Trustnet Magazine 58 January 2020 - Page 32

Your portfolio The lack of choice and flexibility that are cited as the major weaknesses of pensions could actually be their greatest strengths, writes Pádraig Floyd For your own good M any experienced investors are suspicious of pensions as a vehicle for increasing their wealth due to the lack of choice and flexibility compared with other tax wrappers such as ISAs. Yet it is this lack of choice and flexibility that arguably makes pensions so effective, as it helps investors protect their portfolio from what is often their worst enemy – themselves. Pensions are more flexible than they used to be, now allowing full access at the age of 55 and the option to pass on the investments at your death, making them a useful estate planning tool. However, while the pension freedoms have been welcomed by savers, they have also highlighted why TRUSTNET 32 / 33 [ PENSIONS ] While the pension freedoms have been welcomed by savers, they have also highlighted why greater control over your investments is not always a good thing greater control over your investments is not always a good thing. Research from Canada Life shows more than two-thirds of savers who accessed their pensions after 2015 did not take any independent advice. This can in part be attributed to issues of trust and the fact many savers see no value in paying for financial advice. But what they save in terms of cost, they may be giving up in protection. Don’t believe the hype As humans, we are bad at coping with failure. Our brains allow us to avoid owning up to mistakes, which can be damaging to investment returns. Knowing the market is going to move up or down is not an efficient determination for investment strategy. Annual research used to compile DALBAR’s Quantitative Analysis of Investor Behaviour shows a consistent trend of poor decision-making by trustnet.com