QA59 - Listener Questions, Episode 59

0:00Pete Matthew: Firstly, you've got a sticker on the back of your iPad, Rog. Tell me about that. Oh, this is a nice brewery sticker. It's a local brewery, which is lovely. They've got a tap room, which you can go to and drink and they get food trucks outside and stuff like that. And they've got this lovely thing called Zenner, which is like a stout. And it's just so smooth and lovely and um kate and her and her field say mickey gave me a voucher all right and the beer came with a with a with a little packet of tangfastics and a sticker so i thought well why not publicize how the way they are yeah hi and welcome back to another meaningful money q a with me pete matthew and me roger weeks all right rog how's it going you're okay actually you know it's things are settling down a bit now because you know what's happened it's been a hell of a summer actually so we're recording this towards the end of august it feels like a long time since we have record it.

0:53It does, yeah. Which is quite nice in a way. Yeah, it's good.

0:57Pete Matthew: So, what's your summer been like? Not the best in the world, really. We lost my father-in-law. He got diagnosed with a terminal cancer back in May, which meant we ended up cancelling a holiday we had booked, but, you know, there's more important things. Oh, yeah, of course. And he had lived a really good life. He's been physically healthy for 85 years. And he started a deteriorate back in September, did loads and loads of tests, and they finally said in May that he had pancreatic cancer they couldn't do anything about. And he managed to stay at home for six, seven weeks. And then he went into a hospice, which is where exactly he wanted to go to avoid Jen and Beth having too much work and stuff like that.

1:47And he lasted three weeks. Fantastic place. Fantastic.

1:51Pete Matthew: And he went quietly. Actually, amazingly, no pain. Good. Wow. Because one of the things that Jen said to the doctor when he was first diagnosed is, of course, he's not got any pain yet. And he said, hold on a minute. Yeah. Not everyone gets all the symptoms you hear about. Yeah. So it was a blessing. Yeah. So he never had any pain, and he just literally slipped away at one point, which was lovely. Dust settling a little bit now for you? Yeah, I think so. Yeah. I think we've had some time to get ready for it. Yeah. and Jen's been working crazy behind the scenes and organising stuff, and we've got some carers in helping mum now.

2:25So things, yes, are settling down a bit, which needs to be because we've got a wedding in three and a half weeks' time.

2:30Pete Matthew: Yeah, exactly. So some dust is settling, but there's still some swirling around. Yeah, no, looking forward to that. And you've had a bit of a time as well. Yeah, I mean, I had a kidney stone. I honestly can't remember. I think it's about four or five weeks, five, six weeks since we recorded. And I had the kidney stone. Yeah, I had the kidney stone then. And I had it when we recorded last. I can't remember. Yes. Right. So you just got rid of it, I don't think. Oh, really? I must have done it. I wouldn't have been here, would it? No, I suppose. No. Maybe it was just after. So while that was kind of literally finding its way out, Jo had a bit of ear pain, which was quite persistent.

3:00Pete Matthew: So she ended up seeing a doctor about that, prescribed some antibiotics and then a different set of antibiotics in spray form. And then eventually they said, look, we need to give you amoxicillin. And she said, well, I'm allergic to that. I had a reaction when I was 18. They said, well, you know, Very often, sensitivity gets reduced as you get older, so we're going to try it again. Well, seven days in, she had the most horrific, violent, allergic reaction to this drug, which she swelled up like a balloon. She had a rash head to foot. She ended up in hospital with IV steroids. Yeah, she wasn't well at all.

3:34Pete Matthew: Histamine's really not well. And it's going to affect her for quite a few weeks, really, because she's got steroids that she's now got to wean off, and she's not allowed to go in the sun. So it's been the most amazing summer weather-wise, and we haven't seen any of it. Yeah, no, no way. No, exactly. So anyway, yeah, I mean, you know, we're none of us kind of promised an easy ride by the universe. Sometimes we've just got to play the hands you're dealt, but much still to be grateful for. But it's been quite a few weeks, hasn't it? It has. Yeah. But here we are. It's nice to get back to some sort of normality if we can.

4:03Pete Matthew: And for me, it was sort of like we've culminated in this thing, hence the T-shirt. For those of you that are not watching on YouTube, I'm wearing my Rush T-shirt. You know, this is something that we booked not long after my mum died last autumn. So me and my brother, 72-hour trip to Toronto, the band's hometown, last night of a four-night residency at the Scotiabank Arena. It was going to be absolutely incredible. And an hour and a half before the show, I started throwing my guts out with food poisoning and spent a reasonable proportion of the second half, basically with my eyes closed, just listening, trying to hold on to the contents of my stomach.

4:38Pete Matthew: So that was suboptimal. Well, having all that time to look forward to as well. And then all that way for this mad dash, this sort of once-in-a-lifetime sort of bucket list moment, and I ended up being ill for some of it, but never mind. Never mind, here we are. So, firstly, you've got a sticker on the back of your iPad, Rog. Tell me about that. Oh, this is... I might not be able to see it. It's a nice brewery sticker. It's a local brewery, which is lovely. They've got a taproom, which you can go to and drink, and they get food trucks outside and stuff like that. and they've got this lovely thing called Zenner, which is like a stout.

