Retirement – where is thy sting?


Gareth Morgan

At over 2600 words, this is the longest comment to appear on this blog. It is written by Gareth Morgan who’s focus is not on “wealth” but on the alleviation of poverty. This blog is his critique, not of Pensions Bee , but on a pensions industry that is looking after its own.

Text in bold is taken from Pension Bee’s report , which is a platform for Gareth’s argument.

Drawdown doldrums

Pension Bee is a company which has a lot of useful information on its website, which Is great (although I’d point out that its pension calculator assumes that everyone will receive the full New State Pension, even those who are of old basic pension age, or who don’t have a full contribution record).

What I’m writing about here is not meant to be critical of them, in fact I’d praise them for trying to provide people with information.  Providing more accessible information is to be welcomed.  I’m just spurred by them into, again, looking at the failings of the pensions industry.

It’s just published a research report, aimed I suspect at professionals, which is “highlighting the barriers and challenges faced by those making plans to access, and at the point of accessing, their defined contribution pension”

Drawdown Doldrums: Barriers and challenges faced by people accessing their defined contribution pensions

I’ve put a detailed post on my blog, at , which comments on, and quotes,  sections of the report. Here I just want to use the report to make some points about the pensions industry and its awareness or concern about low income people who may depend on the benefits system.

I will make one additional comment about the wording, however.  It uses the prevalent description of pension savings, which is common in the industry, – ‘wealth’.  It may be a great marketing term but there are few words more likely to say to low-income people that a document or scheme is not intended for them.  Not a lot of minimum wage workers will see references to wealth in retirement as having much relevance to their circumstances.

I’m using this report, perhaps unfairly, as the excuse to make these points because nowhere, that I’ve seen, has any industry commentator mentioned what I see as a huge omission.

The report is 94 pages long and, in all the text, there is not one mention of means tested or disability state benefits.

Not one word!

In my opinion, that’s an unforgivable omission.

There is one mention of state benefits in the report, in a chart which shows that about 10% of those studied have income from other state benefits than their state pension. Interestingly, it shows that the largest group receiving other state benefits are those who have already accessed their DC pensions. This would imply that their use of the pension savings that they have, has been insufficient to lift them off state benefits. It also means that there may have been little value in using their pension savings, because, in many cases, the pension savings taken will simply reduce the amount of entitlement to state benefits.

As this group formed a substantial element of the study, the interaction with means tested benefits would certainly have benefited from being looked at in some detail.

The impact of, and on, state benefits of pension usage is, unfortunately, omitted throughout the report and this needs to be pointed out. Neglecting to consider the importance of other state benefits to those in, and approaching, retirement may lead advisers, and providers, to inadvertently mislead their customers or to fail to provide comprehensive and accurate information to people making these very important decisions about the use of their pension savings.

I want, therefore, to comment on some areas of the report where I think this omission will affect the conclusions or recommendations. This should not be taken as criticism of the report’s contents in themselves.

 … As a result, only half had thought a great deal about how they would manage throughout their retirement.[1]

While this is undoubtedly true, it also demonstrates the level of ignorance about the availability and importance of means tested benefits. Pension Credit and Council Tax Reduction are both benefits which are not claimed by an extremely high proportion of those entitled. The main reason for this is ignorance of the benefits themselves or of potential eligibility. Anyone providing advice or information about income in retirement, should include state benefits in their content.

People are accessing their pension early, leading to them paying too much tax and losing out on potential returns. There were two main reasons for this[2]:

  • Accessing pensions had become disconnected from retirement: Accessing pension funds early has become the norm, with two-thirds of pension pots being accessed before the age of 65 and those working were more likely to say that they accessed the money in their pension fund to help them meet day-to-day expenses.
  • Many people do not feel in control of their pension and want to take control of the money by withdrawing it and putting it in a Savings account or other investments: A desire to take control of their pension by taking the money out was the single most popular reason which had prompted people to access their DC pension.

There are other dangers in accessing pension savings early. Pension savings, for those under state retirement age, are completely disregarded in the assessment of entitlement to means tested benefits. Once withdrawn, however, any income or capital will be taken into account in the assessment of means tested benefits. Income will reduce the entitlement to means-tested benefits, penny for penny, leaving people with no net increase in income in many cases.

Taking capital and putting it into a savings account, or other investment, may disqualify the saver from benefits entirely, if the amount puts capital over £16,000, or reduce benefit entitlement through the tariff income assessment.

Where the reason for withdrawal is to meet day-to-day expenses, the first step, before withdrawing from the pension, should be to make sure that any benefits to which the person is entitled have been claimed.

Retirement income products[3]

People are making choices about retirement income products without considering important factors which might influence their decision: Many people choosing retirement income products are failing to consider important influences on their choices such as the investment risk, their health and tax considerations.

