, effective client communication (keeping it simple), fair transparent costs and benefit structures, which encourage long term relationships not quick bucks at their expense, and finally strong beliefs in goals, outcomes and process.

Now that sounds awfully like a business I know well.  And I hope it does to you too.  Thank you for choosing us as your advisors.  We really do appreciate it.  And if you know anybody who could benefit from our help given the above, do tell them to get in touch and to mention your name.  Could be the best present they’ll receive this Christmas.

Have a wonderful Christmas and an even better 2017 (which looks good already, despite the headlines……what’s new there ?) 

Alan Steel
Alan Steel Asset Management Ltd is authorised and regulated by the Financial Conduct Authority

The Financial Conduct Authority does not regulate tax advice

This article is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.

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