Time for a cost of living strategy from pension providers


Pension providers, insurers and advisers each need a cost of living strategy for those they serve.

It is worrying , that pension providers are making a fuss over the ESG credentials of their funds but not worrying over the social impact of pension saving on their customers.

The time for pension providers to take action is now

The problem

We are now at a point where many older people are struggling to shop. This is recognised by shops like Iceland. But it’s clearly not being recognised by the pensions industry (yet)

Soaring energy bills will eat up nearly half the annual state pension by next year, forcing millions of pensioners into poverty.

Cornwall Insights new forecasts for the January Default Tariff Cap have risen by over £6501, meaning a typical household is now predicted to pay the equivalent of £4,266 a year for the three months to March 2023. Forecasts for the October cap have also seen a rise, going up by over £200, and with predictions for an average bill now sitting at £3,582.

By next spring, over half  of the state pension is expected to go directly on heating homes, as the average retiree on the basic state payout receives £8,185 a year. Until last October, energy charges took up just 17pc of the average state pension.

The Winter Fuel Payment will be doubled from £300 to £600 for more than eight million pensioner households ahead of this winter. However, this will cover just one seventh of the average annual energy bill.

Caroline Abrahams, of the charity, said the astronomical rise in bills had created a “frightening situation” for those who rely on the state pension.

“Keeping warm is really important for older people – it’s not just a matter of avoiding discomfort, for those with serious health conditions it can make the difference between life and death,” she said.

Annual energy bills are expected to leap £1,388 higher from October alone, a rise that will cost more than two whole months’ worth of the average pension payment made by the Government.

Four in 10 people over the age of 66 rely on the state pension as their main source of income, according to Government agency the Money and Pensions service.

Martin Lewis is likening the current situation to the months preceding the first pandemic lockdown


A cost of living strategy that reaches out to those who need help on pensions .

Many people past pension age are not claiming pension credit but could do.

  1. those with small pensions , often the second partner is a joint life annuity or someone in receipt of a “spouses pension” from an occupational scheme, may qualify for pension credit as a result of the loss of their household partner. The company paying the annuity, the pension scheme paying the pension , can identify likely pensioners and give them the strongest of nudges.
  2. children with parents and even grandparents over the age of 66, should be made aware of ways that older people can claim pension credit and the “door to more” benefits it brings in terms of housing benefit, healthcare and even free TV licences. This should be part of the financial education package – part of the midlife MOT and definitely part of the forthcoming Pension Awareness Day.
  3. Where older people are looking to raise money- “equity release – lifetime mortgages – even inquiries to draw down from personal and workplace pensions, it should be a matter of course for support centres to refer people to MoneyHelper and/or support from Age Concern, Turn2Us, Independent Age and other charities with websites and support staff that can help. Pension providers and insurers should be linking with charities now. Here is a link provided by Cornwall Insight to more general sources of information and help on the increased cost of fuel
  4. Where people are over 60 and have only a small pot (less than £5,000) they should be encouraged to look at pension credit prior to retiring. Small pots can be used as a bridging pension to tide people over till state pension age, spending to pay household bills cannot be deemed “deprivation” and will make claims for pension credit easier and larger later on. Poorer people need to get benefit savvy , just as richer people need to be tax savvy.

A cost of living strategy, prepared for a massive spike in claims on pension pots

Many financial services companies went into lockdown in March 2020 with little preparedness and as a result call centres went down and customer support dried up. This cannot happen with the cost of living crisis. But it’s precisely what Martin Lewis is seeing happen with the Government’s response.

Early signs from Aviva suggest a 32% surge in early encashment of pension pots and a 38% increase in partial withdrawals. Normally , this would signal danger to an insurer – a run on the pension scheme, but a cost of living strategy which is focussed on helping those past the minimum normal retirement date (55) to access savings to spend on household bills should welcome people turning to their pension at this time.

It is very important that people are not made to feel guilty for asking for their savings back. Sympathy and understanding , rather than “financial education to be stoical” is in order. People should not be maxxing out credit cards when pots can be drawn on.

A test of Consumer and Fiduciary Duty

The Consumer Duty hasn’t formally arrived, but its intent is clear. If we profit from a customer’s money, whether that money is invested with us or has purchased a pension or annuity, our duty is to help that customer in ways we can.

The Fiduciary Duty of Trustees is to protect members from harm and maximise the opportunity from the money that comes from pots and pensions.

These duties will be tested over the next twelve months. Getting prepared now is part of the ESG ethos that we should be adopting. We cannot wish for good to come of money invested (ESG) and not want good to come to those who invest or are the beneficiaries of that investment.

Put more simply , the “social” in ESG is about ensuring that people do not go hungry or grow cold because they have pension entitlements they are not receiving, they have pots , but do not use them.

What the Government can do

The DWP must continue the good work it has been doing on  Pension Credit and continue to organised for leading financial services companies to convene and compare progress they are making in preparing for the cost of living crisis. I hope that another meeting, similar to the one last month, will take place shortly.

In the meantime, messaging from all parties, DWP, MoneyHelper, TPR and FCA must be consistent and it must be sympathetic to the needs of those who have least. TPR mustn’t imply that those wanting to pay household bills with pensions are being scammed or are scamming themselves.

Instead we should open the door to those over 55 so they can consider their pension savings as spendable, we should make those over 66 and their children of the opportunities from claiming pension credit and we should listen carefully for the sound of desperation where people are panicking. Our Fiduciary and Consumer Duty is going to be tested and we must have a plan for the cost of living crisis , which has started, but will get a lot worse.

Follow this chart to work out when and where help is needed


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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