Taking the full 25% tax-free lump sum acts as a strong anchor: The desire to take the entire 25% tax-free lump sum acts as an important anchor for people, even if they do not have a need for it or a plan for what to do with it. For those who just took the 25% lump sum, around a quarter put some of the money into a current or savings account to save for a rainy day and 11% used the largest share of the money they withdrew in this way. 11% used the money to save in a Cash ISA and 7% used the largest share of the money in this way.

As above, the factors mentioned are important but omit the way in which the decisions may have serious benefits consequences. These are decisions which cannot be undone later, when, perhaps, the impact on existing or potential benefits becomes clear.

Withdrawal amounts[4]

Decisions about how much to withdraw each year and when to review it are complex and pension providers are doing little to help people understand sustainable withdrawal rates or to develop withdrawal strategies:

Considerations about how much to withdraw, when and how are even more vital where state benefits are concerned. There is a complex relationship between the notional income figure, which is assessed on untaken pension savings, once state pension age has been reached, and the reduction, or even sometimes increase, in state benefit entitlement caused by the withdrawal. Very few financial advisers, or providers, seem to understand this or to understand the onerous duties placed on them to reassess and inform the DWP after each withdrawal.  There is no mention of the implications of deferral of state or personal pensions.

What to do with the money[5]

People accessing their pension are not blowing the money but are using it in ways, such as keeping it in a savings account or cash ISA, which could reduce their long-term retirement income: 22% said they had saved the largest share of the money they withdrew from their pension in a savings account or cash ISA and 14% said that they had invested it elsewhere.

Again, the effect upon state benefit entitlement can be very large. For those making withdrawals below state pension age, the effect may be catastrophic in terms of day-to-day income. People who use their withdrawn money in ways that are considered to be deprivation, such as helping adult children, may face profoundly serious problems.

Making plans / before access[6]

  • Understanding their income needs in retirement:
  • Maximising income from other sources before accessing their pension.

Income maximisation is a core part of helping people to understand and improve their financial situation. In all areas of money advice, the first step of this process is to ensure that people are receiving all the benefits to which they are entitled. For those approaching retirement this needs to recognise their situation after changes, such as age and the loss of earnings.

Point of access[7]

  • Decisions about which type of retirement income product to use: Full withdrawal vs annuity vs UFPLUS vs income drawdown?
  • Guarantees: Are people aware of and do they take up any Guaranteed Annuity Rates?
  • Tax considerations: How much tax will be paid on the money they withdraw?
  • Investment options: Where is their pension invested?
  • How much to withdraw: What are people’s views regarding sustainable withdrawal rates?
  • What to do with the money: What have people done with the money they have withdrawn from their pension?

Assessment of entitlement to benefits, when considering making use of DC pensions, should also be an important addition to this list.

Impact of the coronavirus on decisions about accessing DC pensions[8]

22% agreed that they were more likely to make a withdrawal due to the pandemic, 13% that they were more likely to cash in their entire pension, and 17% agreed that the pandemic made them more likely to take money out of their pension to put in a Savings account.

Many of the people affected by coronavirus will have joined the huge number of people who are now claiming Universal Credit. Withdrawing part, or all, of their pension is likely to reduce, or stop, entitlement to that benefit. If advisers and providers are not able, or willing, to help them to understand the consequences of making use of their pension, at this time, then they may make poorly informed and damaging decisions.

Background on their finances and the relative importance of DC pensions wealth in their total assets and what other sources of income they expect in retirement[9]

The first stage for any person accessing their DC pension will be to take stock of their financial situation, their existing assets and the sources of income they will be able to access in retirement. They will also need to determine or have a rough idea of how much income their assets will generate in retirement. The income they would expect to receive would be divided into two categories:

  • Secure sources of income: State Pensions, Final-Salary schemes and annuities which will continue to be paid no matter how long that person lives.
  • Variable source of income: DC pensions, cash savings and income from other investments which, depending on returns and longevity, could run out or need to be reduced.

There is a third category which seems to have been ignored – state benefits. Very many holders of DC pensions will be dependent upon state benefits after retirement. This dependency will increase for those where disabilities commence or become more severe and for those in rented housing, if rents continue to outstrip the rates of benefit.

Maximising income from other sources before accessing their pension[10]

Again, there is no mention of the importance of state benefits

Prompts for people to access their pension[11]

Income for day to day expenses: 28% said that they had been prompted to access their pension as they needed extra income to meet day to day expenses. Those working or temporarily unemployed were more likely to cite a need for extra income to meet day-to-day expenses as a prompt to access their pension (34%) than those retired (21%).

However, although accessing their pension was supposed to be for extra income, most reported to have taken lump sums, including 60% who said that they had just taken just the 25% tax-free lump sum.  This reflects other research which found that to get a regular income from their pension was only a key motivation for a very low percentage of people accessing their pension by moving into income drawdown.

