Himalaya Birkin value only goes up

The Times, March 31 2018

Whether it is to splurge on a sports car or a holiday in Spain, more than 2 million people have taken money out of their pension pots since they were granted the ability to do so three years ago. And why not? It’s their money, after all.

Analysts at Jefferies, the investment bank, recently pointed out that a Hermès Himalaya Birkin handbag, bought in 2010 for €29,600 (£26,000) was sold at a Christie’s auction in 2016 for €157,500 — a 432 per cent gain compared with the 310 per cent increase if the money had been invested in Hermès shares.

Let’s put aside the fact that if everyone squandered their pension savings on Hermès handbags and Lamborghinis we would have a colossal social welfare problem, and assume that those taking money from their pension pots are sensible enough to figure out that they need sufficient income to survive on.

It is a big assumption given that data from the Financial Conduct Authority suggests that almost 40 per cent of those who took money out of their pensions and opted for drawdown did not seek any financial advice.

With the stock market in robust health, breaking records frequently, (until recently) many saw their pension pots grow, despite them taking money out. If the stockmarket keeps rising, it is easy to see how the withdrawals can be reimbursed, but it is a big “if”.

Conversely, recent faltering markets coupled with talk of rip-off fund management fees are likely to prompt people to withdraw money from their pension pots and stuff it in the financial equivalent of a mattress. It is easy to understand the psychology: get your money out of falling markets quick, put it in a savings account or cash Isa — the Bank of England is about to put interest rates up next month, isn’t it?

It is a cliché, but markets go up and down and people should invest for the long term. Although many of these people may already be in their sixties, many can look forward to a long retirement.

Before the pension freedoms were introduced, the government required pension providers to review their policies every three years — and if you were running out of money, to reduce your  income. Now pensioners are alone in managing their finances. Some will be fine, others won’t. Most might do better with expert advice.

We should go back to the old system, which required retirees not only to take financial advice when transferring funds, but to book in for a financial MOT every three years to ensure that they have the funds they need to live on.