How are you at DIY? For some of us, nothing is more fun than buying a few pots of Dulux and giving the living room a fresh coat of paint. For others, we may admit that our painting skills are non-existent, and call the professionals in to do it instead.
It’s the same if the car needs fixed, the plumbing needs repaired, or just simply going to the barber or hairdresser – we go to someone who knows what they are doing.
Unfortunately, when it comes to our finances, which are our security in old age, more and more of us are attempting a DIY approach. But many find that when it comes to our personal wealth, DIY can often mean ‘Destroy It Yourself’.
Since April 2015 we have had the freedom to withdraw slices of income from our pension savings, and so many over-55s went running to the bank that over £23 billion has been cashed out in over 5 million individual payments.
Prior to that, most of the 400,000-odd people retiring each year would have bought an annuity, the financial product that turns your pension pot into a guaranteed monthly income for life.
But now, it’s not so simple. With these new freedoms, demand for annuities has slumped, with some large annuity providers leaving the market completely. Meanwhile, pension savers are happily taking the cash and ignoring what our parents told us when we were five: ‘You can’t spend the same penny twice’.
In other words, if you spend large slices of your pension today, or throw the money away through bad investment decisions based on internet research or amateur advice, you stand a real chance of ‘destroying it yourself’.
There is now a whole community of dodgy characters dying to cash in on the new generation of pension savers who suddenly find themselves with cash to invest. Last year, police reckon £200m was lost to scammers contacting us with all kinds of bogus investment opportunities, and the average loss to each individual was £91,000.
That takes ‘destroy it yourself’ to a whole new level.
Even those who do find a legitimate home for their cash can risk being ripped off with high fees and charges, or find their money languishing in a low-interest cash account or an under-performing investment fund.
Then there are the tax tripwires that have arisen due to the wider range of choices for savers. So much tax has been paid unnecessarily by consumers drawing money out of their pension fund without expert advice, that some experts speculated the whole thinking behind the pension freedoms was to boost tax revenues for HMRC.
Even the head of the Financial Conduct Authority admitted that the freedoms had been put in place before consumers had been given the skills to handle them. Another leading expert said that regulators are never on top of the situation, they only react to problems when problems emerge – they are constantly playing ‘catch-up’.
Meanwhile down at the coal face, we pension savers want to remember what Oscar Wilde once said: the trouble with learning through experience is that you get the exam first, and the lesson later.
Are you in danger of ‘destroying it yourself’? Sometimes the best piece of advice you’ll ever get is: ‘Take some advice’.
:: 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
