When wonks argue steep energy bills will make people use less electricity or gas, think of those whose energy use is not superfluous but critical to daily living. https://t.co/jJPTlEfASp

— Josephine Cumbo (@JosephineCumbo) August 22, 2022

It’s not just policy “wonks” who see the energy crisis as avoidable with a bit of household thrift, it’s the general response of the pensions industry so far. “Tighten your belts, turn off the lights and don’t use your tumble drier” stuff is freely available as advice – even from the most well-meaning of sources. I give you as an example an extract from Hymans Robertson’s advice to those suffering from the increases in cost of living

1. Look to reduce your energy bill
2. Look to reduce food waste as much as you can
3. Search for the best fuel price
4. Avoid using convenience stores
5. Adopt a 24 hour rule before making any discretionary spend.

James Doyle’s excellent article was published in April but stands as Hymans’ consumer advice to this day.

As regards pension contributions, the consultancy – along with the pension industry as a whole , is arguing that savers must see the wood not the trees. Hymans argue that giving people modelling tools to show what happens to their retirement pot if they stop saving or increase drawdowns, will help them see sense. The article was written in February this year

Household budgets are being pinched by staggering rises in the cost of living, and this can be seen in soaring utility bills alongside an impending rise in National Insurance contribution rates amongst other things. With inflation reaching a 30-year high in December 2021 at 7.5¹, it’s no surprise that around half (47%) of people who are not yet retired say they can’t afford to save at the moment (January 2022)². This is worrying for many reasons, but one which may have longer-term implications is that people might consider cutting their pension contributions.

The people who are in despair of meeting their bills are being advised to consider trade offs

Whether it’s cutting or increasing pension contributions, or increasing withdrawal rates in retirement, most people won’t be aware of the impact that these choices will have on their long-term retirement income. They need access to the modelling power that we’ve discussed above, and this is where digital tools can help people to understand the potential implications of their choices for their retirement prospects. These tools gives people access to modelling results and can empower them with the analyses that they need to make an informed decision about trading off retirement income in the future to meet short-term costs in the present.

But people need to know how to reduce contributions, increase drawdowns and they need the comfort that if Government does not intervene, then they have a plan B.

It is simply not enough to offer people digital tools , we need to be offering firm assurances that pensions need not be a part of the problem (and can be part of the solution).

I am not advocating telling people to opt-out or cash-out. But I’m saying we’re currently turning a blind eye to the reality of the current crisis.

It’s unfair to pick on Hymans, they are always responsible and level headed. But I worry that people on good salaries find it hard to empathise with those who have no spare money to pay household bills.

Average earning households would be spending 18% of after tax income on fuel. This is literally impossible for 60%, and probably more, of UK households to manage. Without a massive, planned intervention now to take control of this we face economic and political meltdown.

— Richard Murphy (@RichardJMurphy) August 22, 2022

It is no longer possible for the pension industry to argue that pension contributions are immune from budgetary considerations. They are “discretionary spend” , whether the pension industry likes to think so or not.

Though I see few pension journalists writing about these things, (other than Jo Cumbo), I speak to ordinary people who come on my boat and they are asking me simple questions like “can I reduce or stop my pension savings I make each month?” , “can I take money out of my pension to tide me over?”, “can I borrow against my pension pot?”.  All three questions have been asked me over the past two weekends.

And this morning brings an article from Pension Expert’s Alex Janiaud in which Jonathan Bland and Iona Bain directly address the issues of affordability.

For many people, short-term financial needs like heating and food are a far more pressing priority than their pension fund.

We want to help people facing difficult financial decisions to make them from a position of knowledge. https://t.co/9rIlGNphuM

— #PensionAttention (@PensionAttn) August 22, 2022

But even Martin Lewis in his “cost of living survival kit” is avoiding these questions. In the 92 points Martin makes, pensions only feature through a plug for pension credit (the door to more).

I can understand why pensions experts are shy of talking about this subject. Pension contributions are HMRC subsidised – and pick up government incentives even for those not paying income tax  (unless of course you are income poor and in a net pay scheme).

Pension contributions are typically matched by your employer (unless you are self-employed or out of work), reducing contributions is like missing out on free money.

Finally, and this may be what is stopping Martin from talking about it,  encouraging people to reduce pension savings risks falling foul of the Pension Regulator’s opt-out provisions (which can lead to prosecution under TPR’s powers).

For all these reasons, I know that there are obstacles to talking about the cost of living crisis and pensions. But we must be bold.

Not talking about this subject will not make it go away, we need to find ways to help the people who can’t make ends meet, most of whom will either be saving into or have accessible savings in pension pots.

But where is the industry innovation?

Meanwhile, I look forward to the OBRs restatement of its forecast for tax receipts from personal pension encashment . In March it revised its forecast to £1.7bn , it is likely to be much higher.

Why aren’t we campaigning to bring forward compensation for those denied HMRC savings incentive because they are in net pay schemes? Why do people over-paying in 2022 and 2023 get no compensation for these years? Why must they wait till 2025 to be compensated for over-paying pensions in 2024. And what will become of these people in the meantime?

Where are initiatives from the payroll and reward departments to ease the pain of being in a pension by increasing employer contributions? You can be in an auto-enrolment scheme without the employee paying.

And where people are so desperate that they have nothing else for it but to stop paying and/or claim on their pension pot, what are we doing to help?

The absence of any discussion on this topic in the trade press worries me. Discussing the affordability of pensions is what people do on my boat and it’s what they must be doing elsewhere.

Aviva are reporting a 32% increase in pot encashment and a 38% increase in partial encashment.  The pension industry needs to be prepared for what is to come and ready to deal with what is happening today.

Just received my energy bill for July. £416.33 I get £794 a month pension. I’ll let you do the maths. .@liztrussmp .@RishiSunak .@Keir_Starmer #MartinLewis #dontpayuk

— Jeannie Le Mesurier (@stevo5june) August 9, 2022