A thread , which is now nearly a week old, has over 1000 posts on it and it focusses exclusively on the tax problems doctors are having resulting from the tension from too much pension .
That is, till the arrival of Ben Bannerjee , who introduced a new theme – Ben’s preoccupation was quite different..
Nope. My IFA, like most, was obsessed with the pre-retirement situation. My job is to look after my wife and I until the end minimising risk and stress & maximising money but not at the expense of the former 2.
— Ben Banerjee (@HBP_Surgery_CHS) October 31, 2019
For those (like me) with weak eyesight, here’s that financial plan a bit bigger
Dr Bannerjee’s financial priorities were not to maximise the fiscal gain over the taxman but to give him and his wife the financial security he wanted for the rest of his life.
He chose for his retirement plan started rather earlier than his scheme retirement age.
Dr Bannerjee was pressed by third party IFAs to explain what he meant by this criticism.
Focussing on maximising pension pot and minimising tax liabilities as one would expect. Not much thought on lifetime value for money which is the point I was making comparing a smaller pension for longer and vica versa.
— Ben Banerjee (@HBP_Surgery_CHS) October 31, 2019
For Dr Bannerjee , his IFA was missing the wood for the trees. This is a criticism that could be laid at many professionals who are too close to their specialist subjects – tax and tax-law only being cases in point.
A number of IFA’s press Dr Bannerjee for the planning he has done and he answers them all with considerable patience
Estimated pension is using NHSBA early retirement calculator. My tolerance for risk is zero. We have increased wife’s NHS pension as she is part time and secured a private pension for her also. As a couple we have lost only a minor amount.
— Ben Banerjee (@HBP_Surgery_CHS) October 31, 2019
As I have noted in some of the arguments that have raged over solutions to client case histories on this blog, objections from IFAs tend to focus on people like me lacking the professional qualifications to give guidance and Drs like Ben Bannerjee taking decisions for themselves.
Dr Bannerjee seems to have had the insight to spot his advisor’s fallibility, contextualise it and then build his plan on the platform of the advice he paid for, without taking that advice.
In my view, far from ignoring the advice, Dr Bannerjee has used the technical input he has got as a platform for the decisions that only he and his wife could take.
This is , incidentally, an example where fees can and should be charged unconditionally. The IFA has, as far as I can see, no role to play in the implementation of the post-retirement strategy and there is therefore no risk of product bias creating a conflict.
The choices that comes from years of sensible decision making
Reading the part of the thread involving Dr Bannerjee, it became clear that he was in a position to take decisions in his mid fifties so that he could enjoy the lifestyle he wanted for his and his family. He was in this position mainly because he had worked hard and taken advantage of all the pension offers available to him. Not only had he been in the NHS Pension Scheme but he’d bought added years. He had been a model of prudence.
Yes. I took the total TRS 1995 and reduced by % for 56yo and total TRS 2015 and reduced by % for 56yo. Add them together and you get an indication of what pension you would expect to receive at 56. Underestimated due to growth in the next 4 years.
— Ben Banerjee (@HBP_Surgery_CHS) October 31, 2019
And being a part of a collective pension arrangement
Dr Bannerjee is not alone. We still have tens of millions of our population who have retirement choices open to them because they worked long periods in jobs where the pay was pensionable and the pension provides them with these kind of choices.
As with the state pension, the security that comes from simply participating in these great schemes (whether private or public) is a huge comfort to people of my generation.
It dwarfs the importance of private savings and the decisions we take on how we shape our retirement plans , still relegate our SIPPs , workplace pensions and ISA portfolios to the marginality of “additional voluntary contributions”.
While the immediate tax advice that pension professionals can bring is important, the primary considerations that drove Dr Banerjee ‘s thinking pertained to insurance, insuring that he and his wife were sufficient to the very end.
Security sits uneasily in financial models
I am uncomfortable about the way professional advisers have assumed that their expertise should be at the centre of retirement decision making. People’s retirements are their business and factors such as security are subjective and personal. This is particularly the cased for many women who , because of the pension gender gap, depend for their financial security on their partners.
