My Grandma gave me as a 21st birthday present the proceeds of a life insurance policy . It came as a cheque for around £400 in a card with the message “don’t spend it all at once”. I went to Denmark Street and bought a sunburst finish Fender jazz bass guitar. I have it still, it cost £400.
If you have very little , the arrival of a windfall payment from a pension means a lot. One of the most common reactions to discovering a pension that provides tax free cash at 55, is to ask for the tax-free money to be sent to the bank account. The ownership of a positive (or not so negative) bank balance, the settlement of a loan and the luxury of time not having to worry about paying the next bill is something most of us can remembers and no – we want that feeling to linger and we probably don’t spend it all at once.
If my propensity to save not spend comes from anyone , it comes from my Grandma. When I showed her my guitar, she smiled – it was the Irish in her. She had that look and that smile that said “I knew you would“. I have had bailiffs at the door demanding cash or kind.
We learn about income
The creation of a pension – a string of payments that lasts as long as we do – is a great thing. To swap cash for such a thing is a huge act of self-denial , but it is something that I have done once in my life and I am very proud I did. I did not take my tax-free cash from my pension but took extra income for life. It was an investment in my future self and I considered that with an extra thirty projected years of life, that investment would pay off.
I would take care of myself and live my best years later on. I am happy for my friends who have bought new kitchens with the proceeds of their pension savings but I’d learned in my twenties what it is like to have less money coming in than going out and those bailiffs still haunt my dreams.
We learn about the importance of a wage for life and worry about the consequences of our money running out before we do. Pensions are a part of our financial DNA and it is only a very few who really feel they can rely on wealth in the form of a capital reservoir from which they can draw down as they choose.
Getting paid not to go to work.
I have mentioned a couple of times on this blog, a conversation I had with the then NOW CEO, Morten Nilsson, where he expressed surprise that we are so attached to the guarantees offered by pensions. “Where else in life do you expect to be guaranteed never to get a pay-cut“, he said to me. Logically he is right and the idea of market driven pensions that go up and down makes sense intellectually. But it is an idea that has singularly failed to capture the imagination of the British public.
Instead, we crave the security of something that we’ve never had – an income for life without a job for life. How often have pensions been sold that way? I doubt very often. But when you think of going to work this morning or tomorrow morning, and you have to brave storm Jocelyn or the rail network or working from home (with all its snags), doesn’t the thought of getting paid not to go to work appeal.
Pensions are an enormously good thing
Almost everyone over the age of 66 in this country is getting money paid into their bank account by somebody every month. For most of us, the money comes from the Government , others of us get a payment from a pension administrator or an insurance company, some of us have decided how much we get paid from our drawdown policy. The arrival of this regular payment is a certainty that is extremely comforting and when my banking app tells me my pension payment is in my account , I thank goodness I chose the payment that goes up with inflation every year rather than a wad of cash in my bank account.
Some people may think differently but I suspect that what I am writing resonates with most of us, even the most financially sophisticated (which I’m not). The incredible power of an AgeWage, an income for life, is why I named my company as I did and why the Pension really is a PlayPen.
These simple truths which I take to be self-evident are little written about and little articulated in everyday conversation, but my strong conviction is that pensions make people happy, both in prospect and in payment and that a strong pension culture in this country is something to be devoutly held onto!
While I have a great deal of sympathy with your views, I would like to post a cautionary tale:
When I took early retirement in the very early 2000’s I elected not to commute any of my fully index linked defined benefit pension from a then fully funded employer’s scheme. I had recently received an inheritance and had no immediate cash needs. Two valuation cycles into the TPR’s regime the employer decided it had no reasonable prospect of meeting the deficit recovery plan contributions advised to them as those the TPR would require and declared itself insolvent (in fact a pre-pac to “protect the business”). Needless to say after a few years on PPF level benefits, the PPF refused entry and after a couple of further years the Scheme was bought out on a PPF plus basis. The problem for me was my benefits were predominantly pre 1997 and hence my pension has not been increased for the past 14 years. Fortunately for me, although I didn’t expect this when I retired, I was able to continue to work and indeed build up a money purchase pension pot; but others are undoubtedly not so fortunate.
I therefore do believe that the “bird in the hand is worth two in the bush” mentality is deeply ingrained in the nation’s psyche when dealing with pension providers whether they be regulated schemes or insurance companies which are viewed as equally untrustworthy. IFA’s requirements with regard to retaining assets under management means that they are also viewed in the same light.
It all depends on when you bought that guitar. The Fender Jazz Bass sold for less than $400 in the early 1960’s. Specimens of that vintage now easily fetch $20k to $30k, which would represent a reasonable rate of return for a pension investment.