So this is Christmas…
I am not a year older – I am two years younger than I was five years ago – at least I’m two years further from retirement (relatively speaking).
But my basic state pension’s gone up faster than I could have expected – accelerated by the triple lock.
My net pension savings increased by about 13% last year, based on my benefit statements, the best year in a few.
The amount of pension I can buy with my pension savings went up slightly at the end of the year, a comforting by-product of the anticipated rise in interest rates in 2015.
In fact, 2013 was a pretty good year for my pension. Unlike previous years when the impact of falling interest rates, depressed stock markets and inadequate revaluation of my state benefits made me “pension poorer”.
Now you might thing these musings pretty inconsequential and you’d be right. It is not what happens in 2013 that matters to a man due to retire (or at lease become eligible for the state pension) in 2026.
It is not what happens to my pension today that matters , but what matters tomorrow. Next year could see annuity rates retreat, markets tumble and the triple lock be picked. There are no absolute guarantees, even my defined benefits (thankyou Zurich) are payable in full only if my former employer stays solvent.
Am I worried? Of course not- I do not live like Chick Lickin with the fear of the sky falling on my head.
All of us have to live with degrees of uncertainty. We are uncertain about our health (touch wood I have had a smooth run so far but many friends have not shared in my good fortune). Our incomes may be cut from beneath us by a corporate restructuring , a company failure or through personal inadequacy. Much of what happens in 2014 will be beyond our personal control, but its impact will directly affect our savings, our ability to save and the promises others have made on our behalf (thanks Zurich, thanks UK.Gov).
If the only certainties are death and taxes then why do people tell me I need certainty of income in 2026?
All I can do between now and then is stack the odds in my favour. This means taking a long-term view. Actuarially I have some 35 years left in me, that’s according to my little bit of software that takes into account my financial circumstances, age, ethnicity and state of health (oh and my postcode).
I know that even when I get to 67, by which time I can be expected to live another year (the risk of my dying between now and 67 having past), I will still have 21 year of life expected of me. The whole point of old age- is that it is getting further away and lasting longer! GREAT!
And yet , many people of my age are already in pre-retirement lockdown, disinvesting from equities to cash because their normal retirement age has been set at 60 and their lifestyle program has a ten year switching matrix.
The timeframe for a 60 year old with another 28 expected years (plus five on top for the missus) is so long that there are no matching instruments for actuaries to purchase. Nobody issues debt over 30 years! And yet , if I am lifestyling at 52, I am planning to buy what should be a 33 year gilt!
The financial madness of all this is as a result of three things
- A failure to innovate to bring new pension options to market
- The shift from pension promises (DB) to pension savings (DC)
- An inability among those who legislate for pensions to address the above.
Market failure and changes in personal circumstances don’t happen overnight. Like old age, they creep up on us. I would like to think that I practice what I preach, I have, do and will continue to save over 15% of my income into pensions – it’s a priority.
I will be alright. But millions won’t , millions are already destined for pensions penury having purchased the wrong pension at the wrong time (over the past five years of quantitative easing and plummeting annuity rates).
These people have not chosen to buy an annuity, they have been defaulted into annuity purchase, many have not even searched the market for the best rate. They probably haven’t chosen their retirement age – they took what their employers randomly selected as the “normal” retirement age. And they didn’t choose the pre-retirement glide path into gilts and cash because 90% of them were invested into the default.
All of these decisions were taken for them by “experts” with advice from “expert advisers”. I wonder if those experts were asked to rationalise the decisions they took as their staff’s fiduciaries, they could do so in a rational way.
Nor do I see any great movement to review these decisions in the light of people like me being a couple of years “younger”. Nor have I seen much action among fiduciaries to warn their retiring members of the state of the annuity market and options for annuity deferral, nor do I see the arrival of new products that allow for collective drawdown.
In short, I see those who have just retired, are retiring today and those who will retire in 2014 as being largely ignorant of their options and ill-prepared to take the decisions they do.
Generations to come will look back at us “experts” and ask how collectively we failed to exercise the duty of care we assumed as advisers, trustees and as pension providers.
We are all another year older, but I fear we are no wiser.