Life After Full-time Work Blog

Learn about preparing for life after full-time work through posts from Don's upcoming book.

#31: What If You Don’t Have A Financial Professional To Help You?

Not everybody has, or finds, a financial professional to help them. This post looks at the kinds of attitudes and issues people typically have in connection with pensions, through the eyes of a rare national advisory agency.

 

Right from the start (Post #2, https://donezra.com/you-dont-need-to-become-an-expert/) I’ve suggested that you don’t need to become an expert on financial matters. Instead, you need to be a consumer of expertise. But I’ve really made an assumption there. I’ve assumed that you will find an expert to help you. Let’s face it, most people don’t. What if you’re one who hasn’t found, or doesn’t want to find, an expert?

Most people simply don’t think about retirement until it happens, or comes near. In fact, for some it comes unexpectedly, before they’re even ready to think about it at all. There may be a family member who suddenly needs care, or they may be laid off, or they may themselves fall ill. No matter what the reason, their working career ends and they’re caught unprepared.

Even if they do start to think about it, they’re typically confused and don’t know where to start, so broad and complicated is the subject of life after work. People tend to trust their employer or their union, so a conversation with someone at work may help, whether a formal consultation or just water-cooler talk. Or there may be a family member who knows something about it or has recently retired. If nothing else, any of those approaches is at least a start. Who knows, you may even have come across this website. But do remember, rules often change on financial products so what your uncle, friend or work colleague did may no longer be possible or new opportunities may be available to you.

Or, if you live in the UK, you’re unexpectedly lucky. Because the government has an independently run service to help you, if you get in touch. Actually, it has more than one, and is considering merging them. There’s the Citizens Advice and The Pensions Advisory Service (TPAS), together delivering a service called Pension Wise. I believe there are national pension plans in other countries and some of them offer services to their citizens. I’m more familiar with the UK because I’ve lived and worked there for many years, and was fortunate to be able to interview Michelle Cracknell, the Chief Executive of TPAS, in the summer of 2017. TPAS was a charity set up by one Margaret Grainger who, after years working in the pensions industry, like me, realized that no one should have to make choices about their pension without help – which is the motivation behind this website. The Government liked what they were doing so much that TPAS took on its government role in 2006 and was then selected, along with Citizens Advice, to deliver the Pension Wise service in 2015 when UK law changed to permit people with defined contribution pension savings total flexibility in how they accessed their pension pot (as formal pensions savings are called in the UK) after age 55. Clearly, the suddenness of total flexibility required people to have access to knowledgeable and impartial advice, if they were to make informed choices. Enter TPAS. Today, TPAS deals with people in a range from those who can’t afford to buy a refrigerator to those with multi-million-pound pension pots. As well as permanent staff, it also has an army of volunteers, all pension professionals with years of experience, who help deliver the service.

This isn’t the place for how to get in touch with them and details of that sort. Rather, my purpose is to see what aspects of their experience might extend to any country.

Before I even get to that point, let me observe that it’s wonderful to see how they give volunteers an opportunity to share their knowledge and experience in helping the general public with their pension problems. Among its volunteers TPAS has actuaries and lawyers, some who have retired and some who are still working – indeed some whose time has been donated by their employers, who believe in this sort of public service. It is particularly fulfilling for retired volunteers who thought their professional knowledge would never be useful again. Wrong! The knowledge of these volunteers can help you make more out of your pension, which can change your life.

Do people anticipate retirement? In general, no. Most people think “it’ll just happen,” as a part of life that they don’t control. Often they seem to have developed half a story, based on what happened to parents or friends, and they assume they have to do the same thing – even when it’s not what they want to do. Turning them into empowered consumers of pension expertise is thus a natural goal for TPAS. (And it’s good to see the theme of my Post #2 confirmed so powerfully.) Since enquirers (whom TPAS thinks of as customers) see pensions as complicated, they are also more likely to see them as depressing rather than liberating.

