Thomas Hobson, you can choose any horse as long as it’s by the stable door

I’ve been thinking about my options with my DC pension pot. Do I continue to want my money exposed to market risk , do I take an annuity rate depressed by quantitative easing or do I sit on a pile of cash?

If I am still allowed to take this decision for myself (and I think I just about am), then I have a number of options

1. I can take what help I can that is free – Pension Wise and MAPS and get a clearer picture
2. I can put the decisions to the advice of an IFA and effectively delegate to the IFA authority for taking next steps
3. I can execute drawdown myself – or use an unregulated annuity broker – or simply instruct my pension provider(s) to give me my money back.

I am trying to approach this in an unbiased way and have had my Pension Wise interview, which was helpful but didn’t take me very far with regards 2 and 3.

Frankly I see 2 and 3 as  Hobson’s choice. 

While I think I have the freedom of choosing any horse from Mr Hobson’s stable, I am in fact choosing the horse nearest the stable door. I may never see those horses which may be better for me,

Which is why I am still thinking about my retirement options.

If it’s bad for me – what about the person who doesn’t do this for a living?

I have enough money in my pot to be interesting to a financial planer and indeed a wealth manager.

Estimates vary about what the cut-off point is for these services. Financial planners are the people who help you with your future cashflows and show you how you can best deploy your savings and less liquid assets (like your house) to ensure you don’t run out of money as you grow old, avoid unnecessary taxation and achieve what you hope for by way of bequests.

Wealth managers are the people who manage your savings.

From the conversations I’ve been having, it is hard to secure the services of either financial planners or wealth managers if you don’t have £150,000 of liquid capital-  (savings). This amount of course includes what you have in your pension pot.

So while Pension Wise and MAPS are available to everyone, option 2, putting your affairs in the hands of a financial planner and by extension a wealth manager, is only available to a proportion of people making at retirement choices.

There are a number of statistics about how many people are taking financial advice and the consensus is that around 1 in 5 of us take advice when at my stage. There is another statistic – that comes from the FCA – that at any one point only around 6% are actually paying for financial advice on an ongoing basis.

Whatever the percentage who are – or choose to be – excluded from using the services of a financial adviser (whether financial planner or wealth manager), most of us don’t have a relationship with a financial adviser. Much the same can be said of accountants, tax specialists  and lawyers, we do not retain them, we use them when we have to.

So for most of us Hobson’s choice is to do it ourselves.

DIY retirement planning

If you go to see a financial planner, the chances are they won’t recommend an annuity. We had this discussion on twitter yesterday

Like Stuart, I do not think there is demand for a deferred annuity. But in the survival part of retiment age (after 78 years old) I would think annuities would still have a place in the toolbox of a financial planner.

— Eugen Neagu (@BespokeFS) July 27, 2019

I will be cynical here and suggest that financial advisers do not want to talk themselves out of a retirement long relationship with a client by suggesting someone like me  buy an annuity.

I have seen the latest rankings of annuities implemented by intermediaries and none of the top players are IFAs or even advisory networks. The top players are unregulated annuity brokers such as Retirement Line and Hub who do not advise on retirement options but implement purchasing decisions already taken by customers.

There is a huge market in DIY retirement planning which includes the purchase of annuities, establishing equity release and the DIY management of drawdown from whatever pension pot an individual has consolidated into.

There is an even bigger market of retirement money which is being transferred to bank accounts for future saving

But the biggest market is for money to just sit in retirement pots because people like me just don’t know what options are around the corner and want to wait for Mr Hobson to put a better horse by the stable door.

Is there likely to be a better choice?

Since the Pension  Freedoms were introduced (and it’s now 5 years since they were announced), there has been very little development in the choice available to us.

I am hopeful that if we get a Pensions Bill this year, we will get a CDC product for Royal Mail at some point in the next three years and that we may be able to get a collective drawdown scheme for people like me to transfer money into before I am 67 (my state retirement age which is in 2028.

I can wait that long – infact I will keep working partly so that I can say “I can wait that long”.

I do at least have the choice of keeping on working, many people of my age find it hard to get a meaningful wage,

My choices are in practice, to work longer, save more and hope that something better comes along.

For many people, DIY retirement planning is a matter of urgency and that may well be the only choice they have – if they cannot find a financial adviser who will deal with them at a reasonable price.

People cannot wait for ever in the Micawber-hope that something will turn up.

The DIY approach to retirement planning is what most people will have to do unless something like CDC turns up. It is fraught with difficulty and most people do not get access to all their options. Most people know nothing about annuities and equity release and if they do – they can easily find themselves making decisions when hopelessly out of their depth.

People need signposting to the right kind of annuity brokers and equity release specialists and – if they want to do their own drawdown, they need to be supported in doing this by the provider who offers the drawdown facility.

In short people need help in knowing where to go to do their research before making these hard life changing decisions. That is what – in time – I want to do at AgeWage. But right now I cannot do that, I can only write about these choices and influence those people who respect my views to make smart choices on their behalf and promote smart choices to others.

If you are the kind of person who agrees with helping themselves and others – please read the final paragraph!

Help through the workplace?

Let’s be honest, if you are reading this – you probably aren’t the kind of person who needs a lot of help. You are much more likely to be the kind of person who is puzzling over how you can help others to make the hard retirement choices.

If you are one of those people who organises help for people at work and are worried about your staff making DIY retirement choices, then can I suggest you either get in touch with me henry@agewage.com , or sign up to one of our four summer workshops we are holding in WeWork Moorgate.

You can sign up for these seminars here