My friend Steve Bee has produced a marvellous cartoon this morning.
The need to save between 15 and 20% of lifetime earnings hasn’t changed.
The numbers being crunched to come up with the 17.5% recommended lifetime contribution rate should be about the same today. Provided -that is- people accept that few starting saving as a 20 year old, will be able to stop working till they are 70!
Our perception of retirement in 2064 will be as different from todays as ours is from those retiring in 1964 but the fundamental need to save between 15 -20% of lifetime incomes into a pension is likely to remain the same!
But there is a new audience who see saving differently
Two things have changed since the 50s and 60s, Retirement Annuity Contracts were designed for a professional elite as their alternative to a DB scheme, now we’re all dependent on them -was there ever an expectation that ordinary people would be able to fund their own pensions to DB replacement ratios?
Secondly, nobody in the 50s and 60s could have anticipated the impact of wider house ownership would have on people’s view of security in retirement. The “my house is my pension” is now baked into our culture (even if it’s hard to buy a sausage with a brick).
And we haven’t yet worked this out!
The communication message has become harder as we widen the audience and find people’s view of retirement income changing. Personally I think it is unrealistic to expect people on lower incomes to set aside 17.5% + of income but I think that we need to get back to basics and not allow current AE contribution rates to be considered “enough”.
If we believe that workplace pensions are capable of offering a meaningful enhancement to the Basic State Pension for all UK workers, we must make them as structurally sound as befits that purpose. The reforms currently going through the Houses of Parliament are designed to ensure that is the case.
We must also put the employer at the heart of the process and try to include as many of the pseudo “self-employed” as workers of their actual employers and as such part of employer’s workplace pension schemes.
Ironically the idea of a works pension with 15-20% contributions into a well organised and managed saving vehicle is pretty well the blueprint for the original DB pensions in the sixties. If we can decumulate what we have saved collectively, we will be pretty well back on track!
So I do believe that with the help of employers and regulators, ordinary people can get decent pensions for themselves.
But we have to tell it like it is!
Now we have got back to basics, we must – as Steve does – tell it like it is.
The British public have been subject to one deception after another- they have been let down by over-expensive personal pensions, by poor advice at retirement and by a regulatory system that has placed the distribution of pensions above their quality.
To have a good pension, it is not enough to be in a pension scheme, you have to be in a good pension scheme with proper contribution levels.
That way you don’t have to have your house- and eat it!
This is why 3PPS is so critical Henry, it costs a lot of money to get back on track, circa £250k for someone earning just £38k.
3PPS offers a flexible, consumer focused solution which helps deliver superior VFM in Workplace schemes, but if the pension provider’s computer says ‘No’ then presently on average that has lost over £300k worth of pension pot at retirement.
Further, that pension computer saying ‘No’ is ensuring that £1m+ of additional low risk savings opportunities are lost in the wind.
Now consider that 9 out 10 existing savers have a problem, with over half having no chance of a decent income in retirement – yet ALL your 5 star companies have this problem and all of them have computers that say ‘No’.
How can Playpen, FTRC & Defaqto score a provider 5 stars if they deliver failure for 9 out of 10 savers and their computers say ‘No’ to getting much needed access to funding which delivers unrivalled VFM?
Ultimately the most important aspect in pension saving is to accumulate the biggest pot of money from the contribution amounts saved, matching or even exceeding retirement needs identified at outset.
Seeing as the biggest and oldest have delivered 9 out of 10 failures with the average savings gap standing at £250k I would seriously question why any saver would feel ‘secure’ backing one of these firms if they knew their track record!
If you stand back and look at this from a consumers perspective, can you imagine a) any saver being happy when they find out their likely fate relying upon a strategy which only 1 out 10 will be happy with and b) that these same companies have computer systems restricting access to funding and strategies which could cost them an extra £1m in savings wealth over 25 years.
There is a big void between how pension folk view pension providers being worthy of 5 stars and the consumer experience that 9 out of 10 savers will face on their ‘journey’ to retirement.
It’s not only savers who need education Henry, it’s pension folk too who need to get real and find ways of achieving a succesful outcome from the resources at our disposal and no passive fund is going to do that!
It’s time for pensions folk to embrace change and stop pretending 1 star achievements are worthy of 5 star treatment – this is why savers have abandoned pensions and AE is going to make things worse unless financial warnings on shortfalls are made at enrolment stage and every year thereafter.
Just my view based on 20,000+ hrs self funded R&D into the savings gap crisis (which I notice is not mentioned on your blog page meta tags to the right)