Are we defaulting people into retirement heaven or retirement hell?

Two tweets dominated my social media yesterday. The first was from Alistair McQueen  which drew excited comment for suggesting that we had lost the link between retirement and pension.


The second is from Ros Altmann, suggesting that the drawing of a pension is what people rely on to retire without being in poverty

;If Ros Altmann represents the “old and the bold” and Al Rush’s “retirement today” comment the “brave new world”, I side with Ros (while understanding Al’s reality check).

The article Ros refers to in her tweet was published by me 18 months ago when insecurity over Covid was at its highest. For many of us, a pension is an insurance against poverty and of the extreme poverty when we live longer than the retirement income we need in our final years. It was the security of income from a pension that the PPF set out to protect and it has achieved restitution for many who would otherwise have been stripped of their pension

The bulk of the population still relies on pensions not wealth

Concluding her article, Ros Altmann writes

1. there are no guarantees in pensions and people need to recognise there are risks which may reduce the amount received

2. pension ‘surpluses’ were really buffers against bad markets and actuarial assumptions need to make provision for both risk and upside returns (we’ve gone from over emphasis on taking risks in order to maximise returns, to an over emphasis on minimising risks (which means must lower returns) – both are wrong and I believe the aim should be to ;manage’ risks.

To me, managing risks is what pension schemes should do, they should manage the risk of people not getting a wage in retirement sufficient to keep them out of poverty, with the risk of limiting the financial aspirations from a pension to a level that is considered “nugatory“.

In the past week, Ros Altmann has successfully rallied the peers to reject the planned breaking of the triple lock, to help Government meet its spending targets. People have argued that she would have done better campaigning for more benefit from universal credit but Ros Altmann is a campaigner for those in old age. She stands up for their rights and I commend her for doing so. Whether the Government back down and pay a wage inflation linked increase to state pensions this year is still doubtful, but there is a chance and a challenge has been registered to the Chancellor’s plans.

For many people, as will become clear reading this blog, the state pension is still the only pension people can look forward to. The triple -lock may be a less targeted way of reducing poverty in retirement, but it  what was promised in 2019 and the way the nation chose to spend its taxes.

The State Pension is not the only pension we have to look forward to. Many of us can look forward to a public sector pension or a  company pension or a pension paid from the PPF fund. There will be less relying on these guaranteed pensions over time but they still underpin the retirement planning of a very large sector of the population, a sector that IFAs tend to underestimate as these pensioners  have self-sufficient lifestyles in retirement that do not depend on wealth management.

For these people, destination retirement is looking good


But many face the future with complacent optimism

Many people face the second half of their lives as if it were a continuation of the first. When you are fit and well , it is hard to imagine the decline in physical and mental well-being that most people experience in their fifties and sixties. It is hard too , to imagine the loss of confidence that goes with your reduced value in the labor market, which is a typical feature of our final years at work.

For a substantial proportion of the population, there was no expectation of a way out of work other than a pension. Al Rush is right to point out that that is changing.

For those struggling to read the text , here is that final paragraph

“I conclude that there is clear evidence that drawdown is structured, sustained, advised and long-standing, and that no other paid employment has started or replaced employed income, that the intention was to stop work and enjoy “retirement” as I described it, but I remain unconvinced and highly sceptical that simply tapping into a DC pot has been indicative of a desire to retire”

For people who have no expectation of an income in retirement, other than the state pension, retirement can look like hell.

We are currently defaulting people into retirement hell

I’m not sure whether this is Al writing or being written to, that is not important. The sentiment is absolutely right. Three out of four pots that have been tapped into since April 2015 are not producing a retirement income, the remainder are either of the type mentioned above (structured, sustained etc.) or being drawn down randomly to meet expenses as they come up. From our study of the numbers in the FCA retirement income study, I’d agree with Al  that the majority of people with pension pots and are in their fifties and sixties have no plan for their money. But I side with Ros in her view that pensions should be a way of “managing the risks”.

The risks of private pension  income being nugatory managed against the risk of money running out before we do, is the central challenge to Al, to Ros and to anyone charged with providing people with retirement income from their pension savings. It is the single biggest challenge facing pensions today and – unlike other challenges such as making our money matter, it is one that we are not addressing.

What needs to be done?

We need to reconnect people to their pensions, right now people have been sold “pensions” and been served up “pots”. They can go to an adviser and get a holistic cash flow model for retirement but most people don’t. Instead they tap into their tax-free cash and wait for something to come along (like a pension).

But instead of coming up with ideas that recouple people with their pensions, we get distracted by trivia, like nuancing protected NMPAs  and end up confusing people into thinking that “normal” is leaving work at 55

We need “better pensions” that take on our savings pots and pay us a structured , sustainable income in retirement. We can choose not to be in such better pensions but there must be a point where a wage for life solution becomes the default destination for a retirement investment pathway.

People have a legitimate expectation that they get a pension from their pension saving. The problems of “pension liberation” are that pre-existing pensions are swapped for the vanity of wealth. Many wealth managers deliver to the cash-flow plans but there are too few of them to go round and anyway they can only serve the top end of the market.

People’s legitimate expectations are not being met, people are not getting pensions from their savings and we need to prioritize this problem as the destination people are heading is not defaulted where it should be


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Are we defaulting people into retirement heaven or retirement hell?

  1. John Mather says:

    Moving deck chairs on the Titanic again. Robing Peter to pay Paul is not the answer.

    “ legitimate expectations” require productivity expectations and the U.K. has only the former which is why expectations are not realised. 22 million earners do not earn enough to pay income tax 27 million pay basic rate tax 4 million pay higher rate and only 418,000 are above £150,000 a year The IT burden is split equally between the last three.

    The clue is in the name Wealth Managers only deal with people with money to manage. However pensions are now a less popular wealth store and one under attack from the Treasury

    Take the example that I noticed earlier today
    In 2011/12 the LifeTime Allowance was £1.8m – or £2.19m in today’s terms.

    In Budget March 2021, the Chancellor saw that as low hanging fruit & froze that at £1.073m until 2025/6, which by then will be just £990k in todays

    Add NI to your tax rates and look at the effective total tax charge.

    Productivity and a larger cake please not just different sized slices of a shrinking cake

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