Why I’m a grumpy pension old man!

The day I wrote this I was off to Wakefield to be filmed as a grumpy old man. The results of this filming can be viewed on you tube here

Stanley Matthews was still playing professional football at an older age than mine but I have grey hairs (how ill grey hairs befit a fond old man).

Last night I watched Jon Snow tear into David Cameron , waving his OAP bus pass in the PM’s face. At 60, Snow objected to getting concessionary travel , not just because the country couldn’t afford it but that he didn’t need it. Right on both counts.

He pointed out to Cameron that while the State Retirement Age was being shunted backwards, the apparatus surrounding old age was still as it was 25 years ago- right again Jon.

So long as we have the notion that 60 is old then people like me in their 50’s will consider ourselves on the glide path to retirement (which we are not). Snow points to a lack of joined up thinking between Government and the train companies as an example of the inconsistencies of Government policy towards those like me who are over 50 but still in mid-career.

Let me point to another inconsistency. The Government insists that those who wish to supplement their earnings by drawing on their retirement savings plans must provide themselves with a guaranteed pension.

I’ve  discovered that two of my three DC plans are already switching from equities to gilts in readiness for my annuity purchase in 2021. If I went to my boss this morning and demanded a guaranteed income for the foreseeable future he would point out that regardless of my performance, the amount he pays me depends on market forces, if there is insufficient income generated by our firm, then I will be laid off, or required to take a lower paid job.

There is no certainty of income in the private sector. There is considerable certainty of income in the public sector, especially in the senior ranks of the civil service (DWP, GAD, tPR etc). The people who drive the demand for guaranteed annuities are said to be the silent majority, yet the silent majority are working in the private sector and living with income certainty as a fact of life.

The idea that we should consider workplace savings schemes to buy an annuity at some point between 60 and 65 is totally inconsistent with Government policy on the state retirement age and ludicrous from an investment standpoint. Because the cost of buying a guaranteed annuity is more than the sum of Solvency II and increased reserving for longevity and the costs of setting up an individual annuity. The cost is that millions of people are losing the opportunity to benefit from economic growth in the UK and around the world and instead locking into artificially depressed interest rates through the purchase of Government Bonds.

These bonds, primarily long-dated gilts but also linkers are hideously expensive. Their cost, massaged up by quantitative easing, is felt in the derisory pensions people are buying today.

This ought to be a national scandal that should outrage Jon Snow to the power of ten! It isn’t because nobody quite understands the problem, because the problem is tomorrow’s problem (people will draw down their tax free cash before relying on their rubbish annuities). It isn’t because people have forgotten that equites out-perform gilts over time because they reward savers for long-term investment, (note to self; investing for the rest of my life from 60 or 65 is long-term investment).

Oh and it isn’t a problem because the Government have managed to convince themselves that we are all like the civil servants who see neither their salaries or their pensions “at risk”. Well the fact is that while we can, as a country , afford to feather-bed Sir Humphrey and his colleagues, we cannot afford to do this for us all.

We can neither afford guaranteed annuities under a defined benefit pension system, nor can we afford them under a defined contribution pension system.

Another system of pension payments exists. It is the Dutch system which accepts that pensions, like salaries, cannot be guaranteed for ever. It’s a simple idea that works. People pool their pension pots on a collective basis, maximise efficiencies through economies of scale and accept that within a massive pool of retirees, some will live longer and draw more, and some will live shorter and draw less.

Quite simply, it is the principal on which all  it is the principal on which all insurance is written and because the Dutch system is established on a not for profit basis, it is trusted by those who use it – the majority of middle and low earners in the Netherlands. I am not quite a grumpy old man – take that “old bit” out and you have me this morning!

If you agree with me that we need to do something about the guaranteed annuity system that is in the process of destroying the financial prospects of millions of not so elderly people in their fifties and sixties, stand up and be counted.

The Government will only get away with their inconsistencies as long as the likes of you, me and Jon Snow , sit meekly in our place and let shit happen. inconsistencies as long as the likes of you, me and Jon Snow , sit meekly in our place and let (sh)it happen.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to Why I’m a grumpy pension old man!

  1. martin says:

    I am not sufficiently well qualified to talk about guaranteed annuities but your point about inconsistent thinking over Old Age is interesting.

    Over the past 50 years or so it is probably the post age 65 period of our lives which has changed the most in terms of financial security, health, mobility and actually being able to live it! Despite what you read in the press about pensioner hardship and healthcare costs etc my feeling is that all the changes I refer to have actually very much been for the better. So this is all good news. But what age is old? Just to make my point it might be for example that in terms of health and fitness someone aged 65 from 50 years ago is more comparable with someone aged 75 now. It is not that old age has been extended by longevity, more like “non-old age”. So instead of worrying about all the increased pensioners and the burden on society we should celebrate our longer “non-old age”, even if that means a potentially longer working life and deferral of benefit entitlement.

  2. Your making an excellent and oft forgotten point, Henry, when you refer to the Dutch accepting that some live longer and some live shorter lives. The whole pooled risk aspect of annuities is constantly being forgotten by pension commentators. They seem to assess everyone’s pension situation asif it were possible for all annuitants to get back more than they put in. Of course that’s not possible.
    We need to accept the collective nature and pooled risk aspect of annuities and stop judging the suitability of the product based on the amount you get back from it. Until we get annuitants to accept that it is the strength of the provision to the pool that matters rather than the return to the individual, we will have no hope of getting them to accept that the amount can go down as well as up, depending upon how well the pool is conforming to the assumptions used at setup.

    • henry tapper says:

      And yet the collective aspect of the mortality pool is attributing only 10 % of the value, far greater the impact of collective accumulation savings and even more the effeciencies achieved at retirment.

      The chronic laziness of the pensions industy, befuddled with the income streams from assets under management, is a crying shame.

      How I wish that more like you Tom, would stand up and be counted.


  3. Pingback: 1. The oscillating age of retirement. « My Actuarial Journey

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