5:15And it's just so smooth and lovely. And Kate and her field, say, Mickey, gave me a voucher. And the beer came with a little packet of Tangfastics and a sticker. So I thought, well, why not publicise how wonderful they are? Yeah, exactly.

5:31Pete Matthew: We've had some very kind listeners, because we mentioned it on the show a few weeks. Yeah, we did. Some very kind listeners have actually sent you some and sent me some light bulb as well by Verdant Brewery in Penry. So thank you for those that have sent that. I have thanked you all, I think, that have sent that. But very cool. Thank you very much for that. Now, before we get into it, and I realise we're already five minutes in, but there is a correction. So back in episode 55, question five, a chap called Mark asked a question about his wife being in the UK on a spouse's visa. And we said that because she was on a spouse's visa, she would be able to receive a qualifying year towards a state pension through claiming child benefit.

6:08Pete Matthew: it turns out that's not right i don't always get it right it's pretty niche that's amazing but thanks to darren mcfarland who sent an email to say i just wanted to make you aware that mark's wife is likely not allowed to claim child benefit because a spouse's visa normally comes with the no recourse to public funds thing didn't know that who knew no exactly i'm in exactly the same situation myself so unfortunately it's something i've had to look into quite a bit uh in quite a bit of detail. It's a frustrating rule, but that's the system. So thank you, Darren, for letting me know, letting us know that.

6:40Pete Matthew: We definitely don't always get it right. So if people want questions answering, Bud, what are they doing? They need to email us at hello at meaningfulmoney.tv with the subject line podcast question, and it'll get dropped in at some point in the future. We've got a few of these lined up already. Yeah, we're still answering questions from April. Yeah, and if it's urgent, please mark it urgent. If it's time, you know, time is sufficient, you know. We'll try and get to it in a timely fashion. If we can. Any notes and links we talk about today will be at the show notes, MeaningfulMoney.tv slash QA59.

7:10Pete Matthew: And if you're watching on YouTube, do us a favour, subscribe to the channel and like the video if you haven't already. Thank you very much. Let's get into it. This is question one from Tom. Hi, guys. Financial infrastructure and policy in the UK is built around and to support and likely encourage and enforce the, quote, standard life of consistently working for 40 years and then stopping altogether. In other words, this whole traditional view of working in retirement. State and private pensions accessible around age 60-ish. Lifetime ISIS, compounding growth of stocks, etc. For various reasons, my wife and I, both 32, don't want to do this.

7:48Pete Matthew: We are in the fortunate position where we can take months or years off at a time, and we plan to do this several times throughout our lives. We know this means that our earning potential and our growth will be lower and that we might not end up with as a larger pension as we could have, but we may also end up having some sort of income until we're much older. Question, what, if anything, can people do with today's accounts, tax advantages and schemes to enable this type of lifestyle? Hypothetical question. What type of infrastructure could the government introduce to enable this? How about a pension you can take at any time up to some cap per year and only for X number of years in a row?

8:23Pete Matthew: So given fewer jobs now require physical use of our bodies and hence 60 may no longer be a necessary stopping point, could we see more people working often until 70 or 80? So let's deal with the main question first. That's from Tom. Yeah, I think, Tom, you're in a very fortunate position that you said that it's something you can do already. And it's one of these things that has been mooted across the podcast for several years now. Why do we have to wait until we're old and decrepit to have a retirement. To be yourself. Yeah. We may have the money, but we may not have the health. Yeah, that's a great irony, isn't it?

8:59Yeah. Wouldn't it be nice if you could take some time whilst you're physically able, appreciating that actually it's going to be difficult financially, and have some mini retirements, and then work longer at the far end when actually I've done my travelling, I've done all my bucket list stuff early.

9:17Pete Matthew: Yeah. I think that's going to increasingly, I'm sure, or be what people want to do. There's always implications though, and Tom has mentioned them. So while you're, I guess, sort of out of the work environment, the environment itself might move on, particularly if you're a specialist, if you've got a particular career, you might not be quite as able to stay on top of emerging trends or changing patterns or whatever. And yes, there will obviously be financial implications because if you're spending more money as you go, then it's not a case of you just putting that aside and it compounding for the long-term future.

9:53Pete Matthew: So you'll end up, as you mentioned, smaller pension pot probably and less sort of harnessing of the compounding. But then again, if you've spent your money doing the things you wanted to do at a younger age, you don't need a bigger pension at the far end because people like me now have got these bucket list things I want to do and I've got to try and cram them in in the restricted time that I may have available. And so you've got to build a pot, whereas you don't actually necessarily need that, Tom, because you're spending it as the time goes on. So if you haven't got a big pension pot, it doesn't matter because you've done the things you want to do.

