Learn about pensions from a kitchen!

Modern kitchen

Our present home, and the one we have lived in longest, was built in 1931 at a cost of £700 by Major R A Godwin-Austen, an officer of the Dorset Regiment during the First World War. He was the son of Henry Haversham Godwin-Austen, referred to as the greatest mountaineer of his day, such that the second highest mountain in the world, K2, is also known as Mount Godwin-Austen

A previous owner had replaced the original kitchen and so there was nothing to do when we moved in. The basic design was from an earlier age and as we added various items of equipment over the years this had not enhanced the look of it. So a few years ago we decided that a major overhaul was necessary.

Kitchen renovation can be stressful

After looking at a lot of brochures, visiting a number of showrooms and sitting with a kitchen planner for about two and a half hours while he painfully slowly put together our new kitchen on his computer, we were not much further forward. In fact we were experiencing a level of stress about something which should have been a pleasure.

I am sure that many people feel the same way about pension planning. They started off with their first pension plan, possibly via their employer, and they may have added other plans since, either from other periods of employment or one or more which they took out themselves, possibly during a period of self employment.

During my career as an adviser I regularly met people who had upwards of three or four private pension plans as well as one or two memberships of previous employers’ schemes. Of course, by that stage the original design behind their pension planning had been completely lost and it is was difficult for them to know whether their pensions were still fit for purpose.

Kitchens underpin family life

That may sound like an exaggeration but in my experience the kitchen is the hub of most homes. It is where my sisters and I were drawn as children when Mum was cooking a meal or Dad (who was a baker by trade) had been baking cheese straws or some delicious smelling cakes.

The first place our family and friends would visit (prior to lockdown) when they came for a meal or visit was our kitchen. It’s just a friendly, homely place to be and whilst an Englishman’s home may no longer be his castle, there is a sense of security to be found in your own kitchen surrounded by cooking smells and a glass of red wine in your hand!

Financial advisers spend less time in clients’ homes these days and that cannot all be blamed on Covid. It is simply more efficient for all concerned to meet in an adviser’s office and I suspect even that will now give way to the continued use of Microsoft Team and Zoom and the like in many cases. However, on the occasions when I have previously visited clients in their homes it was often to join them around their kitchen table with their financial papers spread out before them.

Good pension planning has the same effect of underpinning our lives once we stop working full time. Whatever the size of our eventual pension funds, they provide a level of security at the centre of our financial lives over and above pension provision by the state and our other savings and investments.

Kitchens come in all shapes and sizes

Some people really fall on the their feet with their kitchen and move into a house with oak kitchen units and granite work-surfaces already in place so that nothing really needs changing and it just seems to look better as it ages. In pension terms these are the people who find themselves in final salary occupational pension schemes. There really is nothing to do except take the inflation-linked pension and cash lump sum at the end of your working life.  Such people should be for ever grateful that they decided to be a civil servant, teacher, medical professional working in a hospital, university lecturer, policeman, fireman, join the armed services or work for BAE or an oil company.

A few years after we moved into our present house we used the services of a company to replace all of the doors on the kitchen units and that really made a big improvement. I know that many people have done this and for some no other changes will ever be required. It is the pension equivalent of having a stakeholder pension. It does the job and is low cost.

However, replacing the doors is fine if the underlying design is good and works efficiently for your needs, but these can change over time and often a more radical solution is required. That is also where stakeholder pensions have their limitations. As you move along the journey towards prosperity and your pension pot starts to grow larger, the investment aspect takes on more importance than simply keeping costs down.

Enter the stress reliever

So getting back to our more recent major overhaul of our kitchen. We found the solution to a less stressful way forward when we were introduced to someone who ran a small but busy carpentry business. He not only fitted kitchens, which he was able to buy at trade price, but he had a good understanding of current regulations which affected the design of our kitchen and he showed an innate sense of what would and wouldn’t work for our particular needs. He was able to use his extensive carpenter’s knowledge to help us choose the right quality of units that would support new granite worksurfaces so that our kitchen would still look good in years to come, which it does. Most importantly for us, his company was able to control all the other aspects of the job such as the flooring, wall tiles, electrics and plumbing. 

That’s a fair description of what good financial planners constantly seek to offer clients in terms of their pension planning. They review clients’ existing pension plans with a view to creating something which is workmanlike and is designed to do a good job.

Some funds benefit from being transferred to a more modern pension plan so that everything fits together. Most importantly clients understand what they have and what they can expect in terms of eventual pension benefits. The tool frequently used to achieve the necessary consolidation is called a self invested personal pension (SIPP).

Excellent design

We were originally disappointed with the so-called design services for our kitchen as we seemed to be pushed into a standard mould that had little to do with our personal wishes and the only ideas seemed to be provided by us. That changed once we were introduced to the company we eventually used. We were given ideas that we had not thought of to enhance the use of the space we have available.

A SIPP is a pension designer’s dream because it is a modern, very flexible, type of personal pension plan. As with any new design, these were originally expensive when compared to the more basic type of pension. This has now changed, however, because SIPPs are included, usually without any additional cost, as an option on the many online investment platforms that are available.

Not all existing pension funds should be transferred. Final salary pension benefits should normally stay put and many older pension contracts have guarantees that would be lost on transfer.  However, where funds can be moved, a SIPP via an online investment platform can provide a lot of benefits in terms of cost, access and control.

Most importantly the SIPP enables the use of risk-rated investment portfolios managed on a full discretionary basis to keep your funds on target to meet your objectives. This is more important than ever now that the use of pension drawdown is seen as the preferred option for many people in retirement rather than the purchase of an annuity.

Arthur Childs

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