The unpredictability of the near-future is why you need to be prepared to hold your nerve when investing. Longer term, financial markets have periods when they are up and when they are down but tend to rise on average over time.
Financial planning has a similar problem. We don’t know what the Government will change at the next budget or fiscal statement. The best assumption is that the rules today will be the same the rules tomorrow. Any attempt to guess that it will be better to take your tax-free cash now, or to move your pension to drawdown might be right or it might be a very costly mistake.
All students of healthcare practice are taught ‘first, do no harm’. Our approach has to be similar – based on what we know, what would work best for your financial plan?
For example, how does taking a lump sum affect your ability to maintain your standard of living throughout retirement? If it doesn’t, then maybe you take that lump sum to spend, or gift, or put into an ISA.
If it does, then try to predict whether a future government will treat that lump sum differently and you will probably be wrong. Your tax-free cash might have increased but you were afraid that someone was going to take it away from you.
When it comes to pensions, governments have historically tried hard not to take away rights you already have – although they may stop you building up new rights. We would love to say with 100% certainty they never will, but parliamentary sovereignty stops us. Instead, we have to assume that governments will act how they did in the past.
It is natural, and right, to be afraid of political risk. But we will know the importance of a steady hand when investing, tax planning and planning for your financial future.
In this election year, if you start to feel nervous, please speak to us and we will happily give you our take on what is changing and what may change. Be warned though – the chances are that we will tell you to stick to the plan!
