Rash Bhabra: What individuals really need is retirement income

I guess it takes a world wide pension consultancy called Willis Towers Watson to grab the attention, but the Emperor has been parading around naked for quite some while.

When I say “Emperor” , I mean the “DC pension” and when I say “naked” , I mean that we can all see the Emperor’s got no clothes on – there is no pension from the workplace pension.

WTW want us to consider four ways for future generations of savers to get pensions rather than pots and all four make a lot of sense

Whole-of-life collective defined contribution (CDC) will offer up to 40% more than annuities over time – provided there are “Proprietors” of CDC schemes there to manage them on behalf of employers

DB with variable increases provide a sustainable way forward for large schemes such as USS but the numbers of open DB schemes in the corporate sector makes this a second niche product

DC pots used to buy CDC retirement incomes: this is what experts call “decumulation only CDC”, I’ve been calling for this for 15 years – we have still to see the draft legislation let alone prospective “Proprietors” (providers).

Variable cash balance with CDC in decumulation; WTW reckon that employers could guarantee an element of the savings build up prior to decumulation only CDC kicking in at retirement and they reckon this could give 40% more than annuities.

All tomorrow’s parties

All of these are imaginative solutions to tomorrow’s problems. Sadly none of them are solutions to today’s problems!

Considering the glacial pace of change in pension legislation, WTW are making proposals that will impact people in their fifties and sixties by the time they get to their seventies and eighties.

This is not kicking the can down the road, we do need long-term planning and WTW plan to be serving their clients (large employers and their trustees) for many years into the future. But clearly they’ve worked out that there will come a time when very few of their clients will be paying their staff pensions and they are calling that out now. Good for them.

But the fact remains…

700,000 people each year reach the point where they want to convert from saving to spending their retirement savings. They have been given an expectation of a pension and they get a pot.

The options available to DC savers when they get to retirement are so complicated that we are told we are best to take advice on them.

Actually there are occupational pension schemes that will allow us to turn out pots to DB pensions. LGPS is one of them. On their member’s website you can read

You may be able to transfer pension rights into the LGPS from:

• a previous employer’s pension scheme
• a self-employed pension plan
• a pension ‘buy-out’ policy
• a personal pension plan
• a stakeholder pension scheme
• an Additional Voluntary Contributions (AVC) arrangement.

The arrangement you transfer from must normally be another registered pension scheme or a European pensions institution. You may be able to transfer in pension benefits from an approved overseas pension scheme. Your pension fund may refuse to accept a transfer from a pension scheme other than the LGPS.

So you could normally – being an employee of an organisation participating in the LGPS DB pension scheme be able to transfer in a pension pot and get paid extra LGPS pension

You will need to consider carefully whether to transfer. A transfer may not always be the best decision for you. You should compare the value of the package of benefits you have with your current provider with what you would get in the LGPS. You should consider:

• the estimated amount of extra pension the transfer payment would buy in the LGPS

• when that pension is payable from – your Normal Pension Age

• the other benefits offered by the LGPS – such as early retirement before your Normal Pension Age, ill health benefits and survivor benefits.

You only have a right to this pot to pension transfer in your first year of employment with an LGPS employer (after which the transfer is discretionary).

So how easy are such transfers?

I have a 9 page pro-forma from Nest that tells me that in order for Nest to allow me to transfer my benefits to anything other than a SIPP or another authorised master trust I need to supply

A letter from your employer confirming that
· they are a sponsoring employer of your new scheme
· you are employed by them

the date from when you’ve been continuously in their employment and confirmation of contributions to your pension scheme which are shown as due to be paid by your employer and the dates of those payments

A schedule of contributions or payment schedule showing
separate entries of the amounts of pension contributions to your pension scheme that were due to be paid for the last 3 months of your employment along with the dates
(excluding your additional voluntary contributions)
payslips, or other evidence in writing advising of pay remittances, showing the salary paid to you by your employer for the last 3 months

personal bank or a building society statements, showing the deposit of earnings for the last 3 months

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Something for WTW and the Government to think about

Many DB plans are now in surplus , (including LGPS) . The right to turn pots to pensions, where it exists , isn’t going away. DB pensions, by virtue of inherent efficiencies over annuities pay bigger “pound for pound” pensions.

Many people who don’t want an annuity , say they want a DB pension. So why do we make so little of this opportunity which exists within the existing “regulatory landscape”?

The system is stacked against “transfers in” to occupational schemes for a number of reasons. They are not advised on, they are not promoted and even where they are available, the paperwork needed to make one is pretty tough (see above). They are treated as if they were scams.

But  CDC schemes, and variable increase DB schemes and CDC decumulation schemes and hybrid Cash Balance /CDC decumulation schemes –  are all currently  “pension fiction”. DC pots can be turned to DB pensions provided there is consent that the DB pension is legitimate. This is not pension fiction, this is pension fact.

What is needed now is to find ways for all DC savers to be able to turn pots to DB pensions. We think we’ve found it and I’d be happy to talk to Rash and his colleagues about it – in Liverpool next week.