Someone else’s idea of fun!

I am on the same page as Charlotte Clark of the DWP, I don’t think we should be asking people to engage with our pension, state – occupational or private.

Saving for our retirement needs our attention but when we’ve got to the point when it starts paying us back – shouldn’t we be entitled to relax and let the money flow?

I found myself in the frustrating position last week, of having to listen to debates on “sustainable rates of withdrawal” which typically culminated in an emphasis on the need for regular meetings between an adviser and his/her client.

Quite apart from the cost in terms of advisory time, I really wonder if this is what I want to do with my later years. Charlotte and I are on that same page. And as we all know, our capacity to “engage” in the sustainability of withdrawals will only decrease over time.

This is why I love this tweet

The trouble with unpooled (e.g. DC) pension risk is that it is one-sided: there is little joy in dying with lots of money left over, but lots of pain in running out before you die.

— Chris Fox (@chriscfox) July 12, 2018

Pensions should not be a struggle

Reading the PPI’s Evolving Retirement Incomes report is very difficult. There is no pretence – pensions are and should be hard work.

Rather than make products easy, the PPI demand that people face up to the complexities of managing their money in later life. Backed by sponsored by the Association of British Insurers (ABI), AXA Investment Managers, Department for Work and Pensions (DWP), Legal and General (L&G), NEST, Prudential, The Pensions Regulator (TPR) and Wealth at Work, this appears the industry view.

Chapter 2 of the paper sets us an exam question

“How can individuals achieve positive retirement outcomes within the existing landscape?”

The answer is no easier than the question

Decisions about how to access pension savings in order to fund retirement are particularly complex since the introduction of pension freedoms. Many individuals struggle to understand financial fundamentals such as tax, probabilities and inflation risks or how investments and retirement income products work. Individuals also often struggle to understand charges, risks and value for money.

Many people have not given much consideration to how they will access their pension savings in order to fund their retirement. Even among people who have already accessed their DC pot, understanding of the decisions they have made is relatively low. As the average level of DC savings among those reaching retirement increases, the impact of decisions made about access will grow in significance alongside the potential for harm if people make decisions which have a negative impact on their financial wellbeing.

Therefore, the need for support through advice and guidance will grow over the next ten to fifteen years and beyond.

Pensioners are born free but everywhere they are in chains

To me it is entirely unacceptable to sell people the idea of freedom from annuities but to offer them no viable alternative but a lifetime of thraldom to financial advice.

The PPI report suggests that automation may bring down the cost of advice but offers no hope that individuals will be free of the need of it. The FCA’s idea for default investment pathways is met with a similarly dismal response.

The level of ambition is startling low. We are reduced to speculating on possible cost reductions over time and protecting people from the “worst outcomes”.

The idea that anyone is wanting to engage with pensions on this basis is awkward. Far from offering pension freedoms , we seem to be in a kind of aimless limbo.

If there is to be progress, it will not be to make life easier for the pensioner.

Innovations in communications and support could increase levels of engagement prior to retirement and improve retirement outcomes

The pensioner will have to work for their “retirement outcomes”.

On this blog over the past ten years I have tried to introduce the ideas of a Pension PlayPen, of Sunny Uplands and of Popcorn Pensions. I want people to be released from financial strain in later life. It was never in the plan for people to have it increase levels of financial engagement prior or in retirement.

We need something different than this

We know from the FCA themselves that 94% of us do not go to visit an IFA on a regular basis (if at all). The PPI is expecting this to change but this seems unlikely. The IFAs I meet are at a comfortable capacity and don’t seem too keen to be taking on new clients (unless they are substantially rich). There are not a lot of young financial advisors.

The cost of advice for those who haven’t substantial assets against which advisory charges can be set – is prohibitively high for most people. Consequently most people will need non-advised solutions.

Reading the PPI report , there seems to be little scope for product innovation. But those of us who remember back to the eighties know that there are alternatives to guaranteed pensions. There are non-guaranteed pensions and these can be paid from DC pensions. We call them CDC pensions.

You do not have to engage with your CDC pension , you can get on with your life confident that you are getting a wage for the rest of your life. Doesn’t that sound rather more appealing than the alternatives outlined above?

It should be this good