It’s worth subscribing to Paul Lewis’ weekly Moneybox blog, delivered to your inbox on a Friday afternoon.
This week’s mail addresses a central unfairness; those laying down the law on pensions are sorted , those they tell to “engage” – face “glacial” innovation from pension providers, high charges and little help from employers.
Here’s the magnificent splenetic outburst in full!
In case you missed it, Thursday was Pension Awareness Day. There was, of course, a bus and YouTube videos of people answering questions like ‘when should you start saving for a pension’. It was all part of the industry’s attempt to get us to engage with pensions. Because that, apparently, is what is wrong with pensions, a distinct lack of engagement by the public.
Employee Benefits magazine ran an article this month “How to create a year-round pensions engagement strategy”. FT Adviser told readers in July “Pensions engagement must start when young”. And in May Aviva warned “The lack of engagement with pensions is frightening.”
The Government joined the campaign this week by revealing the launch of the Pensions Dashboard. Junior Treasury Minister Simon Kirby made the announcement at the Aviva Digital Garage – yes there really is one – and Aviva’s Chief Digital Officer Andrew Brem joined him to say the dashboard would be “a vital tool in increasing engagement”.
No Pensions Dashboard was actually wheeled out of the Digital Garage. But a prototype will definitely be ready by March next year – a mere two and half years since the regulator first mooted the idea in December 2014. And it will be 2019 before an actual dashboard can be used by the public. Sometimes the financial services industry makes glaciers seem speedy.
The Dashboard will be an online scraper account bringing together all our pension pots into one place – so we can see the pots we know about and find the pots that may have gone missing. There will be projections of how little they will give us at pension age. And there may – we don’t know yet – be some information about how much leaks out in charges every year. Leaving us to engage and find a cheaper alternative – after exit charges – if we can.
One high profile person who does not engage with pensions is Bank of England Chief Economist Andy Haldane. Speaking to a City audience in May he confessed to “not being able to make the remotest sense of pensions…Conversations with countless experts and independent financial advisers have confirmed for me only one thing — that they have no clue either.”
Andy doesn’t have to engage. At the age of 49 he has already earned a pension from the Bank of £83,816 payable when he reaches 60 in 2027. That will rise by 1/50th of his £182,088 pay for every extra year he works (subject to the Lifetime Allowance cap). He knows the pension is safe because the bank is putting 54.6% of his pay into it. So he doesn’t have to engage.
That is the beauty of defined benefit pension schemes. You don’t need to engage. They are just there. A proportion of your earnings, index-linked and paid for life.
But hang on, I hear you say, aren’t they dying? Only 35 of the biggest 350 FTSE companies have an active DB scheme they are paying significant amounts into. The aggregate deficit of the 5945 defined benefit schemes is now nearly half a trillion pounds – liabilities of nearly £2 trillion minus assets of nearly £1.5 trillion. And many firms with a DB pensions are considering closing it down and arranging a buyout for the rump.
When they do of course they cut the contributions they pay and abandon employees to defined contribution pensions who then pay opaque and often hefty charges, and need more understanding than the Chief Economist at the Bank of England. And of course they are offered no guarantees. Except that after a lifetime of contributing the pension will not be enough to live on.