The argument is central to most pension debates at the moment.
There are some who would have everyone who reach 55 meet with an adviser.
Others who would limit the pension freedoms to those prepared to pay advisers to manage them
And there are some for whom the metamorphosis of MAS/TPAS into the single guidance body – will do the trick.
Everyone agrees that a Pension Dashbard would be a good thing, but as the days go by, the prospect of a 2019 delivery date seems less and less likely.
Meanwhile we have a broadly favourable global equity market , no reports of panic selling and an uber-prosperous asset management/advisory market for whom dark clouds are on the other side of the horizon.
We seem to have accepted that around 6% of the population take advice (mainly at the point of “crystallisation” (the point when drawdown starts). Presumably the other 94% are either DIY competent or expecting that something will turn up.
What will turn up?
Of the anticipated solutions, the only obvious answer to the needs of the mass market is to keep the relatively few open collective schemes – open and allow for the creation or conversion of open schemes in future.
As for the creation of collective schemes, these look most likely phoenixes of closed DB schemes (Royal Mail being the obvious example), all the master trusts look candidates for a collective approach post “crystallisation” and a good few of the larger occupational DC schemes – could also go that way.
I say this, not out of some abstract love of actuarial science, but because I can see no capacity among advisers, to manage the drawdowns of 145,000 postal workers,, let alone the 500,000 of us who reach 55 each year.
People are – by and large – waiting for something to turn up and – other than CDC – there ain’t nothing shaking but the leaves on the trees!
Back to Tully, Morrow and Cumbo
If I’m reading the twitter conversation properly, the world is being divided by Morrow into those who can do percentages and can manage drawdown, and those who can’t – who presumably need advice.
Tully’s position is that even those who can do percentages, shouldn’t be given the rope to hang themselves with
pension freedom oops – drawdown.
Cumbo questions whether the pensions industry is knowingly allowing its customer base to be driven to financial hell in a handcart.
Of course Jo Cumbo started this debate by complaining that she wasn’t being given performance figures on her pension (as percentages of assets invested) and had made it clear earlier in the debate that everyone has the right to know how their fund is performing.
These are hard and intractable questions and they beg a proper answer.
There is a substantial body of the British population who work all their lives, then stop and expect to continue to get paid a smaller wage till they retire. This group of people includes the self-employed, those who worked a lifetime without a workplace pension as well as the lucky ones who were part of occupational schemes. The vast majority of these people have made some kind of private provision for retirement but most of them don’t know what they invested in and what they’re likely to get.
The lucky ones have the capacity to understand the financial statements that they have to pick their way through, but they are few and far between. Even the experts struggle.
In reality, we have given people freedoms but with them , a series of difficult choices without the one thing they expected – that wage in later life.
In this miasma of information, the only certainty is the single state pension, but even that is a mystery to most people.
Is it any wonder that Royal Mail workers rallied around Terry Pullinger and the CWU’s call for a “wage for life”? Is it a surprise that the university teachers went on strike rather than be reliant on a DC pension pot?
The inexorable logic of the exchange between Cumbo, Morrow and Tully is that pension freedoms are for the privileged few who can afford advice and who have the time and energy to understand their DC pots.
This is of course wrong!
Most people (we know) will be able to muddle through their later lives, drawing down their pots at 4% pa and bodging money from their non-pensioned savings to meet their retirement needs. Many people will never spend their retirement savings, living uber-frugally rather than risk being financially dependent, One way or another – most of us will get through our later years (even if we do have to sell the house to pay the nursing fees.
That’s because the people “we know” are people like us, who read blogs like this. They are the 6% who will take advice and those who know (or think they know) enough to do it themselves.
What I am saying is wrong – because for my readership – the mass affluent – the current system is good enough.
But I am right in speaking for those who believed they would get a wage for life in retirement, and who are now being asked to answer questions on subjects were never on their syllabus
Neither adviser nor unadvised drawdown is right for many outside the financial services bubble, the people who don’t read my blog for whom retirement is looming like an undiscovered country.
These people were expecting a wage for life solution and not the challenge of providing themselves with an answer to the hardest problem in economics!
The time to innovate is now!
We are currently in the good times, times when the markets are going well, when mortgage rates are at historic lows and when employment is high.
But this will not last, there will be hard times again, for many austerity has never gone away and for most of us, the threat is that it will be back with us soon.
What we need to do now is to build the shelters for the vulnerable so that when the hard times come, they have a place for their finances to go.
- For those who want to manage their own money through retirement, we need to give proper information about what they have , what they should keep and what aggregate.
- For those who want a wage for life, we should give options to exchange freedoms for an organised dependable income.
- For those who want to be advised, we must help advisers to do their job – as efficiently as they can.