TPAS doesn’t ask them questions related to pensions. They simply ask customers questions about themselves and what they want – the subjects that the customers are expert on! – and then try to apply that background and those thoughts to practical choices regarding pensions, the “pension diagnostic” as Michelle calls it.

Is there anything that would make the initial contact more productive? Yes: it would be very useful if customers had the latest statement about their various sources of pension. Most customers don’t know how much retirement income they will receive, and don’t know how to obtain estimates.

Many customers don’t think of their state pension (as the national pension is called in the UK), or of any entitlement from a workplace defined benefit pension plan, as their money. (These are truly a kind of personal wealth, but because they only come in the form of an income and don’t get measured as an equivalent lump sum, their value is easy to forget.) What does feel like cash to them is any personal savings they may have accumulated, over and above a workplace pension. So when they retire, they often take their defined contribution workplace plan accumulation and put it in their bank account, because that gives them a feeling of ownership. Not always the best choice.

Many of the questions asked of TPAS involve disputes or claims or misunderstandings on contract terms or taxation or other complaints. Inevitably these are specific to the individuals or to the UK, so can’t be generalized – except of course for the fact that they occur so often. Unfortunately, pension scams feature in the questions and queries but thankfully, increasing numbers of customers contact TPAS to check that what they’re being offered is legitimate – a helpful development.

Does the financial industry see TPAS as a rival? Far from it; the opposite is true. In fact, TPAS is funded by a levy on the industry. They are helpful to the industry because they indirectly perform a sort of screening or qualifying function, saving the industry time, in that they observe that customers tend to fall into one of three broad categories. One is those who are diehard self-serve people, do-it-yourself-ers who are making contact to clarify something before they act. A second group would not be desirable customers for the industry, with assets too small to be of interest; these people do at least get some help through their contact with TPAS. The third group is those who come to realize that they have important decisions to make, and if they approach financial professionals after speaking to TPAS, they appreciate the value of regulated financial advice and are then more likely to be willing to pay the fees involved.

Throughout their contact, TPAS tries to assess their customers along three dimensions. One is their financial capability: how knowledgeable do they seem? Another is their degree of confidence, which may itself seem either reasonably or inadequately supported by their financial capability. The third is the degree of interest shown. For example, some customers are high on the first two but give the impression that the subject is of low importance to them.

I have the strong impression that this is a very useful service, and one that would be a positive addition to the landscape if it could be replicated in other countries. TPAS tries to extend its utility in the UK through outreach (visiting a number of organizations in person and virtually), and by using news stories in tweets to draw attention to pension-related issues, thus attempting to create teachable moments on a subject that is typically a low priority to much of the population.

If you’re in the UK or have a UK pension (many of their customers live abroad), I hope this gives you an incentive to contact TPAS.

If you’re reading this and are not in the UK, I’ll bet you wish you had access to something similar. Perhaps with this background you’ll have some ideas as to what to ask a financial professional or someone from a similar service in your country.

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Takeaway

Access to an independent advisory service is useful and has lessons for us all.  

8 Comments


I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.


8 Responses to “#31: What If You Don’t Have A Financial Professional To Help You?”

  1. Thank you Don for your kind words and for raising awareness of TPAS. I am lucky enough to head up TPAS that has an army of pension specialists who see first hand how their knowledge can give people more confidence to plan for the financial part of their retirement. We believe that having the right questions to ask yourself and others is essential to make the most out of your retirement income. I think this is very aligned to what you are doing in your book and blog. It would be great to hear from your readers that have UK pensions and even more fantastic is TPAS was part of an international family of pensions advisory services that guide people to a happy retirement.

    • Don Ezra says:

      Thanks, Michelle, for adding this to the insights from our interview. I wish other countries offered a similar service, and I hope your example will inspire them to do so. I too hope to hear from readers on the subject, in the UK and in other countries.

