It’s not things changing that matters. It’s realising they’ve changed.

Actually, the realising often happens at the same moment as the changing.  Say your team is winning a crucial football match, but in the last minute the other team equalises.  Aaargh.  Provided, of course, that you are actually watching the game, the two events are simultaneous.

But sometimes there’s a short delay, and sometimes there’s a really long delay – occasionally even years.

This new pension stuff is a case in point, especially as far as the most appropriate investment strategy during the so-called “accumulation phase” is concerned.  (This is extremely important, because while most individuals remain almost entirely unengaged with their pension savings, the “most appropriate” investment strategy is likely to become the default investment strategy, shaping the retirement savings of the huge majority of people who don’t make a personal choice.)

Investment firms and advisers are currently in a complete tizz around what the right default investment strategy should now be.  The range of options facing people, from the moment they reach the age of 55 onwards, is so broad that no-one can imagine what a sensible default strategy should look like.

This is in sharp contrast to the position before the budget, where pretty much all default strategies assumed that individuals would retire on their Selected Retirement Date (SRD) and would then immediately buy an annuity with the money in their fund.

You can see that on the basis of what I’ve described here, the change is immediate (well, not quite – it actually comes into effect at the start of the next tax year) and dramatic.  Those default strategies based, as most have been, around the idea of a “glidepath” – an investment approach which aims to build value aggressively during the early and middle years of people’s pension saving, and then protect it as the SRD draws near – don’t make any sense when we have no idea a) when people’s actual SRD is going to be, and b) what people will then choose to do with their money.

But the truth is – at last, I’m coming to the point of this blog – that for many of us, none of this is any different from the way things were before.  I don’t know what proportion of people actually retire – i.e., stop work altogether – on their SRDs, and then promptly annuitise.  It’s different if you work for a big organisation with a clear retirement age and policy – the 65th birthday cake-card-and-carriage-clock ceremony still goes on among many.  But for all of us working for ourselves or in SMEs – and many in bigger firms too – it’s never been like that at all.

I dimly remember being asked when I’d like to retire by someone advising me on my pension many, many years ago.  At my then-tender age, 65 or even 60 seemed horribly far off.  50 seemed a bit too optimistic.  I said 55.  This number was as far from robust as you can get   As the years went by and 55 approached, I realised that a) it really isn’t very old at all, b) I was still enjoying what I did and c) I needed the money, so all in all I had no intention of “retiring” so young.

In the event, that was just as well, because as I’ve written elsewhere the stock market suffered its biggest-ever fall on my SRD and if I had indeed retired on that date I would have lost 8% of my fund’s value in 24 hours.

But that’s not the point I’m making here.  The point I’m making here is to do with the fact that over the years before and after my SRD, it’s become increasingly clear to me that I won’t really “retire” on a particular date at all.  There may well come a time when I start working, and earning, gradually less.  But unless something terrible happens to my health, there won’t be a day when I stop.

Equally, even before the Chancellor’s announcements, there wouldn’t have been a day when I’d have annuitised my whole pension fund.  At some point, I might have annuitised some of it.  I might have kept some of it invested, and at some point I might have started to draw down some income from it.  And I might have bought a small, old and unfashionable Lamborghini – an Urraco, maybe – with a chunk of the cash.

I should say at this point that since I work for myself and am unlikely to lay myself off or make myself redundant, my post-55 working history is likely to be one of positive choices.  For many others, there’ll be just as many twists and turns in the storyline, but many will be of a much less positive kind.  When you lose a management job at 55 or older, have you “retired”?  For a long time afterwards – maybe even years – you won’t actually know.

How would you have prepared a glidepath for all that?  Whatever destination you’d have tried to glide me towards, you’d have found that a) on reflection I probably didn’t want to go there at all, b) if I did I’d want to get there up to 10 years later than I’d said and c) when I finally did get there I’d only want to disembark for a short while before taking a bunch of other flights to a bunch of other destinations.

Now, thanks to the Chancellor, there’ll soon be one new destination on the departures board.  Provided I’m willing to take the tax hit, I can take as much of my fund as I want in cash, as soon as I’ve reached the age of 55.

This is, as I’ve said elsewhere, a big and important new destination.  If it was a US gateway, it would be JFK rather than CLT, so to speak.  (That’s Charlotte, North Carolina, obviously.)  But it doesn’t change the fact that for millions of people, including me, the old simplistic “glidepath” approach has been completely inappropriate for years.