10:26Pete Matthew: Yeah, I've already bought the camper van and had the life on the trip and all the stuff that many people wait for. I mean, you, like me, have seen people graft for 40 years and retire and then die within 18 months just because that's the hand that the world has dealt them, and that's obviously awful. and there's a lot to be said, I think, for enjoying life to the full as you go along. The fact is, though, you've got to play within the system as it is and to some degree, Tom, you're right, the system is somewhat stacked against that. So, yeah, you're not going to get your state pension until 67.

11:00Pete Matthew: There's no mechanism to drive that early. You're not going to be able to access your pensions until the national minimum pension age. It's normal, isn't it? Normal minimum pension age. Let's call it national, which is currently 55 rising to 57. So those things are stacked against you, but there are options. You need to make sure you've got accessible money. I think the difficulty would be, like Tom says, the traditional way of doing this is you work for X number of years and you build up a pot behind you. And whilst you're working for this number of years, you get some seniority where you're working.

11:36So you get pay rises. Now, what you might be doing, Tom, is you come back to a job and you might not come back at the level you were before. Or actually, if the employer knows that, actually, Tom's here for another five years and he's off again. Oh, Tom. So flaky. But, you know, am I going to promote them? So you may not get to the levels of earnings that perhaps usually is seen with people. You know, I worked at the bank and you worked every year, you had a pay rise every year and you got some seniority and you got more holidays.

12:06Pete Matthew: But, you know, if that's the way you want to live, that's the pill you've got to take. isn't it? Just got to plan. As with anything, you know, planning is important and that will then impact the risk you take, how you invest, the wrappers you use. None of that's rocket science. You obviously know the system well enough. You know, it's not like there's a million options. You've basically got pensions, ISAs, GIAs for your main sort of wrappers and then within those investing accordingly based on when you know you need to access the money. But, you know, I'm sure you're smart enough to plan your way around that.

12:40Pete Matthew: I mean, I remember chatting. I had an interview ages ago with a guy who invented the Lifetime ISA. We'll find the episode and put it in the notes. But it was what we ended up with was not what was intended at all. And it was what Tom's sort of hypothetical question about a sort of pot, which I think you can do in the States with a 401k. I think you can access a little bit. Something like that was sort of what was envisioned, I think, to be able to get some incentive for saving some kind of tax relief, I guess, or bonus, and then be able to draw it down. But throughout life, I mean, it only requires political will to do that.

13:21Yeah, and it's like when Drawdown was first invented, there were annual limits you could take, depending on your age and the fund value. So it was actually your idea, Tom, of doing some of that, and like the 401k type thing, if you could access some of it for part of the time, for a set amount, that makes logical sense to me. Rather than... Every pound you put into an ISA costs you a pound, whereas every pound you put into a pension comes out at£1.25. So there must be something you could do, but the government would then need to have some sort of control of it because what they wouldn't want you to do is by the age of 65 have spent it all and have to rely upon the state.

13:58So there's got to be some sort of checks and balances there. Yeah, there have to be. I do wonder whether it might speak towards

14:05Pete Matthew: potentially Tom using more of an income kind of strategy with his investments as he builds over time so that they can you know, because we generally talk about accumulation, don't we? And sort of total return and stuff like that whereas it might be that he could invest in such a way that his mini-retirements are to some degree at least sustained by income so that then he's not necessarily spending his assets, he's spending the yield off them. And when he's not on mini retirement, he's reinvesting that yield. Just a thought. And actually, when he is not on his mini retirement, because you've already got an element of income coming through the door, you don't have to have a job that produces as much income because you've already got some passive stuff.

14:51Pete Matthew: Yeah, so just a thought. Maybe a more income-oriented approach. Sounds great, though, and this is going to be, I think, increasingly a sought-after lifestyle, so one would think that eventually legislation and you know sort of account wrapper sort of production by the manufacturers the providers will have to catch up I think the problem is in the UK especially is that we tend to be pushed towards owning property and therefore having a mortgage and that's the big drain on you so perhaps the European way of doing it is you rent a property and then you go off for 12 months or 18 months or 2 years Tom and you haven't got to pay rent because you're off doing your stuff and you haven't got to pay your mortgage because you you won't be able to.

15:33Pete Matthew: Yeah, buy a camper van to live in one year. Yeah. Yeah, yeah, why not? Okay, cool. Question two, Rob. Question two. This is from Darren G. With a G letter, not a G-E-E, I don't think. Okay. It says, Hi, Pete and Roger. First of all, thank you for the valuable conversations you bring to listeners. Thank you. I'm a 32-year-old with a strong interest in personal finance and investing, and I would describe myself as financially literate and proactive in managing my own money. I currently feel I've been underestimating my potential and would like to pivot into financial services. Okay. I'm considering self-funding qualifications such as the LP2, Financial Services General Route, as a starting point, followed by the RQF Level 4 Diploma in Financial Planning.

