We arrive at the first week when we expect to send emails that bounce back with gleeful messages about “annual leave”. This will include the inboxes of legislators who head for their “summer recess” but it will not include this blog, which will continue, barring injury, to churn out thoughts about how we can increase the value of our retirement savings.

Perhaps we can use the next few weeks to agree what we are trying to do with pensions – the “common purpose”, which I keep on banging on about. It’s mentioned on Darren and Nico’s “Jasper” podcast this week that there are so many different views that we cannot reach consensus. I remember the same argument being made for not achieving a common definition of value for money.

It is the business of Government to create a common purpose and I will try to simplify the arguments so that might happen. VFM is understood by most people , it’s what you get for what you pay.

The common purpose of pensions is not- to be clear –  to give the member an experience of beauty or to engage savers with their future cashflows or to get good net promoter scores. That may be the commercial purpose of pension schemes but it is not the common purpose of the nation’s saving.

It may be argued that the common purpose of our retirement savings system is to create adequacy in retirement , this might be defined as ensuring that people have enough savings that they are “ok” – with the definition of “ok” depending on personal expectations. This seems more or less what we are targeting right now with the workplace pension system we have.

But it is not a measure that most people will sign up to , when asked about “their pension”.  I suggest that most people will describe “my pension” as as a variant on “an income that lasts as long as I do“.

The Government’s role

It is very important that we get a common purpose for pensions that makes sense to the general public. I think that pension freedoms has been interpreted as “freedom from pensions”. The public, once it got over the euphoria of being freed from buying poor value annuities, has worked out that it is no longer getting a pension from its savings.

This is where the Pensions Bill is interesting as it appears to place an obligation on trustees to provide an invested pension solution. Whether an annuity is such a thing is not defined but we are arguing over detail here. What matters is how we define “pension” and it really is up to Government to make it clear what it considers a pension to be.

The Government clearly considers funded pensions as investments. Its attempt to revive superfunds and enable schemes to run on with capital backing is about keeping pensions as investments , the guidance makes this very clear.

The Government is not making the same claims for annuities which are clearly insurance products doing a different thing.

So in the sense that pensions in the private sector are defined by being funded, we can say that they give value for the money committed to them, by their investment and that the common purpose of funded pensions is to give value for money and dignity in retirement from a lifetime income.

The Australians don’t include the “value for money” formulation as that is the job of the pension provider, I suspect that we may see getting VFM and a lifetime pension as the two purposes of retirement saving.

Making the most of what we’ve got

We are not starting out afresh.  We have a mature funded and unfunded pension system that pays lifetime pensions to millions of pensioners. Tens of millions of us anticipate getting a wage for life when we cease earning or on top of our later life earnings.

But there is a strong feeling that we have mistaken our way and allowed ourselves to think that the purpose of pensions is to provide capital adequacy rather than dignity in retirement. So many people see their pot as their pension but are very sceptical as to whether it will provide a dignity for them in retirement.

Which is why the requirement for workplace pensions to pay pensions as a default, rather than pots, is the radical departure of the Pension Schemes Bill.

How this will be mandated is a matter for the Bill and for parliamentary debate but it is not a matter of general consultation.

The Government seems to have recognised that the default population – the 80% who want things done for us, want to get a pension from our savings. The Government seems to define a pension as an invested annuity, it is reintroducing pensions to DC saving via a Pension Schemes Bill.

Sooner or later the coin is going to drop and we are going to have to think how we go about doing this. CDC is one way, DB pensions is the other. People can opt for insurance and buy an annuity. Whatever option , the trustees choose, it will have to be right for the 80% of people who want a pension from their workplace pension.

We can spend the next few weeks – while on holiday or wishing we were, considering what we are trying to do and perhaps thinking a little about the options we have to deliver.