We need pensions not pots

We are busy saving into pots that provide no pensions and turning future pensions into pension pots. Let’s be clear, we are not making later life simpler by offering pension freedoms, we are making it more complicated.

Those who talk about “simplifying pensions” need to be clear that this will mean reasserting the public perception of a pension – aka a wage for life – as the default. Our money must – unless we choose to opt out- purchase a pension. Because the aim of  retirement saving is to provide the security of knowing that our money will not run out before we do.

Prior to the creation of the modern welfare system, people relied on families and – in extremity – the poor house. The creation of the welfare state and subsequently the private system of pension saving that has evolved into auto-enrolled workplace pensions is stated eloquently below.

We tax and spend to ensure that those who are most vulnerable in society do not become a burden on future generations and are not left in a state of harm as they face their final years.

Rather than compel its citizens to save, the community relieves those saving for retirement of the burden of taxation to prevent them harming others through destitution.

Right now we are requiring them to save without showing them the purpose of saving. We have given up on the morality of retirement saving which is to save us becoming a burden on others – to use Mill’s phrase – “saving us doing harm”.

More than a third of us admit to having no financial plan for later life

The FT is reporting on research carried out by LV= which suggests that more than 10m adults in the UK have no plan for retirement that gives them confidence they will stay solvent in later years. For these people , the only safety net will be universal credit – unless a way can be found to convert their pension savings into a pension.

These 10m are not feckless, they are just finding it hard to solve what Bill Sharpe called the nastiest, hardest problem in finance. They  include a former chief economist of the bank of England

This state of affairs is the direct result of our failure to provide a proper way of turning pots into pensions and a means of restraining people from turning pensions into pots.

The irony is that people are serious about saving

The magic of payroll deductions and compound interest means that most people will arrive at retirement in future with a pension pot that dwarfs other forms of saving. Even today, the average aggregated pot size (thought to be around £60,000) is likely to dwarf other personal savings balances. Yet £60,000 only purchases around a quarter of the state pension.

People know the jeopardy they put themselves in by not saving and are saving in numbers never seen before. The exponential growth in the assets of master trusts (People’s Pension has north of £15bn, Nest north of £20bn) reflects the success of auto-enrolment.

New research from Pension Bee reveals that only 18% of respondents regretted automatically paying into their pension during the pandemic, citing either poor performance of investments or financial difficulties.

The majority of respondents (75%) were happy to be auto-enrolled in a workplace pension during the pandemic, with 33% stating that it highlighted the importance of saving for the future. Pension Bee also found that 83% of respondents agreed that all workers should be automatically enrolled, regardless of annual earnings or age.

The message is clear, people take retirement saving very seriously and want more rather than less impulsion.  The pandemic has not changed people’s determination.

Research conducted by NEST has found that while there was a small rise in incidences of opting-out (reaching 12-13%) at the beginning of the first lockdown with a further spike in the summer, by September 2020 opt-out rates had stabilised (at 10%). In the first quarter of 2021, opt-out levels matched those in the second half of 2019 indicating no significant change in attitudes due to the pandemic.

All dressed up with nowhere to go

So there are two quite conflicting things going on. Firstly there is auto-enrolment which shows a nation getting behind retirement saving , even through a pandemic.

Secondly there is retirement planning, which shows a third of the nation’s savers as lost as Andy Haldane about creating an income that lasts as long as they do.

Surely there is a responsibility on those who manage these great chunks of money – I mean the likes of Nest and People’s Pension , to find a better way for their savers to deploy these pension pots to provide a wage for life?

I am pleased to hear that when he returns from his summer holidays, the Pensions Minister (and Minister for Financial Inclusion) will be canvassing these large workplace pensions for their attitude to providing pensions from the pots they manage.

These master trusts are founded and their apparatus funded by a range of organizations including insurance companies and pension consultancies. Some are owned by unions , others have been created by trade associations and from the charitable sector.

As employers increasingly choose to participate in these multi-employer schemes, the challenge on those schemes increases.

We need pensions not pots, wages not wealth. For the majority of those saving for retirement the promise of an income for life based on the best endeavors of those managing their pension plan is enough.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to We need pensions not pots

  1. John Mather says:

    “Right now we are requiring them to save without showing them the purpose of saving.”

    Really!! I would have thought that the fear of joining this group
    “10m UK pensioners risk running out of money”
    Would be enough motivation.

    The reality is that the period of earning needs to sustain the individual for all their life and retirement accounts with tax deferred are the responsible answer requiring the individual to embrace deferred gratification. Those that cannot save have a poor option in a bankrupt welfare system and one of the worst State pensions in the civilised world.

    Working against that is the fiddling that government,with a short perspective on re-election, encourage debt to give instant gratification. Masking the real problem long term planning to improve productivity and wellbeing

    The U.K. has been selling the family silver since McMillan The problem is productivity. Brexit is the tipping point helped by pandemic debt greater than after WW2

    The Country is heading out of the G20 on the route to nowhere. The apathy red top brigade win again.

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