We would always advocate making a Will, regardless of your situation, as you then have complete reassurance that your wealth will be divided up as you wish, whether it be amongst relatives, friends, charities or political parties. If you do not have a valid Will, then the laws of intestacy apply – these rules differ depending upon where in the UK you live, and the following relates specifically to England and Wales.
The point of a pension is to provide you with an income when you stop earning a salary. Traditional pension schemes were designed around this idea, guaranteeing to pay members a defined benefit when they retire.
This means that if you ask a teacher what their pension is worth, their answer will be related to their future income. But things have changed and, these days, most people are being enrolled into scheme where the amount that goes in is fixed and what comes out is at the mercy of investment markets, interest rates and inflation.
I read something in the New York Times recently which included this sketch by Carl Richards, a financial planner in Park City Utah who also works as The Sketch Guy in the Your Money section of the paper. I have taken the main message from the article to apply to the UK rather than the US.
I had a conversation with some clients last week who love to travel. When I asked them where they were planning to travel this year, they surprised me by saying they didn’t know. When I asked why, they replied ‘it seems to be a little bit scary to travel based on everything that is going on in the world’.
In my opinion, this perfectly demonstrates how newspaper headlines tempt us in to thinking the world is falling apart.
We begin to think that because there were a few planes that crashed last year, air travel is suddenly riskier. However, whilst the media depicted the most dangerous ever year for flyers, according to Flightglobal’s Annual Review, 2014 was the safest year for air travel yet.
In comparison, even though the risk of dying in a traffic accident is many, many times more likely than a plane crash, people don’t think twice about getting into cars. The headlines confuse issues such as these so much, so that it effects the decisions we make.
This year, we’ve already lost track this year of the number of people asking whether the events in Russia and the Ukraine, the rest of Europe, or China should have an impact on their investment strategy.
Let us be clear – investing is not a risk free proposition. Risk is something that we have little control over; making it something that is rarely worth our time and attention.
Exposure is easier to define and we can rest assured knowing that if an event was to happen, we have a reasonable idea as to what impact it would have upon our financial affairs.
So, while risk poses the question, ‘what could happen?’, exposure asks, ‘what impact will it have on me?’ We can’t always answer the first question, but we can have a good idea of how to answer the second.
This is why we talk about asset allocation in clients’ portfolios, as opposed to whether Russia will invade a neighbouring country!
It means that we set up life assurance cover – instead of worrying about catching Ebola – and it also means that we wear our seatbelts, even on a short drive to the shops.
Risk will always grab the headlines, but by understanding and evaluating our exposure, we can gain valuable control over our lives.
“Image credited to Carl Richards at Behavior Gap”
Along with the general upturn in the economy, we are seeing an increase in the number of clients upgrading their premises – either by way of extending, refurbishing, or in the main purchasing new premises altogether.
Many of these clients are utilising their pension funds to purchase new property as an asset of their pension fund, or alternatively borrowing money from their pension fund to help fund the purchase/improvement. Like me, they would much rather pay rental or loan interest to their own pension fund, rather than to a landlord or bank.
A recent article in the US suggested that eight out of 10 Americans look online in the first instance for answers to health and medical problems. With the growth of smartphones and free apps (such as the plethora available free from the NHS on Appstore) this is a trend that’s likely to get stronger.
Unfortunately, technological advancements have led to a new medical condition that practitioners now have to deal with – ‘Cyberchondria’.
Collins English Dictionary defines Cyberchondria as: ‘[the] unfounded anxiety concerning the state of one’s health brought on by visiting health and medical websites’.
When I finished reading the article, apart from an overwhelming urge to delete all of my health-related apps so I could live a happier healthier life, I started to think about other things we do and look at online that could cause us anxiety.
Probably the most common of these is related to finances. Websites like moneyfacts.co.uk, comparethemarket.co.uk and moneyadviceservice.org.uk, deliver huge amounts of information about how we can make our money work harder, grow faster and spread further.
On top of that, there are a large number of online products available that enable us to invest, manage our money and plan our financial affairs. We certainly do not lack choice.
However, as with health, this could lead to self-diagnose that our finances are in a very poor state, or worse urging us to review and re-review information until we are so overloaded that we cannot make a correct decision.
The treatment for this financial-based ‘Cyberchondria’ is remarkably similar to the health-based condition – speak to your professional advisers.
We deal with this information every day, and can help you navigate the financial turmoil to arrive at a plan that helps your financial security.
Sometimes we focus so hard on something we think is important, we become oblivious to significant events right under our noses.
This is the idea behind The Invisible Gorilla, a book based on a series of experiments by Christopher Chabris and Daniel Simons.
The centrepiece of their work is a short film in which two teams of three people pass a basketball between them. Viewers are instructed to count the number of times the team in white passes the ball. About half the people who watch the film are concentrating so hard on the white team, they fail to notice a person in a gorilla suit enter the scene, stop to beat their chest in the middle of the screen, then stroll casually out of shot.
I don’t know about you, but I don’t usually find either George Osborne or pensions that interesting! However, I can honestly say that the Chancellor has managed to change my view on both of these points.
There have been some seismic changes in pensions legislation and policy over the years, believe you me! Despite this, the Government has always stuck firmly to two mantras – ‘we don’t trust you to do the right thing with your pension fund when you retire’; and ‘pensions are there to maintain your standard of living in retirement and not as a vehicle to pass down wealth’.
Welcome to Landscape, our new blog that’s been launched to inform, educate and bust myths that surround a wide variety of financial issues.
We’ll be posting views and insights on a weekly basis – covering topics that matter to you, your family and your business.
Seeking financial guidance can be a daunting and complex process and, because requirements differ vastly, it’s vital that our advisory approach is tailored to meet individual needs. We hope that Landscape will become a valuable resource to you, with the ability to answer a wide range of questions and concerns in an interesting and non-technical manner.
Our experienced Carpenter Rees team will be commenting on the ever-changing financial news agenda and topical issues.
But, if there’s anything you’d like to see featured on Landscape, please get in touch. For now, grab a coffee, sit back and enjoy the view!