What it does seem to have changed is the entirely erroneous assumption in the minds of many that the old simplistic glidepath approach did more or less make sense for millions of people, including me.

And for this belated realisation, I suppose, we ought to be slightly and eventually grateful.

Those who forget the past (or, indeed, who weren’t actually born at the time)…

If there’s one undeniable difference between the old and the young, it is that we oldies have more of a past behind us.  Even if we’ve forgotten a great deal of it, there are still some recollections there.

For better, or, I often suspect, for worse.

Work-wise, probably the biggest consequence of this difference is that we’re under fewer illusions when it comes to originality.  All those times back in my creative director days when junior teams showed me pictures of men in ill-fitting suits with headlines about the advantages of a tailor-made service – they truly believed they were the first people, not the 873rd and 874th, to come up with this idea.

I don’t do that job any more, so these days I don’t get that flash of recollection until I see the ideas in their finished form.  But I do still get it, nonetheless.

For example.  My old friends at Scottish Life are celebrating the fifth anniversary of their Governed Portfolios.  I remember launching them it seems like about six months ago, but that’s not the recollection I wanted to write about.  The headline on the anniversary ad reads Now a five-year-old you don’t have to keep an eye on, which is fine and quite neat for a low-risk fund family.  But to old people like me, that line inevitably echoes another from rather over 20 years ago – a line which I never saw, and which I suspect may be more or less apocryphal, but in its misleadingness was supposed to be one of the triggers of the split-capital investment trusts mis-selling scandal, The two-year-old that won’t keep you awake at night.

For me and I suppose for other oldies making the same connection, Scottish Life inevitably suffers from guilt by association.  The negative halo of the IT line – oddly, I’ve never heard anyone suggest which trust it was supposed to refer to – makes me feel anxious about Scottish Life’s doubtless-excellent funds.  If I was still a creative director and I’d been shown that line by a junior team, I’d have turned it down for that reason.

And they’d have gone away grumbling, probably quite rightly:  “Stupid sod.  Who cares what some long-vanished investment trust once said in an ad that appeared when dinosaurs walked the earth.”

Aaargh, it seems that Money Marketing’s readers agree with me

When you fancy yourself as a contrarian, there are few things worse than being agreed with.

I wrote a piece in last week’s Money Marketing about annuities, saying that from a consumer point of view they’re a good thing in principle and it’s really bad that the industry has abused them so badly in practice.  (You’ll find it here if you’re interested:

It’s true that the main reaction to this has, inevitably, been indifference – the article has only attracted six comments, and one of them is from a friend so it doesn’t really count.

But of the other five, four are definitely supportive and one, which is hard to make much sense of, may well be.

Actually, to be honest, I’m quite enjoying the unfamiliar glow of being agreed with.  But it’s not an experience that I want to enjoy too much – next time, I’ll have to find a really controversial angle.

At last, I’m going to need some proper advice. But where am I going to find it?

Over the lifetime of this blog, my regular reader will know that I’ve expressed more than a few doubts about the need for, and value of, financial advice.  On the whole, for most people most of the time, I’ve always believed that if it’s needed at all, it’s only needed because we’ve chosen to make things too difficult for people to make sense of them without outside help – and so, that in the great scheme of things by far the best way forward would be to make things simpler, to the point where they can happily dispense with the need for the adviser.

That said, I’ve always acknowledged – well, whenever I’m feeling fair and balanced and Libran about things, anyway – that some people, some of the time, do find themselves in complicated situations that really can’t be simplified, and on those occasions advice is important or even essential.

What’s interesting about this imminent new wave of pensions reform is that as of next April, when the new rules come in, everyone aged 55 or over in a DC scheme with a decent-sized pot will come into that “some people, some of the time” category.  The range of options available to them will be bewildering – and so too will be the range of considerations they need to take into account.  Without very careful thought and very good advice, the chances of choosing the wrong option are scarily high.

OK, it’s true that to some extent what’s happening here is further significant evolution of an established trend. Once, some years ago, there was a single, pre-specified moment in time – called “retirement” – and at that time people faced some simple choices about their best annuity options.   For some years now that’s all been getting more complicated.  There’s no longer a pre-specified moment in time, and indeed there may not be a moment in time at all – for many, retirement is now a phased and gradual process, and for some it has no end-point and is never entirely complete.  And of course in recent years we’ve seen a growing range of investment choices both within and beyond annuities.