Sadly, it is not uncommon for people in need of extra income to be unaware of their entitlement to state benefits. Helping somebody to withdraw money from their pension savings, without considering benefit entitlement, would be a very unfortunate activity. Taking the lump sum may be seen as a tax efficient way to realise short-term income for short-term day-to-day needs, but should be a last resort after checking what state help was available.

pb 61

Figure 1, which appears on page 61 of the report, appears to show the sources of information which the author considers to be useful to someone thinking about using their pension savings. It is notable for the absence of any adviser who might be able to offer help about benefits, or other many advice needs. There is no reference to Citizens Advice, welfare rights units or charitable or third sector advisers.

This report does not appear to recognise the importance of holistic information and advice around financial decisions. The best results for customers will be given by those who recognise the complex interactions, in this case, of the pensions, tax and benefits system. If advisers and providers are unable to offer that themselves, then they should ensure that their customers are able to access it elsewhere.

Tax considerations[12]

Are people at risk of paying too much tax when they access their pension?

Once again, there is a detailed, and important, discussion of the tax implications of making use of pension savings but there is no reference to the risks to benefit entitlement caused by the alternative ways of making use of pension savings.

What people did with the money withdrawn from their pension[13]

pb what

A chart usually lists the ways in which people used their pension withdrawals. Some of these have no effect upon entitlement to benefits while others might have a very serious effect. Failing to consider these effects, potentially other substantial number of people, misses an opportunity to educate and inform the recipients of this report.

Informing the customers can only happen when advisers and providers are themselves aware of the impact of these types of decision.

The summary of the effects of the way in which people are making use of their pensions, looks in detail, once more, at the tax implications and investment consequences but cannot find space to consider, at all, the effect on any benefits entitlement that there might be.


I have no reason to doubt that the report thoroughly and accurately covers its intended area.

I’ve also had a helpful email exchange with the author. He recognises that there should have been reference to the benefits issues and will be amending the content to reflect this. He also wants to make it clear that he was solely responsible for the content and that PensionBee shouldn’t be criticised for any omission.

My criticisms are aimed more at an industry which doesn’t seem to be aware of its own ignorance about low income savers or pensioners.

It seems to completely ignore the existence of any pension savers who might now, or in the future, depend upon means-tested benefits.

That there are millions of such people is not in doubt.

What is in question is why they are ignored by the financial services industry?

Gareth Morgan –  July 2020


About the author

Gareth is CEO of Ferret information systems

ferret 2

World leaders in welfare benefits understanding, assessment and modelling. Since 1987 (1980 if you count our time as a Citizens Advice Bureaux project) we’ve led the way in using technology to provide accurate and useful information and advice. With a record that includes the world’s first large scale roll out of mobile technology in government (1987) and the world’s first web based advice system (1995), we’ve put technology into service for the citizen for longer than anyone else. We’re still breaking new ground; with our ability to look ahead through the introduction of Welfare Reform and with our tools to support continuous client support we’re looking ahead to our second 25 years with excitement.



Page references

[1] Page 13

[2] Page 16

[3] Page 17

[4] Page 19

[5] ibid

[6] Page 23

[7] ibid

[8] Page 25

[9] Page 34

[10] Page 40

[11] Page 43

[12] Page 78

[13] Page 88

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Retirement – where is thy sting?

  1. Mark Meldon says:

    An excellent piece, so thank you for writing it. As an IFA, it is problematic that too many ‘colleagues’ seem to merely chase the money, so-to-speak. Whilst IFA businesses need to be profitable, there is a perception that we only want to deal with ‘rich’ clients – that, in my experience, isn’t actually true for many IFAs I know – we like to help.

    However, we have forgotten the basics, it seems to me. You know, ‘have you got a will’, essential insurance products (where affordable), emergency fund, pension saving, etc. It’s all about ‘assets under management’ – a rentier class of IFA has emerged since 2012, taking ongoing fees from client savings accounts for doing very little, in some cases. I do know several IFAs who will help with state benefits, advising on debt repayment, and basic saving, but too many don’t.

    I meet too many people who are just one miss-step from disaster – like the recent widow in my village with three small children cast upon the rocks and shoals of life because no-one ever mentioned life insurance to her late husband. Like the young man with a huge mortgage arranged a year or two ago by a mortgage broker. He has had a brain tumor – unable to work – no mention of critical illness insurance – disaster.

    If the predictions about unemployment are true, hundreds of thousands of people are on the cusp of making major mistakes with their pensions, I believe. We need to remember that a pension fund is to provide a pension, not just a ‘dip into pot’ (unless that suits the individuals circumstances).

    In an era of big changes to working habits, the old concepts of self-help and self reliance may revive. Help is out there to prompt people, but they don’t know where to look.

  2. Richard Chilton says:

    There are other complex interactions between DC pensions and means tested benefits. Some people won’t be on benefits now but will be able to claim them the moment they stop work, often after state retirement age. They may be able to get most value from their pension pots by taking them and spending them some time before retirement, rather than just getting their benefits scaled back after retirement. This could be particularly attractive if their health is in decline.

    • There are a great many possible interactions. That’s why holistic advice about pension usage is vital. Pretending state benefits don’t exist doesn’t help.

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