Helping People Make Financial Decisions Easily
•Descargar como PPTX, PDF•
1 recomendación•364,683 vistas
The document discusses how to help people make good financial decisions through engaging, educating, and empowering them. It presents the "three E's" approach of first engaging people through face-to-face interactions. Once engaged, the next step is to educate people using clear, simple explanations. The final step is to empower people by providing helpful guidance to take action. Specific examples are provided of how to educate people about minimizing taxes when drawing from a pension and how to use a "tax muppetometer" tool to help people decide how best to withdraw funds from their pension pot. The overall goal is to give people the confidence and ability to make good financial choices.
Recomendados
Recomendados
Más contenido relacionado
La actualidad más candente
La actualidad más candente (20)
Destacado
Destacado (20)
Similar a Helping People Make Financial Decisions Easily
Similar a Helping People Make Financial Decisions Easily (20)
Más de Henry Tapper
Último
Último (20)
Helping People Make Financial Decisions Easily
- 1. Helping people making choices – "how can we make financial decisions easy?" Henry Tapper First Actuarial 21 May 2015
- 2. 2 Information is unprocessed knowledge
- 3. The ladder of abstraction leads nowhere 13 May 2015
- 5. Agenda • The three “E”s – theory • The three “E”s – practice • Information overload • Now, let’s start back at the beginning – I want to tell you a story about pension freedoms
- 6. Agenda • The three “E”s – theory • The three “E”s – practice • Information overload • Now, let’s start back at the beginning – I want to tell you a story about pension freedoms
- 7. 7 Three “E”s in theory “Giving people the confidence to make good financial decisions” Engage Educate Empower
- 8. 8 Engage – People engage with people – We believe face to face is the best way to engage Educate Empower Three “E”s in theory “Giving people the confidence to make good financial decisions”
- 9. 9 Engage Educate Empower – Once people are interested, they are ready to learn – Clear, simple explanations Three “E”s in theory “Giving people the confidence to make good financial decisions”
- 10. 10 Engage Educate Empower – Once people understand, they are ready to take action – Helpful, clear guidance Three “E”s in theory “Giving people the confidence to make good financial decisions”
- 11. Agenda • The three “E”s – theory • The three “E”s – practice • Information overload • Now, let’s start back at the beginning – I want to tell you a story about pension freedoms
- 12. 12 Educate “You will be much better off if you minimise your marginal tax payment in each year that you draw your pension.” Three “E”s in practice “Giving people the confidence to make good financial decisions”
- 13. 13 Engage Educate Empower “Shall I show you how in words and pictures?” “I bet you hate paying tax?” “Did you know it is possible to reduce the tax you pay on your pension?” Three “E”s in practice “Giving people the confidence to make good financial decisions”
- 14. £30,000 Salary NI 12% Tax 20% NI 12% Tax 20% Tax at 0% Tax at 0% Salary £30,000 Salary Salary £30,000 Salary Salary Tax 20%Tax at 0% £0 £8,060 £10,600 £42,385 Nat’l Ins 2% Tax 40% What you take home Salary £30,000 Tax of £3,880 NI of £2,633 Nat’l Ins 12% Take-home of £23,487 Nat’l Ins 0% First, how tax works on your salary… Income tax Nat Ins
- 15. £30,000 Pension Tax 20% Tax 20%Tax at 0% Tax at 0% Pension £30,000 Pension £30,000 Pension Tax 20%Tax at 0% £0 £8,060 £10,600 £42,385 Nat’l Ins 2% Tax 40% What you take home Pension £30,000 Tax of £3,880 Nat’l Ins 12% Take-home of £26,120 Nat’l Ins 0% Income tax Nat Ins Now, how tax works on your salary…pension…
- 16. 16 Engage Educate Empower • So, you have saved incredibly hard and have £200,000 in your defined contribution pot • You’ve decided not to annuitise • You’ve even heard you can take it all in one go… • So shoud you…? Three “E”s in practice “Giving people the confidence to make good financial decisions”
- 17. 17 with the tax muppetometer
- 18. 18 with the tax muppetometer
- 19. 19 with the tax muppetometer
- 20. 20 The small print We have used 2015/2016 tax allowances, ignored investment returns and inflation and not tried to predict how HMRC might bend the rules in the future, which they undoubtedly will. Allowing for these might change the numbers a bit, but would also make the model less user friendly although we doubt the underlying messages would change. Namely, spreading your DC pot over a number years will, for most people, mean paying less tax. with the tax muppetometer
- 21. Agenda • The three “E”s – theory • The three “E”s – practice • Information overload • Now, let’s start back at the beginning – I want to tell you a story about pension freedoms
- 23. Agenda • The three “E”s – theory • The three “E”s – practice • Information overload • Now, let’s start back at the beginning – I want to tell you a story about pension freedoms
- 24. This is how we make decisions easy
- 25. 13 May 2015 25 The views expressed in this presentation are those of the presenter. Questions Comments
Notas del editor
- Introduce who you are etc
- Chunk the presentation – so people know where you are going…
- Let’s start with a bit of theory
- It is really important that you get the order right and don’t miss out any steps. Lots of examples of jumping straight to educate, or even worse – straight to empower. Pensions Wise, though a good idea, is probably about 30 years too late. It has missed the educate and engage phase. Let’s hope they sort that out. I have already heard Ros Altman talking about education throughout life under Pensions Wise (so let’s hope). Lots of paper communications issued by schemes. Lots of modellers and websites set up that are laying underused. These have missed the engage phase So what do I mean by each of these stage – let’s take each one in turn and try and explore what they mean.