16:10Do you think starting this pathway at 32 is realistic or have I left it too late to successfully transition into the industry? Thanks, Darren G. Well, I'm going to scream out straight away and say, no, it's not too late at all. Because actually, Darren, I joined the profession. Admittedly, it came from banking, but it's completely different. It really is completely different. I came into this profession I was 37 so if I can do it then definitely Darren can

16:35Pete Matthew: LP2 I didn't know what that was it's a CII it's a level 3 so certificate level it's like an entry which is fine quite straightforward I don't know that I would start there potentially except it might sort of whet your appetite a little bit Darren and then followed by the RQF level 4 diploma in financial planning I think RQF I presume the QF is qualification framework there so yeah there are sort of three bodies that will uh that you can three main bodies anyway that you can get qualifications to allow you to to become an advisor cii is one um and then there's the cisi which is some of the um charter uh investment and securities institute yeah cool i had to think then and then there's what used to be called the london uh institute of banking and finance libf which I think now goes by Walbrook and they have a diploma as well.

17:29Pete Matthew: So there are different options and we talked about them in a couple of episodes. We did two consecutive episodes right at the start of this year actually towards the end of January and beginning of February on becoming a financial advisor. So we'll link those in the show notes. There was a couple of questions in Q &As last year as well sort of answering this question. So we'll link to all that, Darren, but it's definitely not too late. But it's still hard to get into the industry because it's still, rightly or wrongly, seen as a bit of a sales thing. You need to find a firm, firstly, that operates in such a way that chimes with your own sense of ethics and how things should be done.

18:11Pete Matthew: Financial planning, I think, is where it's at as opposed to just product sales, which is kind of how it used to be done. But these days, you don't need an advisor to set up an ISA for you. you can do that yourself easy enough. So, you know, I think planning is where it's at. You need to find a firm that does that. Maybe find a firm local to you and ask if you can shadow them for a day. You know, take in a box of celebrations or some buns or something, and, you know, they'll be putting your hands. They'll welcome you. It's what people do at Jackson's. Or send beer, right? Yeah. So, you know, just maybe get a taste of what it's like.

18:48Pete Matthew: But, yeah, definitely listen to those past things, but certainly not too late at 32. No. I would have thought. Financial advisors are getting younger. You know, it's always been sort of late 50s was the average age. Yeah, mid to late 50s. It is changing, which is encouraging, but still nowhere near enough new entrants, nowhere near enough sort of 20 and 30 year olds. Well, I think part of the problem is we're not taught this sort of stuff at school and it's not a career path that people see. You know, I mean, I fell into it probably as a result of leaving the bank and I got approached by a company to work for them.

19:18so it's not a career path that you think say to a 15 year old oh I want to be a financial planner it's not on the radar and the fact you've got this interest Darren in doing something along these lines it means you'll be more likely to stick to it than just drop it into something else but yeah

19:36Pete Matthew: cool question three from Brett hello Pete and Roger firstly I very much enjoy listening to your podcast while doing my weekly walks I currently live in Australia that's a walk it sure is and will be returning to the UK in six months to live near my family and I'll be turning 55 at the same time. You can six months. Okay, it's only about six weeks probably then. The press is going to be coming back given that you submitted this question in April. My question is, I have a defined contribution pension valued at 70 ,000 with a guaranteed annuity rate. I am legally required to get an IFA before I can draw down, off plus, lump sum, etc.

20:11Pete Matthew: There appears to be an exception to this mandatory requirement if I take an annuity. Is this correct? And if it is, would this also apply to a fixed term annuity? Secondly, what options do I have to access my pension if no financial advisor is keen to take me on as a client and sign the advice taken form that is required by my pension provider? My provider, Royal London, has said that the advice doesn't have to be positive or negative as to what I want to do. I just have to show that I at least went through the procedure. Thanks for your help. Regards, Brett. Oh, wow. It drives me nuts, this. I come across this all the time.

20:48Pete Matthew: And periodically we get people walking to the office and say, would you mind just signing this form? Yeah. It's like, I would mind, very much, actually, because in so doing I am, you know, certifying that not only have I given you advice, that you understand what this is. I'm now on the hook for that advice forever. So, you know, there's not an advisor in the world who will just sign a piece of paper for you. Or if there is, you need to not use them because they're charlatans. Yeah. No, and the problem is that doing something that's out of the ordinary like this, there is like DB transfers or whatever, there's a lot of compliance for this, and it's usually quite expensive.

21:25And on a£70 ,000 fund, the cost you're going to have as a result of that£70 ,000 is quite prohibitive.

21:30Pete Matthew: If it's something like, say, three and a half grand, 5 % of your fund gone on advisor fees is a hell of a chunk, isn't it? I think you're right. The exception is the mandatory requirement is to take an annuity. Well, if you take the annuity from where it is with your guaranteed annuity rate, you've got no problems at all. No, it's not an annuity, is it? It's the annuity. It's the annuity. By Royal London. Exactly. So if you decided that you wanted an annuity with somebody else, Brett, you've still got the same problem because how do you know that that annuity is going to be as good as the Royal London annuity they're offering you?

22:07And is it still the right thing for you? So the annuity with Royal London, as it is, no problems at all. The slight move away from that, even if you leave it with Royal London and say, okay, because these things generally come with restrictions. It might be a single life annuity. It might be paid in arrears.

