“Retirees don’t know what to do” – NO SHIT SHERLOCK!

no shit

The BBC report…

A minority of those aged 55 and over are withdrawing too much from their pension pots, the industry has warned.

However, after the first full year since pension freedoms began, the Association of British Insurers (ABI) said most people were being sensible.

Well over half of those withdrawing money from their pots in the first three months of 2016 took out 1% or less of their value.

But at the same time 3,379 people took out more than 10% from their pensions.

Nevertheless that number is likely to include people who are investing the money elsewhere, or who may have multiple, small pension funds.

‘Warning sign’

“Most people are taking a sensible approach,” said Yvonne Braun, the ABI’s director of policy, long term savings and protection.

“However, the data also suggests a minority are withdrawing too much too soon from their pension pot – 4% of pots are having a tenth or more withdrawn – and many other customers are taking their entire pot in one go.”

The ABI wants the government to investigate why this is happening.

“This is a warning sign that requires further investigation. We need a full picture of these customers’ circumstances and income,” said Ms Braun.

A government spokesperson said keeping their annuity incomes was “the best option for the majority of people” but said that people should have the right to make the decision that is best for them.

To call this a news story, is to stretch things. Most people are sensible and the First Actuarial Muppotometre confirms that only a small number of people are blowing their savings. Similarly a small number of people self-harm, take to drink and wilfully commit crimes.

The news story is in the final paragraph where a Government spokesperson spouts the complacent nonsense that will eventually lead to our next pension crisis, a crisis based on people finding themselves with neither the advice or the management tools to effectively manage their pension pots.

Despite all the talk of pension dashboards, we are yet to come up with an effective solution to holistically managing pension freedoms. The cost of financial products in the retail market remains stuck at around 2% pa (all in) and the Government insists on a market solution (after 150 years of market failure).

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No shit Sherlock

Financial Advice- post RDR – is now exposed as a rich man’s plaything. The FAMR is concluding that there is no effective way, in a low interest rate environment for people to use advised drawdown and the algorithm for non-advised drawdown is still a long-way from complete.

The only functioning parts of the pension system are collective. Workplace pensions are working because of employer participation and multi-employer workplace pensions.

The State Pension continues to operate effectively and is the platform for retirement security for those who have worked, paid their NI and not had the benefit of guaranteed pensions from their employers.

When will the Government wake up and smell the coffee?

What is needed – and what middle England is waiting for – is a default way to spend our pension savings that isn’t call “the annuity”.

The ABI do not like collective decumulation because individual members know the value to shareholders of individual drawdown (and of annuities).

The ABI know very well that the mid market needs a collective solution, akin to what it developed (and then screwed up) from with-profits.

Steve Webb , before his defenestration in 2015, got policy through the House of Commons , the Lords and onto the statute book (Pensions Act 2015) which allows people to invest in a collective scheme which distributes income over a lifetime to large groups of individuals mutually insuring each other against living too long.

In life there are only three insurable risks

We can insure against the consequences of dying too soon – and we do using group life insurance (in the workplace)

We can insure against the consequences of long-term sickness and disability – and do so through various income and capital replacement insurances (in the workplace)

We can insure against the consequences of people living too long and do so by savings in the workplace. But unlike death and disability , living too long  is not something that is insurable in the workplace. That is the clear message of the demise of the guaranteed retirement schemes known as DB.

Ultimately this is not the employer’s risk to insure, it is a societal risk that puts in jeopardy our health service, our social services and the capacity of a younger generation to work rather than ‘care’.

The only way we can insure as a society against living too long is to save and to use those savings responsibly.

The withdrawal of the State from funding the regulation needed to bring collective “decumulation” products to the market by shelving defined ambition regulatory work (in the summer of 2015) will be looked at as a massive blot on Ros Altmann’s copybook and a failure of vision on behalf of the Government in which she was a cog.

Government – we are waiting – are you listening?

The current solution is to wait till something comes along. The market is supposed to provide. The market has provided nothing.

Pension Wise is a good thing, but it is not a solution in itself, if it cannot signpost any option accept “annuity- advice – cash” then it is failing its users. Currently it has no default solution for the mass market.

Neither the Government or the ABI is moving, the DB structure is crumbling, interest rates are on the floor and so are annuities ( a consequence of Government intervention).

Ironically, equities are flourishing because they are the only place where people can get a long term return. But people are frightened to invest in equities for their retirement because they  do not have the means to control the consequences of “pounds cost ravaging”.

There are no quick and easy solutions, there are no Absolute Return Funds (other than in name), risk is endemic in equity investment and can only be controlled through collective structures that provide liquidity at times of market distress and diversification over a wide range of assets. Collectives also provide the means to fund the great infrastructure projects that need Finance,


Most of us are sitting on our hands because there is no solution, a few of us are finding new ways to behave like muppets. The Government is waiting for something to turn up and the ABI are calling on the Government to pull another rabbit out a hat.

This hopeless lack of vision is getting us nowhere, it’s time the Government started listening to the Friends of CDC and got back to the Regulatory Drawing Board. We don’t just need a pensions dashboard, we need the means to use it effectively to plan our later years.

Footnote on the Lifetime ISA

And anyone who thinks that the ISA – even the lifetime ISA is going to sort our our problem with living too long – should read this.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to “Retirees don’t know what to do” – NO SHIT SHERLOCK!

  1. Mark Meldon says:

    Another interesting post re FAD! I think it needs to be remembered that most advised people entering into FAD tend to be well off in other regards, too. Most IFAs deal with people with various sources of retirement income – other investments, property perhaps, a DB pension – and it can and does work in these circumstances.