- So how do we engage… People engage with people - Face to face is the best. It can be cost effective in larger groups. But face to face needs to be led by talented presenters. It needs to be an event not a presentation, and live long in the memory of the attendees. Presenters need to use clear and consistent language. Of course, there are logistical challenges – but if we want to help people make good decisions, we will have to overcome these. Webinars are growing in popularity and are a half way house again these need to be memorable not sleep inducing. But nothing can overcome a dull presenter (as I am probably the proof of my own pudding)
- Educate So we are engaged and ready to learn. Some tips. Don’t say pension/annuity/income. Choose one, explain it, and stick to it. Don’t call things pension commencement lump sums then tax free cash then lump sum. Pick one and stick to it. Make your examples real. Don’t talk about higher rate tax if everyone in the room is earning £25K pa.
- Empower Now you are ready to give guidance. Let me bring this process to life with an example. “Marginal tax is the most important concept to get to grips with. Everyone with a DC pension must understand this.”
- What about in practice
- But if we dive straight into telling people that they need to understand marginal tax they are going to get lost. The problem is the words being used. Firstly, any sentence with the word tax in it needs to be worded carefully. Secondly, marginal is just completely wrong word – marginal means not important – the exact opposite of its importance in this situation. We have missed out Engage and jumped straight into Educate. A better approach might be…
- So you want to learn and using pictures…I’m glad you said that. Let me introduce you to how tax works - first on your salary, and then when taking your pension. Then we can look at how ti will work on your pension pot when you come to cash it in.
- Presenters are going to have to work out when the clicks are and get used tot hem as too many to describe below. Tax and NI blocks come up separately, then the £30K salary arrives, then it pauses above the NI blocks, then the tax blocks, then finally the take-home blocks before finale is to show take home of £23.5K. On salary 2014/15 (slide updated for 2015/16) Earnings are sliced into different bands for income tax Personal allowance (nil tax) Next 31,865 (basic rate income tax 20%) Next 58,115 (higher rate income tax 40%) Earnings are sliced into different bands for NI (slightly different from tax) First £7,985 (up to £153 per week -nil) Next £33,904 (between £153 and £805 per week - 12%) Rest 2% A passing observation here is that despite increasing the personal allowance materially over last 5 years, as NI threshold has not kept up. They were broadly similar in 2007 at around £5,000. But people who earn £10,000 are not completely out of the tax system, only people who earn less than £8,000. OK, so let’s see what happens to your headline salary of £30,000. Conclusion is you pay NICs and tax and take-home is around £23.5K
- <Presenters are going to have to work out when the clicks are and get used tot hem as too many to describe below. Here the title changes to say pension, and next click removes NI This is big learning point for most people – no NI on pensions – yippee. One of reasons don’t need 100% of salary post retirement. Clicks do same as salary to get post tax pension of £26K.
- So, let’s know do the whole thing (Might want to do give us a clue world arm wave and click to get red circle up) Let’s go through a key question at retirement under new freedoms Click to reveal point by point the example £200K Not sure if take all in go.
- Say hello tp First Actuarial’s tax muppetometer. Explain inputs Step 1: Enter your defined contribution pension details in the orange boxes below… £200,000 after tax free lump sum. Regular income of around £8,000 a year (ie state pension plus some savings income) The tax muppetometer is showing you’d be a bit of a tax muppet to take it all one go (a 100% muppet in fact). Best cancel the Lamborghini test drive…and instead drive the slider to spread your pension pot over a few more years to see how much tax you could save…
- Step 2: For example, spreading it over just 4 years will save you a whopping £29,000. Avoiding being a tax muppet isn’t that hard is it? But even in the 4 year scenario you are still being a bit of a tax muppet (42% of one in fact). So see if you do even better…
- Step 3: Spreading it over 10 years… and you’ll save nearly £45,000 in tax. Wow. How much better can it get – what if we did 20 years?
- Step 4: Spreading it over 20 years, the sort of period most of might expect to live, will probably mean paying even less tax – in this case £50,000 less tax. Of course, there is a balance to be had. You are probably not going to want to spread it over 50 years just to avoid another £500 of tax! But as long as you know broadly what it might cost in terms of extra tax, you can make more informed decision about how quickly you take money out of your DC pension pot. Finally, as we have had to make a few guesses, whilst these are pretty reasonable, nothing in finance is guaranteed. Please check out the warnings in the small print below. Might want to read gag about HMRC bending rules…
- Over to you Henry…my work is done.