My friend Ralph Frank is very good at putting his finger on the problem. If he was a Doctor, I’d trust his diagnosis and I like to think of him with a stethoscope prodding around the body financial – listening for oddities.
Here he is on the contradiction between the Government’s direction of travel for “spending” and “saving”.
The freedom enjoyed by those over 55 will now be consistent with, and exceed, the opportunities those under 55 can access. However, the granting of these freedoms to the over 55s comes at a time when the same Government is focused on ensuring that there is a safety net, in the form of Auto Enrolment with a default investment option, for those under 55s who do not make decisions regarding their pension savings.
There are two fundamental dynamics in British politics that are grinding together like tectonic plates.
The first is the desire to “engage-educate and empower” people to take responsibility for themselves.
The second is the desire to act mutually for the common good.
You don’t have to be a political genius to see Steve Webb. Gregg McClymont, the Pension Regulator and the DWP as leaning towards collective solutions that provide mutual support. You don’t have to be a genius to see George Osborne, Mark Hoban , the FCA and the Treasury as seeing life through the different lens.
What has worked very well over the past five years has been a recognition by both political camps of the merits of the other. Gone the polarisation of politics of the 80s and 90s that saw a stand-off between “retail and institutional” ,”state and private”, “left and right”. Vestiges of those days are still apparent, I wrote about this in my blog about the AMNT and APPT”, but these are museum vignettes.
By historical accident, we have inherited a highly developed DC savings regime, powered by the weight of money from employers moving away from DB and accelerated by the development of auto-enrolment.
By comparison, we have inherited a derelict system of spending the savings. The system was constipated by annuities which blocked the development of proper systems of drawdown.
The drawdown product is weak; too expensive, over-dependent on advice and lacking the basic banking features we’d expect. The horror greeting the idea that people might be able to draw their pension from a cashpoint demonstrates how little empowerment there is for those who want to exercise their freedoms.
The collective decumulation market is pretty well non-existent. If you are not getting a pension from a defined benefit schemes, your only pension will be from from the state.
For the 90% of savers who took no decisions about how their money was invested before retirement, there is no collective alternative.
It is inevitable that a collective decumulation system will emerge to meet the needs of the 90%. As inevitable as the cost of drawdown falling and the means of drawdown improving.
In a wonder-world, we would all own Lamborghini’s , most older people would have a chauffeur (adviser) and petrol would cost 30p a litre (as it does in Dubai).
But we live in Britain where pump prices are still 125p a litre and as Simon Ellis points out
he OTR list price of the bottom of the range is £166k. If only we had an army of retirees with that sort of sum tucked away!
Pensioners have always been partial to busses, very social, not too racey – and cheap to use!
Whenever a right wing party takes over a council, the first thing under threat is “uneconomic bus routes”. Whenever a left wing party returns to power, it’s on the back of a promise to restore such “social” services to the elderly (who are very good at voting).
I see nothing wrong in a post-retirement landscape developing over the next five years that offers opportunities that encompass both chauffeured super cars and public transport (with other options in-between).
I hope that the angry brigade who are trying to derail collective decumulation will pipe down and I hope that the collectivists will allow drawdown to sort itself out without too much intervention (pricing caps etc).
As choices become more obvious (bus-stops, taxi-ranks and super car showrooms) , the role of guidance will change. Enquiries may become more sophisticated as the public become more aware of the new transport system. For the moment, we need to keep things very simple and ensure that nobody crashes!
With tolerance I believe the integrated transport system (we need) will emerge
Otherwise, to echo Ralph in his headline, we’ll be
travelling in opposite directions, on the same journey …
this is indeed
an accident waiting to happen