"I know this sounds obvious"

kidmugsy

said Richard Parkin, head of retirement at Fidelity "but it is a worry that some of our callers do not seem to grasp that if you take money out of your [pension] policy today, it will pay a lower income in retirement."

(Quoted in The Tel, 16/06/15)

dunstonh

"but it is a worry that some of our callers do not seem to grasp that if you take money out of your [pension] policy today, it will pay a lower income in retirement."

It may seem like a strange statement to most of the regulars here but it is very much the case that a worrying number dont seem to factor in withdrawals now vs what they get later.

It's one of the major fears advisers have and why so many are reluctant to give affirmative advice on taking lump sums (when advice is required). The CMCs are going to be cold calling soon saying "were you told that taking your pension out would mean less income in retirtement? you were mis-sold".

The FOS dont help. Here is a snippet from a complaint they upheld (from their published cases):

The adjudicator considered that the bond included no guarantees that it would produce sufficient
returns to cover the income Mr A wished to take from it and, therefore, there was a real risk that any
returns it made may not ensure that the original capital value of the bond would remain intact.

In my view, persistent reference to the bond “producing” an “income”, which is actually a
withdrawal of capital, gave Mr A the impression that it could earn this level of income in the
same way as interest is earned on a deposit account. I cannot see that Mr A was provided
sufficiently strong risk warnings that his capital was subject to risk, whether he took a regular
monthly withdrawal of 4.11% or made no withdrawals at all, to give him a balanced view of
the nature of this investment. That Mr A was advised to invest in ‘cautious’ risk-rated funds
made it less likely that the bond would consistently produce a return of 4.11% per annum
which would generate a monthly income of £250.

While Mr A did hold other forms of investment at the time, he does not appear to have
previously taken out an investment bond. Therefore, while the existence of these other
investments would have given him an insight into risk, he would not have been familiar with
the terms of an investment bond until this product was explained to him by the adviser in
September 2005.

That was an investment bond with a fixed monthly withdrawal. Just as it would be on a pension. The person complained despite having OEICs, PEPs and ISAs which were not complained about and he had over £170k on deposit (after investing the £73k in the bond).

The whole problem was the person associating the income withdrawal as pure income and not withdrawal. The ombudsman thinking that someone with unit linked funds in an ISA, PEP and unwrapped would not understand unit linked funds in a bond. How many similar complaints are we going to see being made against pension drawdown cases after the next market crash happens?

atush

I dont get this. i have never been a person who works in finance (apart from a summer job in a building society when I was in uni).

But to withdraw money, and then not to realize it will affect the balance/value in any sort of acct be it savings, current or pension is unfathomable to me. It is pure common sense.

molerat

atush wrote: »

I dont get this. i have never been a person who works in finance (apart from a summer job in a building society when I was in uni).

But to withdraw money, and then not to realize it will affect the balance/value in any sort of acct be it savings, current or pension is unfathomable to me. It is pure common sense.

Which is where the problem lies.

greenglide

Which is where the problem lies.

But not if you only plan to live for a couple of years which seems to be true of the people who "want the money now".

redux

Someone bought me a money box when I was a kid. If I took some money out it had less left in there.

So maybe some of these people should blame their parents.

greenglide

So maybe some of these people should blame their parents.

Because the parents took money out as well!

Because they didnt provide a magic money tree to keep it full?

atush

molerat wrote: »

Which is where the problem lies.

Since when has the entire UK population had a 'common sense-ectomy'?

atush

redux wrote: »

Someone bought me a money box when I was a kid. If I took some money out it had less left in there.

So maybe some of these people should blame their parents.

I agree. I taught my kids to save, then i taught them about income, taxes (and what they pay for) then I taught them about shares, investment trusts etc.

my eldest at 24 has a pension with thousands in it.

PennyForThem_2

The average reading age of the population is ....... 10.


What does that tell you?

mgdavid

atush wrote: »

Since when has the entire UK population had a 'common sense-ectomy'?

entire? - about 1980 IMO
but it was progressive from about 1960...