OpinionOct 23 2014

Let people manage their own money

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The idea of a pension being used like a bank account has clearly upset many in the financial industry who feel the public just cannot be trusted with its own money.

This attitude is reflected in a survey commissioned by Natixis Global Asset Management which found that 57 per cent of 300 advisers polled expected an increase in the number of people “squandering their pension pots”.

Hargreaves Lansdown’s pensions rocket scientist Tom McPhail weighed in with: “Many professionals struggle to (manage longevity) so the idea that at least some inexperienced investors won’t get it wrong is recklessly naïve.”

Perhaps – but then most professionals have, until recently, shoe-horned people into an annuity because that was what the law dictated, even if it was unlikely to pay a decent return unless they lived to an exceptionally old age.

But is it not a trifle insulting for the financial industry to suggest that individuals who have saved into a pension cannot be trusted to manage their own money in retirement?

This insult has been delivered by an industry which has laden pensions with high charges and mismanaged them to the point that some have given little growth in 20 years or more.

The public knows full well who can and cannot be trusted with their pensions money. Those who have attempted to build up pension pots in the face of everything the industry has done to undermine them are in the main sensible, diligent people. To suggest that they will suddenly throw caution to the wind at age 55 flies in the face of all logic.

The decision to allow people to spread their lump sum withdrawal is likely to encourage more to leave their pensions invested for longer – as long as the industry giants embrace reform and provide the freedom to take advantage of the new rules.

The decision to allow people to spread their lump sum withdrawal is likely to encourage more to leave their pensions invested for longer

If this does not happen we will see a spate of transfers which could leave investors open to exploitation by the unscrupulous.

It also means pension companies turning off the greed switch. The last thing we want to see are charges imposed each time someone makes a withdrawal.

There are already signs that these reforms can reinvigorate pensions. A survey for Investec Wealth and Investment suggests 15 per cent of adults plan to increase pension savings as a direct result of the 55 per cent death tax rate being scrapped.

I suspect that far from squandering savings we will, in the long run, see more pension money being left by people who die.

In other words we will see John Major’s dream of “wealth cascading down the generations” rather than having it sucked into insurance company coffers.

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Sense versus sentiment

As you have no doubt noticed, the stock market is going through a bit of an adjustment. Concerns over global growth, Europe and fears of ebola have created a nervous climate.

But as Barclays said in a commentary, much of the recent IMF report which helped provoke the downturn was: “a blinding glimpse of the obvious”.

So why was the FTSE 100 flirting with the 7,000 barrier just a couple of months ago? Ah, of course, it all comes down to sentiment.

In times like this financial advice really comes into its own. Anyone can convince someone to invest when the market is rising. Pointing out the strong logic of long-term investing requires careful counselling.

I have lost count of the number of times I have heard people say: “The stock market is going well, I am thinking of investing.” Never have I heard anyone outside the industry say: “The market is down by 500 points this month. I think I’ll invest now.”

The stock market must be the only place where people happily buy when it is more expensive rather than after a price cut.

More than anything else, times like this highlight the benefit of regular monthly saving especially for novices.

Anyone who invests a lump sum and sees the market fall the next week can be put off for life.

Someone who puts in £100 and sees it fall will just know they are getting more for their money next month.

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Till debt us do part

Ever wondered why couples are often so keen to set up joint bank accounts? I have been dealing with the case of a couple who split up and left the joint account running.

As so often happens, one of the couple decided to take advantage and withdrew rather a lot of money. Now the other is left holding the joint and several liability bill.

I am beginning to think that whenever someone opens a joint account they should be provided with a warning notice: “If your relationship breaks down then suspend this account immediately.”

Tony Hazell writes for the Daily Mail’s Money Mail section