Client not happy with her pension!

I attended a meeting with a new client today on the basis of the above. Quite a common groan and one that is regularly commented on in the popular media.

Let's look at what she was unhappy with.

First of all 4 years ago she had aims of retiring 4 years from now. These plans are NOT now going to happen.

These plans were based upon the growth and sale of a business that she had paid top price for. It had been funded through a small deposit mortgage . She and her husband had also started funding pensions and ISA's which were to form part of the plan.

So what's gone wrong?

First of all the plan was based upon growing the sales in the business that she purchased. This was to fund the pensions and increase the value of the business.

Due to the economic conditions, unfortunately sales have dropped resulting in the stopping of the pension funding. With the valuations of many businesses being highly correlated to sales, the value of the business has fallen resulting in negative equity. This has been compounded by the lack of finance for future purchasers resulting in the absence of any likely purchasers at the levels required.

The pension funds invested in are showing reduced valuations compared with the forecasts. Why? The original funding plan has not been maintained hence significantly less money has been invested. On top of this, the growth rate used in the forecast has not been achieved. The reason being that the funds selected were never going to achieve the 9% growth rate since the money was invested in a low risk with profit fund. To achieve the higher growth rate higher risk investment funds need to be invested in which of course would expose the client to potential losses.

So what is the message?

My business will be my pension is a high risk strategy that a number of people are using. Many factors can scupper this plan. Always have a mixed portfolio of investments.

Pensions are part of the retirement planning strategy and are tax efficient too. However, they need to be funded properly and in accordance with your plans.

The investment returns in the pension are driven by the investment choice you make. These can be changed in accordance with the fund options by the provider and should be reviewed regularly.

The risk of the investment should match the expectations, desires and needs of the individual as well as the overall strategy.

All the best plans need regular reviews and may need drastic changes.

At Reeves Independent we endeavour to ensure clients make realistic plans, understand the risks and limitations involved.

We try to ensure investments are reviewed and suitable to the clients needs.

The pension performance has actually been the positive thing in the whole story!


What about the client?

They are going to work hard at stabilising the income which they are positive will happen as the economy recovers. They have some new retirement goals and will hope to sell the business once the sales have grown and more attractive lending is available.

In addition, some identified costs have been reduced and some new income sources are to be developed after our review.

The pension and ISA funds will be reviewed to try and maximise the investment returns over the next 5 years and funding will be resumed once the sales levels are adequate.

A full review of the plan will take place next year.