Buying pension a fiver at a time

I intended when I started out this morning to explore how we can provide pensions from very small pots, but I got waylaid by tax matters and the stress people put themselves under at retirement.

One of the people who’d put me in mind to write about tax free cash has been in touch to say that I shouldn’t be writing about it as it could put ideas in the Treasury’s head. Happily I have no influence over the Treasury, I wish I had.

I wish that my friend Bryn (aka Lord Davies of Brixton) could have a word with Rachel and Emma and remind them that the State can do great things! He commented on my “stress and distress” blog

When I saw the map of the DC pension world (great by the way) I immediately thought of producing a map of the State pension world. But I’m on holiday, so I’m just going to ask you to imagine a horizontal arrow with one point in the middle, i.e. the choice of taking the pension at State pension age or to defer.

Which sets things up nicely for me to write the blog I wanted to write – for the benefit of Bryn and my friend Arun Muralidhar, who is going to be talking with us on Tuesday at the Pension PlayPen coffee morning.

When I was young, my Mum used to take me shopping and we’d finish going into Shaftesbury Post Office and Savings Bank

Apart from the Methodist Church, which it looks a bit like, this was the most formal thing I did as a 5 year old. I had a little book which got stamped as I built up my savings from my pocket money. I think you could pay in a shilling at a time. That’s 5p for those born this century.

I don’t know how I spent these savings, but I know they were the most important thing I had , because they were mine and not my Mother’s or my Father’s.

Buying pensions for a fiver (or a bit more)

There’s been a lot of inflation since the mid sixties and I suspect that Arun Muralidhar’s £5 SeLFIE costs about the same in terms of hourly minimum wage. Yes – that’s right. Arun’s suggesting that people could buy bonds from their post office (or online) paying a fixed monthly income for 20 years, for as little as £5.00.

If I went into the Shaftesbury Post Office and Savings Bank on Tuesday with a fiver, I wouldn’t be able to buy a SeLFIE.

But I might be able to buy a £5 SeLFIE as an income bond from National Savings next year , if Rachel Reeves conceded and started issuing bond strips paying a monthly income for 20 years. If my £5 SeLFIE could pay me 40p a year till I was 83, I’d consider that rather better value than a pint of Guardsman down the Swan at Clewer.

Now let’s say that I had not £5, but £5,000 (in a pension pot), what could I get for it? Well I reckon I could get £400 a year or £33.33 per month from the Government and so could someone else if I didn’t live to 83.

No need to buy an insurance policy or invest in Henry Tapper and Edi Truell’s Pension SuperHaven , no need to do a ?drawdown? or set up a standing order to myself. All I would need is a bank account into which the SeLFIE was paid.

And what If I had 5 of these £5,000 pots? Well I could buy 4 SeLFIES of £5,000 giving me £166,67 per month paid into my bank account as if I had extra State Pension.

Which is of course is exactly how the State Earnings Related Pension used to be paid. Wouldn’t it be great if people could buy SeLFIES that were as reliable as the state pension and paid me an income for 20 years exactly as I expected.

I know that the actuary’s among you will have worked out that a 62 year old male like me is likely to live to 85 (ONS projection) but I think most of us would be prepared to run that risk till some clever- clogs did a SeLFIE that lasted as long as you or I did.

I don’t think we will go back to the days when you drew your pension from the post office counter and I’m not expecting to get a stamp for every SeLFIE I bought, but I am sure that a lot of people trust their post office in a different way to their bank or their insurance company or to their workplace pension.

National Savings is the online successor to my little book and it could end my love affair with the state pension saving system, as it begun it.

Shaftesbury Post Office – unchanged since 1965 when my Mum opened my first account.