Understanding the complicated nuances that the complex dependencies that people have both on their pensions and their families takes skills that go way beyond the technical and often they require a professional adviser to give clients space to take their own decisions. It also takes IFAs to accept that while those decisions may be sub-optimal in terms of tax or likely longevity or investment returns, those decisions are right for the client.
And very often, being part of a collective pension provides an emotional support – not least from fellow pensioners, that is lost to private markets. I enjoy being a Zurich pensioner for this reason.
Lessons for me (and perhaps for advisers).
Studying the amazing thread and all the commentary gives me an insight into the things that go on when we are thinking of winding down from work, or advising people of their options.
I am concluding that advice is a platform for people to construct retirement plans but that those plans have to come from the people making them, and not from financial mentors.
Most people end up – as Jo Cumbo feared she’d end up, with a pension pot but no retirement plan. Jo had the good sense to speak with an adviser early in her journey towards retirement and I’m sure she’s worked out what she wants and how she goes about things.
Most of us need guidance at the very least, Pensions Wise can kick that process off, signposts such as the PLSA’s Retirement Living Standards, can give direction, but ultimately what we do is very much our own business and as less and less people have the choices that Ben Bannerjee has today, more and more of us , are going to have to get through the woods ourselves.
Which is why I caution advisers from challenging people like Ben Bannerjee. These people, who can see the wood in their terms, should not be challenged for the plans they have adopted. Advisers should be learning how such people have created their retirement plan, not chopping down the trees.
For all that – most doctors take advice and rightly so
Day 5 #PensionTaxHell Reflecting on all the hard working people who are trying to make this process simpler for us all. So big shout out to financial advisers, accountants, and trade unions. We shouldn’t need you but we do and you really make a difference 🙏🏻
— Dr Kate Lovett (@DrKateLovett) October 28, 2019
I think the IFA takes the available guidance from the level understood by the individual to a practical implementation plan.
Since retirement is often a longer period than the accumulation period long term servicing is required to ensure successful enjoyment of this chapter of life. Importantly pensions advice is NOT an isolated episode.take for example the changes to the legislation since 2006 as well as the troubled economic conditions of 2008 and the coming once in a generation changes due 2020/21. It would be wonderful if the retrospective aspects of this well intended but misguided shortermism had not happened.
Tax is only one aspect but an important one which has come under pressure as the ability of the economy to fund expectations declines. If taxation policy is to be moved then a flat rate of say 20% could have given the results required without the tinkering that has caused such misery for all concerned
The major issue is the lack of input and the removal of linking between National Insurance and its intended purpose. Then there is the obsession with instant liquidity removing the opportunity for the individual to participate in infrastructure investments that so often out perform other markets.
https://www.theactuary.com/news/2019/10/quarter-of-salaries-must-be-saved-for-retirement-ifoa/?utm_source=Adestra&utm_medium=email&utm_term=
Or is it a client who thinks he knows it, and who makes a mistake?
I stayed away from the discussion, although it was clear they client made a mistake, and his early retirement pension would be approx. £35k (my roughly estimate) and not £37k. I did not want to rock the boat, he was clear he wants to retire, and I cannot argue with that. The mistake was that he was using his projections to NRA (60, and 67) instead the pension accrued till now, to apply the reduction coefficients.
More to that he was blaming the tax system. The tax system says that you could only get tax relief for £40,000 and this applies to me, and also Dr Banerjee.
He somehow tried to look afterwards at how much the total he would get paid earlier than 65 (not 67, but here you are!) and when he would crossover with a higher pension. No need to do that. If you need a justification for retiring early, you just need to say you want to enjoy your coffee in the morning, taking the grandchildren to Legoland etc, no need to compare numbers to justify it this way.
Somehow he was lying to himself with numbers, there is no need to justify the decision to retire early with numbers. As long as living on £35,000 per annum minus tax is fine, there is no need for any justification. Wishing him happy retirement!