But while it’s true that in reality these drifts towards more choice and more complexity have been pretty well established for years, it’s also true that the associated financial planning process has been able to continue to reflect the old certainties and simplicities.  Most people’s investment strategy, for example, continues to reflect the notion of a “selected retirement date.”  Most people do still annuitise on that date.  And most of them annuitise with their pension savings provider.

Now, though, such simplicities are untenable.  As of next April, for those with decent-size pension savings pots – let’s say roughly from £250,000 upwards – their 55th birthday will herald the arrival of an era of enormous financial opportunity, choice and complexity.  They can use the money they’ve saved to do pretty much anything, at any time from that 55th birthday onwards:  retiring is still an option, but so is starting a business, or moving abroad, or clearing debt, or buying property at home or abroad, or providing support to low-earning children, or providing support to ageing parents, or taking a career break, or working part-time and topping up their income from savings – or, more likely for most of us, some kind of complex hybrid of several of the above.

And what’s even broader and more complex than the range of options is the range of considerations to be taken into account.  There are vital questions to do with pot size (obviously), individual and close family aspirations, broader family issues, other financial resources available (perhaps especially inheritance), future earning potential, tax, health, longevity and probably a bunch of other things I haven’t thought of yet, maybe including strength of desire for that nice new lemon-yellow Lamborghini.

Steering the right path through all of this is going to be very difficult – and all the more so when you consider that for most of us, the right answer is unlikely to be a single decision at a single moment.  Most of us will be best served by a hybrid option, perhaps made up of a handful of investment components and executed over a period of many years as lifestyle patterns change.  Planning and implementing this kind of solution is, no question, a hell of a challenge.

So, coming back to where I came in, I can see that many of us are going to need some serious advice here (not at all, just for the avoidance of doubt, the kind of abstract and impersonal “guidance” proposed by the Chancellor).

But where are we going to get it?  The small minority of us who already have relationships with financial-planning-oriented advisers – perhaps particularly those that are IFP or PFS qualified – may be better placed than others, although actually I’m not so sure:  I worry that current planning processes are still very largely predicated on the binary-choice-at-a-moment-in-time model which I’m now suggesting is out of date and irrelevant.  But those who have some kind of relationship with the traditional mainstream product-pushers don’t stand a chance.  The kind of advice process that will be required here is completely alien to the adviser rushing to the product solution:  what’s required here is going to be psychotherapy as much as investment selection.

About half a million people turn 55 every year.  Of those, I don’t know how many have significant amounts of money in DC pensions – but however many it is, from next April onwards they’ll be in a position where the advice they get, and the actions they take as a result, will have an absolutely fundamental effect on the course of the rest of their lives.

I do hope that between now and then, our industry is able to figure out some kind of way to make sure they can get the help they need..

New language now urgently required

Over the years, clients have quite often fretted about the language of “pensions” and “retirement” and “retirement savings” and the like.  They’ve been worried that consumers just don’t like these words, that they find them a turn-off – that if we could find some new, better words, we could re-enthuse consumers and revitalise the subject.

I’ve always had my doubts about all this. It’s always seemed to me – and I have a fair bit of research evidence to support me – that if you use different and unfamiliar words consumers are mystified much more than they’re re-enthused.

But now everything has changed.  Thanks to last week’s budget, we urgently need new language – not for cosmetic revitalisation, but because of a fundamental change in what we’re talking about here.

The fact is that what we used to called “pension” or “retirement” savings are now savings for any purpose you like, provided only that you can’t address that purpose until you’re 55.  They’re starting-my-own-business savings.  They’re taking-a-sabbatical savings.  They’re helping-the-kids-get-on-the-property-ladder savings.  They’re using-my-miserable-£100k-pot-to-buy-Burger-King-franchise-so-that-I-can-make-up-for-all-those-years-of-underfunding savings.  They’re buying-a-second-home-in-Portugal-and-staying-at-work-for-another-10-years savings.  They could still be packing-in-work-and-living-on-the-income savings, in other words retirement savings, but that’s only one of a whole bunch of things they could be.

Once upon a time, as I remember, we called the very earliest personal computers “word processors,” because that was the main thing you could do with them.  It soon became clear that this was a completely inadequate description.  It seems to me that any description which continues to focus on the ideas of “pension” and “retirement” is just as inadequate today.