22:25Pete Matthew: Yeah, annually in arrears, I've seen that. So you get nothing for the first year. You get a single life, not escalating. I've seen them as well. And so sometimes these guaranteed annuity rates look great on paper, but the restrictions are such that actually you would never choose them. if they weren't guaranteed. So, and there's no way that, I mean, knowing the companies as they are, this probably didn't start as a Royal London plan. I imagine it was CIS or something from ages back. Because I mean, guaranteed annuity rates, we're talking sort of late 80s and prior, maybe early 90s and prior. So it's an old plan.

23:05Pete Matthew: They're not going to, the annuity is written into the thing so they're not going to be able to say well actually yeah we'll switch it to a fixed term one. I understand kind of Brett's thinking there. It's like actually if I just do that for five years and it's almost like a sort of transition period and then the restriction's off and I can do what I want with it. Yeah. The problem is a fixed term annuity is not an annuity. No. It's a promise of an income for a fixed term and it actually falls under drawdown rules. Yeah. So a fixed term annuity isn't really an annuity. It's a step in between the to what it does, it bridges you across a gap whilst you decide what you're going to do ultimately.

23:39So you can do that and then say, okay, I've got a drawdown after that, Brett, because it's already in drawdown and a fixture of annuity.

23:45Pete Matthew: The reason why I said this drives me nuts right at the start is because it's like the system is stacked up against Brett and others like him here. So, you know, in order to protect consumers, the weight of regulation is such as that, I mean, it costs us thousands to take a client on. And so obviously we've got to send that back to the client. It's not simply a case of take a look at this annuity. Is it any good for my circumstances? If not, what should I do instead? And then I sign this paper. In order to get to that point, we've got to have done full analysis of current situation, detailed conversation about risk and timescales and hopes and dreams and aspirations, fears and anxieties, all that sort of stuff.

24:25Pete Matthew: Do all the research, write it all up, present it in a form that is compatible with the regulations. and then sign the form. And it costs thousands. It costs like tons of man-hours to get to that point. So the system has made it that expensive. And that same system says, well, if your pot's worth more than 30 grand, you've got to see an advisor. Yeah. Where does that number come from? Exactly. 30 ,000 is not a lot of money, really. And so, you know, Darren's is sort of two and a bit times that. I mean, there may be some advisors willing to take you on, Darren. There may be some advisors who will say, yes, we'll do this on maybe like a limited advice or a focused advice basis.

25:10Pete Matthew: So we won't take into account all the other stuff. That is an option and is likely to be cheaper for you. But it's going to be finding a decent advisor because most advice still is predicated on you handing over that 70 grand to that advisor to manage. and therein lies the problem because 70 ,000, you know, even at 1 % a year if the advisor's going to charge, that's probably not going to cover their fees, their costs, right? So you then become a non-profitable client and again, the system has led to this and there's no real way out. No, and the system also, I'm amazed that Royal London will do this even with a negative because there's...

25:49It's not DB though. No.

25:50Pete Matthew: Well, it's not a way. Because lots of companies won't even accept you if you're going against the advisor's advice. Insistent client. Yeah. But there's not many who do it. No, true. In a day. So yeah, you'll find someone that will provide the advice, Brett, but it depends whether it's going to be cost effective for you to say, okay, I'm happy to give up this guaranteed annuity rate. You've got to be very careful giving it up because obviously it could be really valuable. I mean, we've had people with guaranteed annuity rates of 13 % or 14 % and stuff like that. So even though it's single life, it's like, well, I could actually cane this and get through it what was he 55 might be able to get a stonking annuity for potentially 30 odd years depends when you can take it so there'd be a reduction factor of 55 probably I wish there was a really easy answer but the reason the system is stacked against you here it's going to be a case of finding an advisor that is prepared to take you on because you don't have to stay with the advisor even if they do insist that you give them the 70 grand to manage, you can subsequently take it away from them.

26:57Pete Matthew: That is your prerogative. So you could say, okay, right, thanks for that. I'm now going to shift it to interactive or argues or whatever and look after it myself. But really the system is stacked against you here. It's a bummer. Question four. Question four. This is from Gareth. It says, dear Pete and Roger, thank you so much for the wealth of wisdom you share with us all. Wealth of wisdom. Wisdom. Wisdom. I'm not sure I got that. No. It has helped my family towards a more secure and planned future. I'm not an expert, but as the future recipient of a few small DB pensions, I have a question. Ooh.

27:26You often infer defined benefit pensions are solid gold, implying they should be preserved at all costs. I want to challenge your strong preference to avoid taking the 25 % tax-free cash. Challenge accepted. Yeah. Isn't it dangerous, in inverted commas, to not clarify the commutation rate more explicitly? On one hand, with a poor commutation rate, isn't the member effectively selling inflation-linked guaranteed income far too cheaply? Yes. Yes, you are. On the other, with an attractive commutation, by taking the 25 % tax-free cash off the table, a member can, number one, eliminate mortality risk.

