My friend is angry. For his whole life he’s worked for the Treasury, retiring this year. He managed the national insurance fund, helped set up the pension protection fund. Much about what is good about the state pension is down to him.
When George Osborne announced Freedom and Choice, he went nuts. He lives in Brighton and does a bit for what he now calls the “Lump Sum Regulator”.
He uses phrases like “I don’t think people should be allowed to..” and he talks about “fairness in taxation”. His is a kind of socialism that we’ve all but forgotten about.
When Hymans Robertson estimated that £6 billion would be liberated from the pension system this summer, my friend ground his teeth. It was like Osborne had taken a hammer to his porcelain piggy bank.
For people like my friend and many other deep-thinking actuaries, the prospect of a post-retirement world without spending guidelines was a travesty of a lifetime’s effort- that was and is why he is angry. His lifetime effort’s considerable.
It is becoming clear that for many people, far from becoming a pension bank account, their legacy DC arrangements will continue to frustrate and vex.
Faced with the complexities of exit charges and the licence to obstruct that is the “second line of defence”, many people will seek recourse from those who know have none of my friend’s sense of responsibility.
These are the scammers and blaggers who have set our industry over the year. They are attracted to the smell of money like hyenas to a rotting carcass on the savannah.
They are out to smash the piggy bank and have no care for the long-term consequences,
We argue about this. I tell him that when the initial frustration is over, people will start looking for long-term solutions to their need for retirement income and that the kinds of solution that he and others I know will become fashionable again.
We discuss what the long-term solution might look like. We talk about collective decumulation, pooling mortality risks, cashflow modelling using dividend and bond yields with long-term returns driven by GDP (not high frequency trading).
Surprisingly , the seeds for these new types of pension schemes have already been sown. While the Pension Taxation Bill offers the freedom to choose, the Pension Schemes Bill offers the freedom not to choose.
Those who choose to swap unwanted freedom for an income paid according to the judgement of people like my friend may be few or they be many.
Time will tell.
Recent surveys suggest that most ordinary people , while liking the opportunity to buy a Lamborghini, when asked to swipe the card , will resist. 70% of people asked by Aon in one survey and the Pension Regulator in another, described what they wanted in retirement as something that can only be called a pension.
But we should be wary of underestimating the wisdom of the crowd. People are not going to go back to products from which there is no escape from rates that are unappealing today but will look appalling tomorrow (when interest rates rise).
They will enjoy their conversation with TPAS and a cup of tea with the CAB but they will turn to Martin Lewis, Money Mail and other authoritative voices they consider “on their side”.
I am sure that they will not be nudging ordinary people into drawdown arrangements where half the return disappears in charges. They will warn against the 3 and 1 culture where advisers charge 3% of your pot to take it on and 1% a year to oversee the investments. They will promote caution and advise against the dash to cash.
And I think people will listen to that advice and act upon it. Because what they will be presented with in the short term is Hobson’s Choice between being clipped by products or by the taxman.
We underestimated people’s appetite to save through auto-enrolment, people decided to stay in when they could see a clear reason to do so.
We may also have underestimated the good sense of the nation when it comes to Pension Freedoms. We need a default decumulator as powerful in its mass appeal as NEST.
If he can build structures as effective as the Basic State Pension and the Pension Protection Fund;..then maybe he can build us a collective for the mass market to decumulate our pension savings…
Maybe my man can save us from the $6bn scam