Act in Haste, Repent at Leisure
It’s an age old adage, but one that still rings true today.
A modern day example in the financial world is accessing pension pots early, taking advantage of the new regulatory freedoms allowing the over 55s to dip into their hard earned cash early.
More than a million people have done so since the change in rules, taking pension cash worth in total £10.8bn.
A wise and profitable decision by some – reward for years of loyalty and graft, smoothing the pa
th into the latter years of their lives.
But, as a report by the Financial Conduct Authority (FCA) says, there can be a nasty sting in the tail for those investors who hastily withdraw cash without seeking professional financial advice first.
The FCA report found that 30% of people were taking their pension without taking expert opinion.
As a result, hundreds of thousands of people face having poor value pensions and high tax bills.
More than half of the money withdrawn was not being spent, but was instead moved into other savings and investment funds, with some remaining in cash accounts.
Legally, investors have to seek professional financial advice if their pot is more than £30,000 in relation to company pension scheme.
That’s because they will be liable to pay tax on that sum. Professional financial advisers may counsel that leaving the cash in their pension pot is a more financially sound option, as opposed to putting it into funds or a cash bank account making next to no interest.
The FCA report also warns that some investors taking out pension lump sums have been shocked to be hit with a hefty tax bill from HMRC, as a result of how it taxes regular payments under the PAYE system.
A cautionary note if it was needed to contact a professional financial adviser before making one of the biggest decisions of your life.
The reasons many people aren’t heeding this advice are varied, but the main one in our experience at Carrick Financial Management is trust.
Trust is a huge issue, as many people don’t trust pensions per se. Pensions can be confusing, bound up in jargon and difficult to fully grasp.
When professional financial advisers engage with clients, we are very clear and up front in advising people what this will cost them.
It’s concerning to read that some people believe they are being forced into taking financial advice on pensions management that they think isn’t needed.
It may cost several thousand pounds to get that advice, but far better to get the right opinion than make an ill informed choice which costs a lot more in the long run.
Professional financial advice does cost. Why? Because of the risk.
We take responsibility for the advice we give for the pensions transfer for as long as you live and as long as we live.
We work in a highly regulated environment with the Financial Conduct Authority, Financial Ombudsman and professional indemnity insurers. Our insurance costs are thousands and thousands of pounds.
There are tonnes of stuff people can do with pensions now that they couldn’t do in the past but from a consumer point of view the big question still remains: ‘Have they got the faith and courage to contact a financial adviser?’
It’s that whole pensions and trust issue. Can you trust the adviser?
And that’s where the best financial advisers stand out from the crowd.
Referrals are the best source of new business and the ultimate endorsement of a company – a client advising colleagues, friends or family to place their faith and hard earned cash in the hands of a trusted professional.