27:59If they die early, that cash stays with the family. The DB income disappears, or proportion of it. Manage tax drag. So using the PCS to bridge the state pension age can keep a retiree in the basic rate band rather than being pushed into high rates by the full DB payout. Not a bad problem to have. Yes. Or seek out performance. while the DB is index linked, a well-allocated ISA can historically outperform inflation over the longer term. Why do you treat the PCLS as a loss of income rather than a strategic de-risking of the pension asset? Thanks for clarifying, because I think I must be missing something.

28:32Gareth.

28:33Pete Matthew: Thanks for your grace in the way you've asked the question, Gareth. This obviously kind of struck a chord with you. And when I originally started reading the question, I'm like, slightly feel my hackles rise. But actually, you're right to challenge. And we're totally up for that, by the way. but the problem is obviously this is very general information we've got to be careful how we present it and yes we'll have opinions but there's no advice here and there'll always be something which might trigger somebody to say well why are you saying that because clearly this is the better option i mean what we'll always say is this is unique to your circumstances and in this case it'll be unique to the circumstances of the scheme that we're talking about and obviously your personal circumstances, your own tax situation, all that go pins, right?

29:17And, you know, your family situation as well.

29:21Pete Matthew: Everything you say here is bang on. And these are the things that any good advisor and certainly anybody, any switched on individual with DB schemes needs to be thinking about. Any good advisor will be looking at this. Commutation rate is a key factor. It is, yeah, because as you say, if you've got a really diabolical commutation rate, you should if you lived a decent length of time get that back in space by not taking it I've certainly seen 26 or 7 times commutation rates but usually it's 12 which is a bit ordinary really a bit pedestrian sometimes you're like oh my gosh yeah this is too good not to take oh exactly I think it comes down to there's several occasions we do this and say well look what we're saying I think ultimately would be you don't take the tax free cash just because you can Yes, exactly.

30:10It needs to fit into the way you live your life. And if part of that is bridging a gap until your state pension kicks in, then clearly you'll need some cash out. Yes. But you've got to be mindful of the computation rate in doing that.

30:23Pete Matthew: Yeah, yeah. There's always more than one factor, isn't there? And we tend to say where people have got DC schemes as well. If you've got a choice as to where you get the cash, then you would probably opt for the DC, leaving more of your DB income intact. But there's still other factors that you've mentioned on top of that as well. So the danger here is it's obviously where the kind of what we're trying to do here is to simplify things for people. But that's why we'll always caveat, look, everybody's situation is different. Do your own research. You've got to think about this for your circumstances.

30:53Pete Matthew: And if you're in any doubt at all, seek professional advice because then they're on the hook. And it's the advisor's job to look at all these things. So we would never say don't take it. we would say don't take it just because you can but instead apply some intentionality and thought and planning to it because you often find someone down the pub saying oh yeah of course you've got to take your tax for cash because once it's out it's out because if you die burning hands would be in the bush exactly but you know if you live to 98 you'll have an escalated annuity which would have done you really really well so you know yeah don't take it just because you can if it suits your circumstances then take all some none of it yeah you can get some schemes where the indexation is sort of multifaceted He has some elements where it's not indexed and somewhere it is, but it's capped.

31:39Pete Matthew: And, you know, so every scheme and every individual circumstance is different. That's the point. Good shout, though, Gareth. There's not many finance podcasts that would get a question and a comment like that. It shows just how smart you people are and how engaged you are, for which we're very grateful. Right, question five. Who's this from? Beth. Hi, Pete and Roger. I started listening to the podcast when I began Couch to 5K, and it's been really helpful. It also makes me feel quite virtuous, like I'm improving both my health and finances at the same time. I'd value your thoughts on managing money for a child who's approaching financial independence.

32:13Pete Matthew: I'm the trustee for my 16-year-old daughter who inherited directly from a relative. She has£140 ,000 in total, with 42 % in cash savings, 46 % in investments, mainly low-cost global tracker, lovely, and 12 % in a junior SIP. I'm moving as much as I can, as much as possible, into ISA wrappers annually. I don't currently plan to add further to the SIP. She is aware that there is a, quote, good amount of money saved for her, but doesn't know the actual figures yet, and it is referred to as money for a house deposit. Nice. I plan to start involving her more directly in managing it from age 17, although we already talk regularly about money and financial habits, which is great.

32:55Pete Matthew: She is academic and likely to go to university, although also considering degree apprenticeships. She wants a high paying career, don't we all? But has no idea what career yet. A few things I'd really value your perspective on. How should I think about asset allocation? I'm not risk averse and I feel like there's too much in cash, but mindful that she will be in control in two years and may want to use some of the money in the short term, e.g. for university, car, traveling, etc. Would you lean towards encouraging her to fund university costs rather than taking out a student loan if she goes, given that under the new plan around 80 % are expected to repay their loans in full.

33:33Pete Matthew: At least there will be less available to fritter away or spend on a red Lamborghini. Or keep it invested and position it more clearly as a future house deposit. And finally, I have an 11-year-old in the same position. Given the longer time horizon, would you do anything different now in terms of structure, investment approach, or how and when to involve them? Thanks so much. I'd really appreciate your thoughts? Wow that's a great question. Yeah I mean I've done quite a bit of this over the years literally just this year I actually walked an 18 year old through to this position who had no idea and he's got a 16 year old brother so we'll be having the same conversation in sort of a year or so preparing for him becoming 18 so I'm quite interested in the junior sip actually because that you wouldn't subject to the terms of the trust you wouldn't normally be able to lock up money until normal minimum pension age.

