Pensions need trust not more blue-sky concepts.

trust

I’ve  received a request from a journalist

I’m working on a programme about pensions that needs to be ‘blue sky’, conceptual and not mention the word pension
I’m familiar with this kind of thing. There’s a view in the world that the word “pension” puts people off. I think it more likely that the experience people have had buying a pension is the problem.
Without over-rehearsing old ground, the problem comes down to three complaints
  1. pensions are too expensive (the corollary of “transfer values are fabulous”)
  2. saving for a pension in a pension plan is a rip off (charges/commissions/hidden fees)
  3. Buying a pension’s a risk , I might not live long enough to get value.

So Osborne rallied the troops with the populist mantra “no-one ever need buy a pension again. It worked, once we knew we didn’t have to buy a pension retirement savings became real again. For millions of people George gave them back their property rights.


“Conceptually” pensions no longer exist, in a “blue sky world” pensions are clouds. And here we have the problem, blue sky worlds are fine for a holiday but we need clouds and rain and snow to keep the world healthy.

The blue-sky concept is very popular, it even has a pension named after it, but it is not linked to sustainable futures. You may as well burn up all the coal in the world in the hope that you won’t be around to see the devastation! Pensions are a social insurance with a quite different purpose from the management of wealth.

Steve Bee and I had a little contretemps about this on twitter.

Screen Shot 2017-06-17 at 09.57.12

Steve got a lot of likes for calling me a pedant but he is wrong. Pensions are not lifetime savings, they are what lifetime savings turn into with the help of skilled financial craftsmen. To design an annuity and properly price it takes skill – you are guaranteeing something. The same goes for other defined benefits – like scheme pensions, it is hard work to make sure people get their pensions paid in full without bankrupting employers and future savers.

Most famously, we run a state pension system which most definitely has nothing to do with lifetime savings at all. The trouble is that we are forgetting all about the craft and skill and focussing on the blue-sky concept – as if we had only just discovered drawdown.


 

Trust is the answer

It seems to me pensions work best on trust. Pension contracts are all very well but they have not worked very well so far.

I don’t know what I’m going to say to this journalist chap, or how I’m going to say it! Am I supposed to be the person with answers? If so , my answers are to look to the past, when we ran a workable pension system on trust.

That means going back to basics and working out the principles we want to order the financing of older age. If that is what the concept of blue-sky thinking is about – we may have something to discuss.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Pensions need trust not more blue-sky concepts.

  1. DaveC says:

    The answer is to look to the past?

    When the Western Ponzi still had life in it to allow the past solutions to work?

    How does compounding OR annuity insurance work in a world of near zero economic growth?

    The best pension is one that government and their tax/financial cronies have as little to do with as possible.

    And what did Osborne do? AE?

    AE is just NI 2.0

    AE will be an irresistible pot for an increasingly insolvent government to plunder.
    They’ll just ‘borrow’ more of your children’s and grandchildrens economic prosperity to give today’s generation what they ‘deserve’

    It’s a pyramid.

    It wouldn’t be so bad if the people we were stealing from were strangers, but they’re our beloved offspring!
    And we enable government to do it!

    Like

  2. John Mather says:

    I am surprised that given the results achieved that you are such a fan of pensions The promise is fundamentally flawed and the reality is that it does not deliver The ones that get close are public servant arrangements paid and underwritten by the many for the few. Once you realise that
    then the challenge is to turn this adversity to advantage. To me my pension is there when I am incapable of providing for myself and those who depend on me to provide. It’s only advantage is the favourable tax deferment and because the “few” have their gravy train endangered the one for the many needs to be restricted and the basic tax promise reneged upon. What really matters is life balance. I find I need two months of economic activity to finance one month of unstructured enjoyment. The next challenge is to achieve the economic necessities in less days per week and less hours per day. The danger is not being a pedant but by starting the debate with an agenda set by others rather than self. We have only one life, live your own not another’s Strive for life before death

    Like

  3. The Bear says:

    Joe and Joanne Bloggs on the street have differing images when you use the word “pension”. It’s second only to the word “mortgage” in misuse between its meaning, meaning in financial circles and what it translates to as word-on-the-street, or word-in-the-pub.

    Ditching the word, and talking about concepts of “money-to-pay-for-things-when-you’re-not-working” is the only way to go!

    Like

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