  2. I might be misremembering but when the UK first allowed people ‘control’ over their pension pot the industry went on a high pressure sales binge which encouraged people to abandon decent DB plans for very risky alternatives at the wrong time of their lives.

    The industry was forced to backtrack in a major way and I assume this programme is a result. Not to say it’s not valuable but why (if my memory is correct) did the industry fail their fiduciary responsibility

    • Don Ezra says:

      Thanks for the observation. Yes, I recall accusations of mis-selling — not the first time, either, in the UK (a major scandal some decades ago). But I believe that this service was conceived of before the new legislation came into effect, not as a belated response to the mis-selling. Your observation prompts so many thoughts in me. The main one concerns the phenomenon called “asymmetry of information”: where the seller knows much more about the product than the buyer (three economists won the 2001 Nobel Prize for their contributions to the subject). Hence “buyer beware,” hence the need to be an informed consumer, hence the need for financial professionals to act as fiduciaries rather than as sales agents, hence the need for awareness of conflicts of interest, such as when the professional is selling rather than advising, and so on. (I believe the insurance industry does not, as a whole, legally bear fiduciary responsibility.) That’s why I like the notion of TPAS so much: their professionals aren’t selling, and they get no financial reward from their interaction; that’s why I wish other countries would follow suit and set up something equivalent. You can’t force people to use it, but its availability is worth expanding and proclaiming — my view, at any rate.

  3. J. J. Woolverton says:

    We have what we can refer to as “human capital”. The process of an individual starts with Stage One: the Education Phase is where we spend our first two decades in a process of elimination of what we don’t want to do with our working life and, hopefully, finding what we can focus on as a career. Stage Two: the Working Years is where we find ourselves forming families and, at some point, and later, beginning to think about saving for the really fun part of our live. The first two decades of this Stage is spent, basically, trending water — living from pay cheque to pay cheque in order to enter a period of comfort. Unless forced into a pension or some other savings plan, very little savings takes place (except what occurs with a mortgage — and, even here, there is very little pay down of capital (increasing savings) in the first ten years. The last Stage is what I refer to as the Entertainment Era. Here, all the fruits of our labour pay off (of course, if you had taken the appropriate time to plan effectively for this Stage).

    The problem is not necessarily focused on the financial aspects of planning for retirement as other surprises might arise that affect human capital. Human capital diminishes over time and can be affected by factors that are unexpected (i.e., poor health, divorce, losing a job, etc.) — generally, things that cannot be planned for. Monies put aside for retirement can be significantly affected by these events — all resulting in a drawdown of funds before their time. And significantly affecting our anticipated life style.

    Before I “retired” I made it a point to find ten individuals who had retired — chosen from different walks of life. Some were successful in retirement and a couple, not so much. Each kind of lengthy “interview” focused not only on the financial aspect and how they prepared for retirement and what, if any, surprises they found that might have affected their life style, but, also the effect on their mental state — especially males, as they, generally, do not have the same social network that women have. My findings made a significant impact on my attitude for the planning stage for retirement. Nice to get a good financial planner, however, talking to retired individual helped me in asking questions that I might not have asked before this.

    • Don Ezra says:

      Thanks, JJ. A great overview of what we all go through. Re your final paragraph — yes indeed, it’s important to think about the psychological aspect too, which is why my Topic 1 is devoted totally to this aspect.

  4. Ted Harris says:

    In my experience, as one approaches retirement it is constructive to talk to trusted sources about what one expects with regard to a sustainable retirement lifestyle. Too many times I have run into people who haven’t realized that they must modify their expectations. A related hazard is not getting a realistic perspective on what one’s investments can support. We’ve all known of situations where a self-serving advisor says they can make up the difference that a lack of saving has produced. Addressing these issues sooner rather than later reduces the odds of a rude shock.

    • Don Ezra says:

      Thanks very much for sharing your professional experience with our readers. I hope they take it seriously. The personal funded ratio calculator that I’m working on is a first step in this direction, but how to bring these perspectives into general consideration remains a mystery to me.

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