34:25Pete Matthew: So, you know, tread carefully there, but I'm sure you've done your work on that, Beth. The things to remember, I think with trust, I'll sort of return to the point of kind of preparing a child for, you know, coming into this kind of money in a minute. But ultimately, all the principles we talk about of when money is needed and hence how it's invested, what wrappers you use, that's the same no matter what. The fact that it's in the trust currently, that's temporary. And you managing the money, kind of one of the fundamental principles of being a trustee is that it's their money, but you kind of manage it almost as if it was yours.

35:08Pete Matthew: You would take as much care of it as if it were your money, even though it's technically not, right? And so all the stuff that you would do for yourself, think about timescales, access, and hence what wrappers to use and what investment strategy to use is the same no matter what. So don't overthink that. I take your point about then how do we position it. I think you should encourage your daughter to think about how they might want to use some of it in the short term. I mean, at 18, she might want a car. This young lad who I've sort of recently been talking to, he loves classic Fords. You should have seen his mom's face when I was saying, You know, you could buy a pretty nice, you know, Mark 1, 4S score, you know, for 10 or 15 grand.

35:52Pete Matthew: This amount was not far off$175 ,000. Oh, wow. And, you know, what a great thing. This guy lost his dad when he was seven, right? So this young man. So, you know, what you mustn't do is kind of load this money with kind of guilt or expectations. It's a really fine line to walk. And I think all your stuff that you've said here, Beth, is going to stand you in really good stead. The fact that you're already having conversations about managing money. You know, the fact that you've kind of positioning this as kind of money for big stuff like house deposits or university educations. These are great.

36:28Pete Matthew: This is not money to be sort of spanked on a night out. You know, it's to be put to good use. And I always say to the kids that I've walked through with this, I say, look, this is an astonishing head start over many of your peers, an opportunity which is only going to come once. Very often with the kids I've dealt with, it's cost them dearly in terms of loss of a parent or whatever. and so basically don't screw it up. And it's a hard line to walk between sort of loading them with pressure and guilt and freeing them up to actually expand their horizons because they have an opportunity that many of their peers won't.

37:08Pete Matthew: So I think you're planning about right. What do you reckon about the university costs thing? It's hard, this. It's really difficult because, you know, you say your daughter may go to university. She's not quite sure yet. and you should love a high paying job. Yeah, we all would. But in my head, this is just me being practical now, still only 80 % of people will pay their loans back. And in my head, this money is set aside for something major. I'm thinking I wouldn't dive in straight away and use it to fund the university costs. I would keep it in the background. because you've got 50 ,000 pounds, 56 ,000 pounds in cash anyway, and say it's there in the background if you wanted to fund them afterwards, but it depends on what degree she gets, what job she gets at the end of that.

38:05My worry would be is that you throw money at it and it comes out of university with no student loan whatsoever, but she then hasn't got a very good job or doesn't fall into the job that she thought she might want to have and then isn't earning the level that she would end up paying the loan off anyway.

38:24Pete Matthew: That's where my brain's from. I'm totally with you on that. Kate and I had a question on the Bank of Dad podcast in a similar way in that parents were looking to do some estate planning and were considering paying for the university education of their child. And it's like, oh, I would be inclined, actually, if they want to give you the money, then fine, but stick that money, invest it, and keep that decision under review. I always say to, you know, in this case, you can say, look, we're going to, you know, a three-year degree, probably you're going to come out with 50 or 60 grand worth of student debt if you borrow to the maximum, right?

39:01Pete Matthew: So out of 140-odd thousand pound pot, that's obviously a reasonable proportion, nearly half, but you can say, okay, we're going to kind of ring fence that, invest it, make it grow, and keep that decision under review because the outcome isn't known yet. So I would do exactly what you suggest, Rog, and just defer that decision. Because although people go to university and get really good degrees, a vast majority of those people don't actually use those degrees in the realm that they would hope to. And they don't get the jobs that they would like to have had with the earnings potential. So I'm thinking making that decision now is really quite difficult when, like Pete said, There's an unknown factor in the background.

39:44Pete Matthew: It's a preemption of what it's going to end up like. Yeah. You could say, well, Kim, if she comes out with a job where she's likely to be paying it all off and maybe she's nudging high-rate tax and suddenly high-rate tax and the 9%, whatever it is, student loan payment, maybe now is the time to pay it off and actually the sort of 50 ,000 that was invested is now 70 because we're six years down the line. And actually, it's great. That money's there, pay it off. It eases the sort of day-to-day affordability of things, maybe helps with a mortgage application. The mortgage application. I would just defer that decision rather than saying, we're not going to incur university costs, I would say.