    The real problem is for those with, say, £100,000 in a DC pot at age 65. Any annuity offered will be bugger all thanks to QE, the NHS and low interest rates, and FAD guarantees them poverty later on if they exceed a “safe” withdrawal rate of 3.5-4%. On the other hand, perhaps this is what the government wants, spend now, live in destitution at age 75!

    • bobchampion says:

      The Pensions Commission used annuity rates available in October 2005 as the basis for its assumptions. The same annuity income in real terms requires a fund 90% greater than in October 2005.
      The middle market is usually home owners. Earlier this month the Aviva Retirement Report stated 46% of respondents over 45 expected to call on their housing wealth to supplement their retirement income. This rose to 60% when care funding was considered. Equity release interest rates are dropping to close to 4.5%. A lifetime fixed rate mortgage with no negative equity guarantee.
      Abolition of the default retirement age means that those who can continue to work probably should.
      In the 1960’s to keep his 2,500 boys in order, my Headmaster at an Inner London comprehensive had a mantra, “there are no rules until you break the rules and when you do you will be punished as you should have known what the rules were.”
      Economics, inadequate pension provision and social change have changed the rules. Do we know what the retirement income rules for today are? Feels to me like delay retirement as late as possible and if you can draw your pension last.
      Henry, I agree that we need to look afresh at retirement savings. However, we need to look a lot wider than just pensions. Saving for retirement has to be funded by a lot more than most employers are currently willing to pay. The balance needs to come from the individual, but has to compete with Lifestyle changes – no couple is going to say we must provide for our pension say so we will not have children, and when it comes to other consumption attractions – no holiday this year our retirement savings are falling behind schedule.
      Also, the Pensions Commission reported at the end of 2005 and here we are 11 years on and we are still in the implementation stage of their recommendations. I would be very surprised if the commission members in 2005 could predict the world of 2016.

      • henry tapper says:

        I agree with the unpredictability of predicting the future in detail- Bob. But some fundamentals remain, we need houses, jobs and companies need to turn a profit. People need money to retire as they cannot work for ever and all these things are linked. We need some kind of vision to make sense of what seems random and that’s what I’m trying to get to by writing my thoughts down every day. I know you write more than me and I value you writing down your thoughts on what is essentially a second blog – I suspect we are travelling in the same direction!

  2. bobchampion says:


    I agree with what you say and we are travelling in the same direction.

    My point about the future is that it takes many years between when new accumulation arrangements come into place and when they begin to have a measurable impact on retirement decisions and income.

    I am concentrating on how we make better futures for those who are reaching retirement today. Looking at the issues they have to face, the generations that follow look as if they will have bigger issues.

    One of the problems with retirement income decisions is deciding what is best for you. You have alluded to it from a personal point of view in your recent blogs. A recent survey found 46% struggle to reach a decision on what to do with their retirement pots.

    ABI do not know whether their customers have other pension pots; DB pension income; are on means tested benefits; or have debts to pay off. It could be the 4% are making the right decisions for their circumstances. The headlines that have been generated just increase the concerns of the 46% who are struggling to make any decision.

    In a future ABI data release it would be helpful if the 4% were analysed to show the age of the individual and the size of the pension pot involved. If a sample could be taken as to how the money withdrawn was being used we may be able to run some press stories on good and bad ways to use your pension savings that could help the 46% make decisions that are the best for them.

  3. Geoff Sharpe says:

    What this serves to prove is that those who were under provided for at retirement now have the opportunity to spend what little they have accumulated long before it is needed for retirement income, no doubt there is a live for today mentality within certain socio-economic groups.

    Whether they have an efficient drawdown strategy in place becomes irrelevant, as is the choice of securing an income with an annuity at poor gilt rates. If you have not saved enough then there is no magic formula which can change things.

    The Government, in this case the tax grab by the now ex Chancellor, have caused their own problem, and it is of little use to wait for others to come up with a solution. the industry can only do so much, but if legislation is at odds with commonsense then this is the outcome.

    The simple facts are that people will either have to work longer or save more, investment strategies and low costs have minimal impact on the overall outcome. As advisers we can do a good job for those that save enough, we can enhance returns and maximise tax efficiency to make the pots last longer, for others we are expected to pull rabbits out of a hat.

    • bobchampion says:

      I don’t believe its a case of people deliberately not saving enough. We are currently in the eye of a perfect storm.
      The move from DB to DC has over the past couple of decades reduced the amount of retirement savings being made, particularly by employers;
      Earnings are still below 2007/08 levels constraining the ability to make additional voluntary savings more difficult
      An annuity requires 90% more today than in 2005 to produce the same real income.
      All other things being equal, retirement income is a commodity that reduces in price the older you are. Also current economic conditions will not remain for ever.
      Those wanting to retire now need to think about how they fund the early period of their retirement.
      Most have housing wealth which is a form of savings. Equity Release interest rates are at record lows, should they consider dipping into their housing wealth?

  4. Geoff Sharpe says:

    Agreed Bob, the death of DB has taken away the safety net for many people, who cannot afford the equivalent funding rates required to match DB benefits. When the problem hits Public Sector workers due to the unsustainability of their schemes, it will become a political issue. Saving must be a habit, just like insurance, both are protecting lifestyles. The old age problem is that if there is not enough income to achieve everything, retirement saving can be seen as a lower priority.There is a clear distinction between those who cannot save, and those who will not, the latter being the ones I referred to in my point. Those who cannot save have probably decided to work longer if they can, others will expect a State handout which will not be forthcoming.

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