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Pensions - still viable?


Regarded perhaps by many as an inflammatory question but a question I know a lot of us ask and to which a reasonable answer is demanded.

If only the answer was simple.

I could begin the answer by referring to the tax treatment of pensions since 2015; a tax on contributions over the maximum [currently £40,000 this year - unless benefits have already been taken...] a punitive tax applied if our pension fund exceeds £1m [might seem pie in the sky but many have moved commercial property into their pension plans without considering the potential consequences] Pension freedom - the option to take our pot in cash and avoid the annuity trap - means a quarter of the pot is [currently] tax free but the balance taxed at marginal rate - the first 25% taken at source. Any higher rate tax is subsequently collected via self assessment and regular readers will know of the severe tax problems this has caused so many people. "Drawdown" offers an alternate route but relies on having to accept on going investment risk - I'll refer to that shortly.

Politicians cite "workplace pensions" as a solution to the serious under funding problem in our country; in reality unless members significantly save more - which most cannot afford - these schemes will make very little difference.

Many experts talk about the improved investment choices now available to savers; in reality this is a myth. It is true that in previous years pensions did allow a degree of self investment but for reasons outside the scope of this article these options have been severely curtailed by the regulators. The FCA and its legion of advisers will only promote "regulated" investments - those funds provided by the institutions regulated by the FCA. Funds which, curiously always deliver a profit to the provider regardless of the return we may or may not receive.

Of greater concern must be the fact that it is now 10 years since the last financial crash; those of us who have been around for a while know that corrections typically occur every 10 years. Experienced investment commentators point to many worrying statistics; stock markets at or near their all time peak despite the very real issues faced by companies, cashflow, lack of investment, greater taxation etc; issues which has lead to the lowest number of IPOs in recent years. It is not just equities which are facing a correction; property values, especially in our large cities, are falling. Even in London, where there is a growing trend for relocation to the "north". First time buyers cannot climb on to the ladder and the market is flooded with former buy to let properties being sold as owners come to terms with tax changes beginning to bite.

We have a global debt mountain made up of companies and Governments, the latter having pumped billions into their economies in recent years through quantitative easing; inflated property and equity prices and unprecedented international tension just to add to the mix. And then there's BREXIT...

These assets - equities, property and bonds - make up the vast majority of pension funds; aside from the issues above, at retirement advisers will discuss "drawdown" as an alternative to freedom. Money is drawn periodically, usually monthly, with the requirement of remaining fully invested. A return or yield will be calculated which is required to maintain the value of the pension fund. Any return needed greater than 1% pa would require investing in the aforementioned asset classes ensuring we continue to tolerate investment risk at a time when we would perhaps prefer the opposite.

Cryptocurrency is an uncorrelated asset which continues to garner column inches; after dramatic growth, values peaked in December 2017 and have fallen significantly since, largely due to regulatory pressure, the effective spreading of fear and doubt on social media and the to date failed attempts to persuade the SEC to accept a cryptocurrency exchange traded fund. This is a temporary setback. However, what will drive value into this relatively new asset class is demand for the products and services on offer from Blockchain technology. Blockchain will remove the "middle man" resulting in lower prices for the things we currently buy from middle men. It also provides an alternative to the banks. Unlike the banks it offers total security.

This medium offers a further, major attraction. It can raise capital for businesses without having to provide equity. Without having to go cap in hand to a bank. Cryptocurrency can provide governments with a weapon to combat fraud, money laundering and the black economy.

It has the power to become the most transformative asset, for the benefit of us all, rather than just the few.

There is a whole lot more to this.

Whilst I have been in the financial services sector for many years this article is not designed to offer advice; the author is not FCA regulated and the reader should always consult an IFA for any regulated investment matter. The point of this article is twofold; to ensure we all review our pension holdings in light of what might lie ahead and ensure we minimise the chance for loss.

It is also an attempt to present an alternative view of a relatively new asset class, one which despite the naysayers comments, will become mainstream by the end of this year. Bold statement? Perhaps, but being able to spend crypto anywhere in the world without restriction tells people like me that is now a genuine alternative to physical cash.

And, as someone recently said, you cannot put the genie back into the bottle.

If you would like to continue the debate you know what to do.


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