“Yesterday I ran a blog complaining not about fake news but about misinformation accompanying the news. MOMENTUM – hang your head in shame!
The news Momentum has is that the vast majority of people over 55 still don’t know when they are going to retire. There is of course an easy way to find out when your state retirement age is but the Momentum press release decided to ignore the complicated taper that means those over 55 get their state pensions not just down to the year but down to the month.
As the value of a full state pension (already around £300,000 on a free mark to market basis) is increasing every year due to the triple lock, Momentum’s story could have focussed on ignorance of the (relatively) new rules for the over 55s and the importance (post WASPI) of planning around the income the new state pension provides.
Instead, their survey focussed on an amorphous concept “the affordability of retirement”. It is almost impossible to predict. How people “know” when they can afford to retire from as young as 56 is beyond me!
If you ask someone to predict their financial circumstances in five years time, you are asking a difficult question that calls into question health, capacity to work, inclination to work as well as someone’s financial circumstances. We know for instance that once kids leave home, divorce rates surge – we know too that the workplace for a 65 year old offers a different set of opportunities than for someone ten years younger. But we don’t know how the cards will fall for us.
All that we can readily do in our younger years is establish insurances for ourselves against our later life. I would recommend stability in relationships as a good insurance but recognise that factors such as “love”, “self-respect” and “adventure” can trump financial security. Similarly with health and with personal liabilities like second families.
We can “afford to retire” only when a series of circumstances align themselves, probably the most important of which is that our expectations for the future are matched by our perception of our financial resources. I use the word “perception” because there are a lot of 70+ year olds who return to work either because they cannot live without work or live without work’s wages!
One of the dictums which made sense to me as a young adviser was that a pension “insured someone living too long”. The certainty of a defined income paid till death us do part is the soundest insurance, it is what the state pension offers. It is what is given up if you take benefits from a defined benefit scheme and invest them privately.
There has been very little research done on people over 80 living by their wits on their investment income. I suspect that this is because there are relatively few people with drawdown policies that have survived the past 20 years (both personally and financially).
It would be easy to research what is going on, SIPP providers and insurers can see the financial consequences of decisions taken, but have no idea what motivated the spending strategies of those in later years. I would be pretty sure that the data-set would be limited and distorted by the high levels of financial awareness, advisory support and back-up wealth available to the over 70s with extant DC pots.
So , for the people Momentum are asking, there is no way of knowing whether they can afford to retire – or even that they have the insurances in place to ensure they can live comfortably as long as their bodies let them.
As I have tried to patch-out, the certainty that we can afford to retire is based on a general sense that things will be alright that covers liabilities, health, life expectancy and (return to work) expectations. It is foolish to expect the majority of people to have that certainty. The best that we can hope for is that people are financially aware enough of what is likely to happen , to feel they have insurance.
One of the things that the financial services industry can do, which I have yet to see it attempt, is to accept that for most people the insurances against living too long are
- The security of home ownership
- The expectation of the new state pension (and older age benefits)
- On-going capacity to work.
The amount in private pensions will vary, but we know from Unison figures that even those in public sector pensions only average a £4,500 DB entitlement, just a little bit above half their state pension.
The average DC pot is still under £40,000, which would buy a DB equivalent annuity of not much more than £1000 pa.
For most people, even the relatively “wealthy” DC investor, the contribution from their private pensions is dwarfed by the equity in their homes, their state benefits and their on-going capacity to work.
This sense of perspective is sadly lacking in the financial services industry. Why I was so annoyed by Momentum’s sloppy press release was that it implied that people’s retirement savings were key to making retirement affordable; in doing this they dismissed state pension entitlements to a sweeping statement about state retirement ages – which was wrong.
It is in the interests of those selling savings and drawdown products to promote the value of saving and spending these savings as the key to an affordable retirement. But for most of us it is not key. What is key is that we understand our big assets, how they work for us and what we can do maximise the private savings and insurances we have built up – so that we can afford to retire.
Jeff Prestridge has written a brilliant blog in the Spectator this week http://tinyurl.com/j6466ff in which he complains we no longer have a pensions system. (just a mess left by the Treasury). We all know that the Treasury no longer recognises pensions as is evident by their Christmas savings info graphic.
Not only has Government destroyed the private annuity, they have squashed the defined ambition project and mothballed CDC as a collective way to spend our savings. No doubt they do not see the payment of national insurance as part of our “saving for retirement” either – the state pension does not sit easily on this glib info graphic
In the absence of any reasonable way of converting savings into lifetime income, the DC/ISA savings that we have are the last thing that we think about when asked the question “when can we afford to retire”. The technology solutions touted by the “wellness” brigade are glib nonsense, they are no more than a placebo, they are not a cure.
It is time those of us in this game adopted a little humility and respect for our customer’s difficult decisions. The very least we can be is accurate in the information we give them. Momentum should be more careful in future – so should the Government!