FINANCIAL wellbeing is a state of mind. It’s a phrase now being used to sum up how comfortable and how confident we feel in making financial decisions, particularly with regard to our retirement.
If your financial wellbeing is not what it should be, you feel hesitant and worried about how to go about financing your retirement; and if your sense of financial wellbeing is high, you are confident that you are making the right choices, and taking the proper advice.
Coming to retirement is a time for celebration, you may be looking forward to some well-earned leisure after a working life of over 40 years. But it can be a risky time as well: in particular, people can make bad financial choices due to a lack of understanding of tax laws.
Figures show that pensioners are paying £4 billion a year more in tax than the government expected, which would indicate that decisions made without proper advice and planning are leading to large and unexpected tax bills.
Well, there’s nobody better to comment on how pension savers manage their money than the people who manage and oversee the pension schemes – the pension trustees.
The research organisation Wealth at Work recently surveyed them to hear their thinking on what they are observing, in terms of behaviour and decisions made by pension savers. They found that eight out of ten trustees (81 per cent) are concerned that pension savers don’t have the knowledge to deal with the tax implications of accessing their pension.
The research also found that nearly nine out of ten trustees (88 per cent) fear their members nearing retirement will face predatory attention from scammers. Anyone who uses the internet will not be surprised by this - stories of scam victims circulate every day.
Just last week the Bank of Ireland had to warn customers after scammers, posing as the bank, contacted large numbers of customers by text message, asking them to give or update their bank account details.
Concerns about this are warranted. The Financial Conduct Authority said that victims of pension fraud lose an average of £91,000, but that’s just the average and there have been cases where victims lost £1 million or more to fraudsters.
Then there are the risks you can face if you are a member of a defined benefit pension scheme – those generous schemes where your pension is related to your final salary and years of service.
Almost nine out of ten trustees (85 per cent) had concerns over the risks their members face if they transfer out of their defined benefit schemes.
Defined benefit pension transfer values remain high, often with multiples of 40 times income, and figures breaching the £1million mark.
There’s no doubt this is tempting but assessing whether it is right to transfer is highly complex, with multiple risks relating to managing the money once transferred.
This issue had a lot of publicity lately – you might have read of the problems faced by the members of the British Steel Pension Scheme.
Members acting without good quality, independent advice made bad decisions, swayed by the size of the transfer figures rather than the value of the benefit.
I constantly try to put it across to people that you should never ‘go it alone’ when making those major financial decisions that will affect your life and the life of your family.
We would not dream of going it alone in the small things: sorting out a car problem, repairing our home electrics or plumbing. We call in the expert – the mechanic, the electrician or the plumber.
So why do we so often proceed to make our own decisions in financial matters, without talking to our qualified financial adviser?
Our finances are more complex today than they have ever been – that’s why it is more important than ever not to go it alone.
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information on Facebook at 'Kennedy Independent Financial Advice Ltd' or at www.mkennedyfinancial.com
