Pensions – real money
Pension money is real money. It belongs to real people and is used to pay real bills, putting fuel into cars, buying flowers in supermarkets and paying for tickets to watch shows and sports matches.
The money saved today in 2014, or tomorrow in 2015, may not be spent till 2074 or 2075. Who know how we will be paying for things then, who knows how much they will cost, all we know is that the means to pay for them does not grow on trees. Money needs to be saved for the future.
How we save for our long-term future is clear. Almost everyone by 2018 will have been at some point in a workplace pension saving scheme, almost all of us will be paying what used to be call the “stamp” and is now known as national insurance, this buys us a right to a state pension.
What happens to our national insurance contributions and the amounts we contribute to workplace pension schemes should be of great interest to all of us. We may not have a lot of control of the investment of the money we save nor can we individually influence how much pension we get from our national insurance contributions, but we can and should be interested in what we can expect at retirement and plan around that expectation.
We got our pensions back
In 2014, we became much more involved with our personal pension savings as we were given back the right to spend what we had saved as we chose. At one extreme, someone with a pension promise from an old fashioned Defined Benefit plan , could take a transfer and from 2015, after paying tax, take all the money at once and have a party. At the other extreme, people could choose to sit upon their retirement wealth and never spend a penny.
Recent surveys have suggested that most of us are in the middle of these extremes, wanting something that looks like an annuity but isn’t. Something that can still be owned and redeemed like a house or a share in a business rather than something abstract – “a stream of income payments with no recourse to capital”.
The sense that George Osborne had given us back our pensions was behind the collective sigh of relief that greeted this year’s budget. Our pensions were our money again and , as a result, we have seen considerably more engagement with the process of retirement saving and with what is happening to the money.
This can only be a healthy thing.
But with greater engagement comes a need for better education. With better education comes a need for empowerment so that individuals can exercise their rights over the money they own- whenever that money is to be spent.
For some people, the exercising of rights may be hands on, I hope in 2015 we will start to see people who are policyholders , wanting to talk to – or maybe even join – the Independent Governance Committees who represent their interests to insurance companies. I hope the same will happen for members of master trusts.
For some people, the opportunity to manage their own retirement pot will be appealing and they will self-invest, whether within the limited range of funds in their workplace pension , or in a separate arrangement they establish for the purpose.
But for most of us, the exercise of our rights will involve no more than knowing. I am currently working with some Italians who are first and foremost IT specialists, they are fascinated by the opportunities that people don’t have in the UK to know about their pension rights.
These Italians find it incredible that we cannot press an icon on a phone or a tablet and with a click access the value of our pension pot and our state pension rights. They point out that you can value your property by walking past your local estate agent but getting a pension statement is still something you “apply” for!
Until we have the means to engage with our pensions, it is hard to educate ourselves as to options, it’s just too abstract a subject – we need to apply learning to our circumstances, our pension pot, our pension rights.
I don’t think we are far from giving people power to view their pensions on their phone, I don’t think most people need much education in how to save for and spend their pension pot, I don’t think it’s that hard to empower people to do what they want with their money by giving them a pension debit card or a pension credit card (paid off by the next pension payment).
No thanks to us!
Many people in pensions don’t want to admit this. But it took a politician who didn’t know the difference between advice and guidance (and didn’t care) who wasn’t fussed about GAD limits (even though GAD forms part of his department) and didn’t give a flying f*** about the NAPF, PMI, ABI or any other local trade body, TO GIVE US BACK OUR PENSIONS.
The big field behind the wall
I remember the wall round the playground at my primary school, of climbing it and looking over the top and wondering whether I could (as a five year old) ever play on my own in the big field behind. I am still frightened by that memory.
Now , with only three months to go to April 2015, the wall is down
The big kid at the back of the class has kicked down the playground wall. We are staring out into the fields and wondering whether we dare go play there. Many of us won’t want to . at least without a teacher, without some kind of map, without some means of transport.
Dare we play there?
In 2015 we must help people to play in the big field, they do not have to stay behind the wall any longer.
We need to get people to engage with that big field- to take some control of their money and look at their options
We need to get people to understand what those options mean to them
And we need to give them the chance to do what they like, whether to run free in the field or stay where they are, maybe provide them with some new options which let them do both.
A new world where things get done in real time
Yesterday I wrote the Pension PlayPen response to Government on its Retirement Income Market Study. It was fun, easy, on-line. I sent the submission in and got an email back from someone at the FCA within the hour, thanking me personally.
This is the new world, a world of immediate engagement, co-operation. It’s a world a millenium from the world of stakeholder pensions, of pension abstractions and paper statements.
I am staring out across the English Channel from the Dorset coastline, dawn is breaking on the last ay of 2014. It is very calm and very beautiful.
Let’s hope that 2015 brings us good things.