Pension = Wage for life

wage in retirement

Sloppy journalism confusing readers.

A quick scan of the Daily Telegraph’s Money Pages leaves me hopeless at its hapless reporting of pensions. Somebody should sit down with the whole personal finance team and read them the riot act.

Take Mike Walls

Mr Walls, 64, spent most of his career as a golf club manager and intended to pay for an extension and kitchen refurbishment using withdrawals from his £100,000 pension, held with Royal London

Mike has not got a pension of £100,000, he has saved £100,000 towards the cost of either buying a pension or providing himself with an income. Nowhere on the packet did it say that this was a plan for extensions and new kitchens.

How many people are today confusing the pot for the pension? I suspect many more than we’d like to think. Talking to TPAS, it is a regular confusion and one that is reinforced by this kind of journalism.

Now let’s move on to the second story in the digital edition of Telegraph Money.  Royal Mail’s improved offer of a Pension Plan to staff. What the staff and their CWU union have been asking for is what they have already got – a wage for life. A wage for life paid for from one great big pension pot according to what is in the pot. This is eminently sensible , by-passing extension and new kitchen plans (which can be paid for from tax-free-cash BTW) and focussing on the lifetime need for income – one that is common to most ordinary people.

What the Telegraph does not make clear is that the choice being made to Postal Workers is between a lump of money which depends on investments (defined contribution) and a lump of money paid on a defined basis (cash balance). Neither of these offers is a pension, neither is a wage in retirement. Royal Mail is offering a choice of two things neither of which is what postal workers get today or want tomorrow. Once again the Telegraph confuses between a pot and a pension and let their readers down.

The myth is perpetuated everywhere you look. Here is my old mate Sam Brodbeck talking about cashing in a defined benefit pension and getting a “defined contribution pension “. What is a defined contribution pension? Is it an annuity – read George Osborne’s lips – it’s not an annuity anymore”. Is it an investment drawdown….  ?occasionally, and even more occasionally an advised drawdown.

In case the Telegraph think I’m picking on them, I know it’s the same elsewhere, but that does not make it alright.  Organisations like the FT are reporting responsibly, which shows it can be done!


The macro de-risking agenda

It looks like the idea of a works pension is something you get from the Government. Everyone else gets cash. Philip Hammond is now using this argument to hammer down public sector wages.

On the BBC’s Andrew Marr Show on Sunday, Chancellor Philip Hammond said public sector pay had “raced ahead” of the private sector after the economic crash in 2008.

He added that when “very generous” public sector pension contributions were taken into account, public sector workers enjoyed a 10% “premium” over their private sector counterparts

It is the macro de-risking strategy that takes from the worker and distributes to the shareholder.

  1. Devalue private sector pensions
  2. Make private sector “total reward” less valuable than public sector reward
  3. Devalue private sector wages to compensate for their exaggerated reward
  4. Blame public sector pensions

Guess who are the winners, the shareholders and the Treasury. Guess who loses- everyone who is not in the inside circle where reward is concentrated.

It is small wonder that people don’t trust pensions. One minute you are on a promise, the next minute you have that promised pulled. One minute you are guaranteed a pension, the next you have your wages capped at 1% to pay the guarantee.


Confuse and control

The general public are now quite confused. The media add to the confusion by talking about £100,000 pensions (which are no such things), defined contribution pensions (that don’t exist) and cash plans that purport to being a “wage for life” but are just more of the same.

It is not for nothing that CETVs are being paid at 30 to 40 times the pension forsaken. That is what it costs to guarantee an inflation protected income for life to a family.

A £100,000 pension pot converts to a wage for life of between £2,500pa to £3,000 pa. Infact it’s worse than that as individual annuity rates have to factor in profits for insurers and don’t get an occupational pension scheme’s economies of scale.

All this talk of “sky high transfer values”,  needs be set against the cost of a “wage for life” which can seldom be met from private management. The issues Mike Walls with the tax-man are nothing compared to the issues he’ll have if he’s left with a fine house and nothing to pay his council tax with.

We are confusing short-term financial solvency with financial well-being. When we lose the ability to earn, we need a wage in retirement. The fall-back of the occupational pension scheme is being eroded from every quarter and we are doing little to replace it but boast about new extensions, new kitchens and fine bank balances!

The CWU are being deeply responsible in guiding their members towards a wage in retirement, Royal Mail are badly advised to persist with the Hobson choice of cash or cash. The FCA are waking up to the reality of “pension freedoms”, people like Mike are finding out that freedoms need tax-management beyond them and all this time, the roll-back of pensions continues as CETVs are recklessly promoted.


This confusion must end; a pension is a wage for life!

We must stand up for pensions. We can’t allow this relentless dumbing down to cash to continue. We must get a new affordable way of providing pensions as a wage for life.

The answers are in the rulebook – we just need to do the colouring in . Roll on  “collective target pensions”  and a return to a time when pension risks were understood and shared.

target pensions

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, advice gap, pensions and tagged , , , , , , . Bookmark the permalink.

4 Responses to Pension = Wage for life

  1. John Mather says:

    Henry it seems that the concept of an income for life worked reasonably well when a job was for life.

    However people with the help of medical science decided not to cooperate and refused to die on time.

    The buffer in a pot to smooth the cash flow of the sinking fund was not adjusted and value of the sinking fund was attributed to individuals who were given the choice to leave it to grow or shrink or to take under their own control

    A spell is cast (Relavant warnings) that unit prices can fall as well as plumet, the past is not a guide to the future, MPT and the adviser is excused with this giberish The spender nods wisely

    Wage slaves work for savers and spend more than they earn. They congratulate themselves on their increasing wealth as the policy (thanks Mrs T) on housing removed the link between savings and available mortgages and allowed the capital base that fuels borrow to consume and support a failing economy

    The industry blames the symptoms like commission while clinging to ad valorum for themselves backward looking arguments in public destroy any faith the public have which fuels and forgives the lunacy of borrow to spend now.

    The disease is productivity, lack of financial education, over use of the word “Simplification” and a failing economy.

    Of course that is Johnny Foreigners fault so let’s screw up the fragile economy even more and make films about the Dunkirk Spirit.

    Liked by 1 person

  2. Michelle Cracknell says:

    Transfer values are high because retirement is expensive!

    Liked by 1 person

  3. Robert Davies says:

    Henry, I totally agree. The level of knowledge among personal financial journalists is simply appalling.

    Liked by 1 person

  4. Peter Beattie says:

    Henry. Oh what a mess the professionals have got us into! All these new rules the government have made to confuse the 21st Century pensioner and yes ‘trumping the shareholder and government’ over those that should get what they paid for! Leaving us 20th Century pensioners to struggle along with depleted income in old age without any means of financial extraction or any workable compensation when ‘what we paid for’ vanished overnight when our pension ship hits those hidden rocks. No reviews of the old rules like FAS, no means of taking correction action due to government protecting its ‘copper bottomed interests’ and keeping flexibility to tax those that can least afford it to balance ‘the ship’s cargo’ that was originally loaded incorrectly. We still are unable to challenge Parliamentary Sovereignty.

    Peter D Beattie – PPF/FAS/EQL pensioner

    Liked by 1 person

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