40:32Pete Matthew: Bag the student loan money and then make a decision. And then decide down the line. Yeah, yeah, for sure. Were there any other sort of questions? The asset allocation, asset allocation? Same as. same as if you know anybody um uh keep it invested yeah so given the longer time horizon for your 11 year old i mean i would invest pretty aggressively you know 11 certainly if i was and as i have managed money for uh younger children with at least say seven or eight years until they're going to be able to come into it i would do treat almost that 18 is a bit like a retirement you know so you can say okay we're gonna gradually pull it back a little bit maybe we're going to invest really aggressively for three or four years and then gradually just dial it back.

41:16Pete Matthew: So that, you know, we try and lock in that growth a bit nearer. Don't go to cash, for God's sake. But just maybe, and sort of don't have it as a sort of cliff edge, right? You're 18 now, it's 150 grand. Yeah. You're welcome, you know, but really make it a process. So if you're starting to talk about sort of general money stuff now, really start to, you know, talk about numbers at 17. Then when she's 18, it's allowed to have settled and it's become part of who she is and what she can expect. And having set up the way you have already, you've got the ideas around you. So you'll be able to talk to them about this because this is what I have done and this is how it's worked.

41:57You know, we've got this money available in cash, but we've actually got this investment around the back, which over time has grown to this. Yeah, the fact that you're talking to the children is really, really good.

42:05Pete Matthew: Yeah, good. You'll be fine. it causes a lot of angst particularly in parents is it going to ruin my kids she ain't going to buy a red Lamborghini I'm sure you've adjusted your child quite well enough the thing that I always say to them because this young lad that has just come into nearly 175 ,000 he's got a girlfriend so I'm saying look you be very very careful who you tell about this in fact the default is that you don't tell anybody right think of it as kind of a pot that's sitting somewhat out of reach don't tell too many people because that's when it gets tricky to manage right not casting aspersions on the girlfriend no right last one last one this is from Joe it says hi both hope you are well I am yeah we are I am 28 working full time in the NHS my partner and I bought our first home just before Christmas well done I have an emergency fund in an easy access account as well as putting 10 % of my salary into a stocks and shares ISA each month, which I plan to use to bridge the gap between retirement and access to my NHS pension.

43:11Nice. You're 28? I already think about these things. Really good. I also recently moved into the 40 % tax bracket and so opened a SIP, which I'll put another 5 % of my salary into each month. Any other savings go into high yield interest accounts or ISAs. I just wanted to ask, is there anything else I should be doing with my money or is it simply a case of keep at it now? Thanks a lot, Joe. Joe, I think you're doing all the right things. Yeah, exactly. Keep filling the pot while you can.

43:39Pete Matthew: If you're able to do this and buy a house, that's a good effort. I mean, your kids might come along, that'll change things, you have to rethink it a bit. But right now, obviously you're doing very, very well here. Anything you would tweak? I don't know whether I'd be putting the pension money into the SIP or whether you ought to be thinking about an NHS AVC scheme. I don't know what the NHS AVC scheme is like. You get your high rate tax at source then, tax relief at source, rather than have to try to claim it back. Yeah, don't forget to claim it back. If you're getting high rate relief on that SIP, really important you do that.

44:15Pete Matthew: Billions goes unclaimed every year because people don't do that. So, yes, it would certainly make it easier if you were paying into the NHS AVC. It used to be Pru, I don't know if it still is. And you can buy extra benefits in the EB as well. So it's a bit more of a complicated operation, right? But, you know, the net result is the same. it's just a bit more faff to go through if you're paying into a SIP because you've got to do the high-rate tax reclaim. Other than that, though, you wouldn't have too much money sitting on deposit. No. You know, I would just do ad hoc payments into your ISA or a GIA if you've maxed your ISA.

44:49Pete Matthew: Yeah. Honestly. And if you throw money at high-yield interest accounts, then don't let that grow too much compared to the rest of your investments, really. If it keeps going up and up and up, and you say, okay, I'll throw another two grand of a pension or 3 ,000 pounds at my ISAs. So just be mindful of not, like you said, holding too much cash ultimately. Yeah, don't sort of let it get to 10 grand and then invest it because you'll have missed out then. So yeah. Okay, cool. But keep going, Joe. That's awesome. Yeah, a 28, higher rate taxpayer, own a property. And we'll all that behind you. Really, really good.

45:19Pete Matthew: Fill the pot while you can. Yeah, for sure. So we hope those answers are helpful, you know. And if they weren't, it's not our fault. Perhaps it might be. I don't know. But we've got some really good questions, really testing questions and we don't mind being tested or challenged if we get it wrong we certainly don't know everything so please keep them coming hello at meaningfulmoney.tv with the subject line podcast question and we'll try to use them at some point in the future yeah we will but that's it for this week any links there's quite a few actually previous episodes and stuff like that there at the show notes meaningfulmoney.tv slash QA59 as ever we hope you enjoyed it sorry about our slightly melancholy start it's been a rough few weeks but it's good to be back and thank you for your sort of attention and care and all the kind words that you send.

46:02Pete Matthew: We really appreciate it. Thank you so much for listening. Thank you, Mr. Roger Weeks. Cheers, Pete. We will talk to you next time. Cheers.