I had lunch with Mr Sipp yesterday. Mr Sipp is John Moret and he has done more to pioneer the new pension freedoms than anyone else. I think the dodgy curry and glass of house white I bought him scant reward for the insights he gave me.
The title of this blog reflects the original aims laid down by the then Regulators for income drawdown. John reminded me of them.
Safe– money must be invested in assets that won’t go down the swanny
Stable– income arising from investment must be consistent from payment to payment
Regular– distribution of income should be able to mirror how we get paid when working
For life– an estimate of mortality should be used when modelling the drawdown.
Of course, all this became formalised in what became known as GAD rates, where the freedoms were circumscribed and it wasn’t till the advent of Flexible Drawdown a few years ago, that these restrictions were lifted (and then only for the pension rich).
John’s point was simple;- “safe,stable, regular and for life” appears to be what people want as an income in retirement.
By taking away the need to buy an annuity, live within the GAD guidelines or have an a priori retirement income of £20k pa, the Treasury have said that there is no further need for intervention in terms of controlling behaviours. It could be argued that it’s done away with consumer protections because it thinks that consumers get it.
As I am writing this, I am sitting in a meeting of the Financial Services Forum hosted at the offices of DMG Media (the Daily Mail).
According to the Mail, 50% of its readers are behind the Guidance Guarantee initiative (a huge approval rating) but only 10% say they’d trust the guidance. Understandably, people aren’t going to say they trust something they know nothing about. I’d be interested to see these questions re-polled in a year’s time.
If the Guidance simply concentrated on the four features of a retirement income stream, “safe,stable, regular and for life”, I suspect most people would feel very comfortable.
Would you have an alternative to wanting your retirement savings being safe? But what do you mean by safe?
Would you want other than a stable income -but what price would you pay for absolute stability?
If you don’t want a regular income, how are you going to plan your day to day expenses.
If you don’t want an income for life, what’s plan B if you live longer than you expect?
Sometimes the old ideas are the best. Whoever came up with the formulation “Safe, stable, regular and for life” is probably in retirement now (on a gold plated pension I hope!).
What we now have to concentrate in providing people with confidence in the products that they are offered. If annuities are not the answer, are drawdown products?
I worry about the capacity of people to manage their savings as “safe, stable, regular and for life” using individual drawdown and I don’t think that annuities are a suitable investment or insurance for middle aged people.
“Safe, stable, regular and for life” seems a pretty good sales pitch for CDC.
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