Q. What is the number one item in Martin Lewis’ postbag?
A. Pensions
But don’t get too excitement all you “engagement” boys and girls, it’s not our kind of pensions (the pensions you drawdown with the help of an advisor), it’s that boring state pension.
Do you have any questions on buying voluntary National Insurance years to boost your state pension? Its the main subject in my podcast this week, as govt has launched an tool allowing ‘some’ to do it online.
Pls ask questions by reply and we’ll try cover in the programme.
— Martin Lewis (@MartinSLewis) May 7, 2024
Yes indeed! What the public are most interested in is paying additional national insurance to buy additional pension! I wonder why they could possibly be interested in that and spurning our shiny personal and workplace pensions?
One of the answers may be supplied by the grumpiest of old men – Andrew Young
The real question is why is the cost so low relative to the additional state pension earned, especially when it is likely only better off people will feel able to meet the cash cost?
— andrew young (@glesgabrighton) May 7, 2024
Those who think the public incapable of doing some secondary school maths – might want to ponder on that one!
Or it may be that the public are just telling us , what they’ve been telling us along , that they expect their personal pensions and workplace pensions to operate like the state pension and pay them a pension from an appointed date.
In short, people seem to be choosing the least flexible, most lacking freedom, pension freedom of them all, the right to buy a stream of payments from a given date (State Pension Age) do the end of their days (with a little help for the best friend).
Think on this , you actuaries designing the next set of “default decumulators”. Think on this you regulators in Brighton and legislators in Westminster. Think on this , you asset managers , wealth managers and cashflow managers around the country.
The harsh truth is that the most interesting thing to Martin Lewis’ audience is how to put more money into national insurance to get a bit more state pension.
Far from being disinterested in pensions , the public is fascinated by them.
So how have those of us struggling to get “engagement” with workplace and self-invested personal pensions be getting it so wrong?
Solipsism
“the view or theory that the self is all that can be known to exist:“solipsism is an idealist thesis because ‘Only my mind exists’ entails ‘Only minds exist’”
Translated into the argument above, the pensions industry cannot believe people can be so stupid as to not be like it. Just as with Brexit, the liberal middle class cannot understand why the turkeys that they preside over so readily vote for what they consider “Christmas”.
The emancipation of the working classes has been profoundly wished for , for some time,. It’s latest incarnation being “pension freedoms” which have supposedly liberated us from the drudgery of saving for a pension paid from some future date to the end of our days.
I do not think that this latest peasant’s revolt is surprising in the least. Last year I circulated a deck to large pension scheme funders, sponsors and trustees. There was an overwhelmingly positive response to this page which put forward an idea called Pension SuperHaven – a means of exchanging a pot for a pension where the pension paid more than the annuity with equivalent security.
When I spoke to the people who enthusiastically supported the idea of offering pensions to people with pots, with capital backing which relied on long term returns from productive finance, people intuitively said “yes – that is what our people want”. That is because the people I was talking to are more interested in Martin Lewis’ postbag than behavioural psychologist postulations about optimised choice architecture.
It is not “populist” to understand what is “popular”, it is fundamentally democratic. We may not like the will of the people but ultimately we will be governed by it, because sooner or later we will find ourselves giving people the pensions they want, despite our passionate efforts to do the exact opposite.
I don’t agree that “only rich people will be able to meet the cash cost of buying state pension credits”. Auto-enrolment means we all have pension pots we can cash in to buy a proper pension. At £900 an added year, you don’t need much of a pot to cop the lot.
Whether it be the state pension or Pension SuperHaven, the principle is the same. Giving people what they want has never been so popular/unpopular (delete where appropriate).
It’s time to abandon our solipsism and give people what they actually want!
It seems that there are two camps. Tactics and strategy. Rarely are these working together in any coordinated manner and few people master both. Those that do occupy the preferred decile on the bell curve of performance.
Having said that my wife just added 2 years of NI very helpful telephone call with UK authorities
When the thousands of people calling about Voluntary National Insurance Contributions are considering paying them, there are two questions they ask: (1) do I need to make them? And (2) how much will it cost? But the clear thought in their head , which we uncover, is without doubt in almost every single case (3) how long do I need to live to get my money back? And the answer to that question if you have to pay for a full empty year at the rates which are frozen until 5th April is 2.5 years if you are a non taxpayer with the marginal extra income you buy or just over 3 years if the marginal income is taxed at 20% or just over 4 years if the person is a 40% tax payer. And that information is why so many people go ahead and buy added years if they are not already going to get the full state pension. Compared to buying guaranteed income via an annuity that is so much cheaper. If you qualify for class 3 contributions you only need to live for less than one year past state retirement age to get your money back at all tax rates. So that’s why people pay VNICS.
I believe the popularity is due to the defined benefit nature of the additional years NI purchase. There is no uncertainty about the amount of the inflation proofed annual pension benefit being bought with the contributions paid.
It is a shame that such a large proportion of the working population are excluded from such an option for their workplace pension. Pensions SuperHaven goes part way there but as yet there is no non employer guaranteed version able to provide the lowest cost annual pension – a pooled risk whole life defined benefit arrangement.