November 2002

REVIEWING FINANCES

Sandy Robertson, managing director at Aberdeen-based Acumen Accountants and Advisors, discusses how the ever-increasing pace of change of mergers and acquisitions in Aberdeen’s oil and gas community means now is a particularly good time to review personal finances.

You should be realising it is you and not your employer that ought to be in control of your future finances. If you need convincing on these issues, recent announcements by Prudential and Scottish Widows that they are closing their own final salary schemes to their new employees show that even so called experts are not in a position to provide unconditionally for their workforce long term.

It is not surprising that large employers are finding the whole issue of "pensions for life" for their entire workforce at retirement too difficult and perhaps too costly to handle. There is no magic formula to investing and despite popular belief, no single person, company, institution or even government can influence global economics, interest rates and stock markets. Just to make things even more challenging, advances in healthcare and less strenuous lifestyles mean that employees are living much longer than generations before.

Whilst we believe that global economics and global stock markets should not influence your investment thinking too much, the local economy may well impact on your ability to earn and this aspect would lead to certain risk management decisions. For example, how much cash should you hold in a contingency account to deal with the risk of being unemployed for a few months?

Where increased oil prices ought to benefit our local economy and job prospects, the irony is that higher oil prices can stifle growth in the developed world and depress average investment returns for extended periods. We encourage clients to see depressed investment returns as a manageable variable compared with the real risk of not earning at all through ill health or unemployment, and being forced to compensate by dipping into capital.

We see Aberdeen continuing to build its reputation as a city with a good quality of life and continuing to be attractive to individuals and companies that bring technological advances to the Oil and Gas Industry and supporting service sectors. This will continue to encourage people to reassess their personal objectives and in some cases will extend to their contemplating career changes.

So if you see a career move ahead of you and your future finances are important to you, there has never been a better time to take charge of your finances. But, what tools and expertise will you need if you are to replicate or improve on the good old 2/3 final salary schemes that are being phased out by many employers. Our company believes that each individual needs a plan or a model to work to which is customised to their circumstances. But there are no magic solutions. Many of the same principles and disciplines that the best final salary schemes had, have to be carried into the personal arena: . Estimate how long you would like to work . Hazard an educated guess at how long you and your spouse / partner will live . Estimate in today’s money how much you will spend when you are no longer working . On top of your existing savings and investments, be prepared to set aside what ever it takes to create sufficient wealth so that you don’t have to work any longer than you want to.

Those of us without economics degrees and actuarial qualifications are not disadvantaged in any way. All that is required is . an educated guess on inflation and interest rates for the rest of your life . a commitment to "regularly set aside what ever it takes" . a promise to yourself to review the plan every year, recalculate the numbers and yes "set aside what ever it takes".

Armed with this information a good Financial Planner will be able to run a model for you and give you a good idea of the capital you will require to accumulate before you stop working. We call this date Financial Independence Day, and we regularly produce "Statements of Financial Independence" for our clients to help them plan for this day and the years beyond.

Now we are not saying that basic maths and disciplined savings is all there is to it, but it is 90% of the way there. The other 10% is customising our client models for things like: . Working part time later on in life – an option for many . Educating the kids . Building in catastrophe or risk insurance This methodology will allow you to ignore economic statistics, the level of the FTSE 100 and all the financial "background noise" which if anything puts people off saving and investing.

Every year, you have a birthday, a holiday, a staff appraisal, an MOT for the car, and a check up at the dentist. Whilst that’s all perfectly reasonable, do yourself a big favour and have an annual check up with your financial planner to ensure you are on target to achieve your personal and financial objectives for the rest of your life.