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!