Two things
- Everyone I know who gets the state pension never talks about how they got it
- People struggle to claim their workplace pension – whether DB or DC.
I won’t go on about my experiences of taking DC pensions. A recent report suggests that more than 10% of savers have suffered attempted or actual scamming. I can understand why drawing benefits is hard and harder because of recent tax changes. All the same it should not be as difficult as it is.
But DB pensions are hard too. I finally got back home late on Friday after a few days in Liverpool. My partner, who is a pensions person, told me of the help she’s given a close relative retiring out of the teacher’s pension scheme (with AVCs).
She recited the difficult decisions around early retirement, about CARE v Final Salary, the choices around the AVCs and the use of chatbots and overseas call centres.
For ordinary people- when we’re drawing pensions we are all ordinary – the choices are really hard, because they are choices that have lifetime implications.
This is why pensions are so important and why it is right that we have a Pensions Regulator whose focus is on getting people paid their promises in full.
It is also why I consider the pension freedoms an increasing societal danger. So long as we ask people to rely on rules of thumb to estimate their “chosen” income in retirement, so long we give them a level of uncertainty that lives with them , not just at the point of the decision but for the decades of retirement to come.
Paul Todd, speaking at the PLSA last week made an excellent point that ordinary people do not differentiate between the certainty of an occupational pension and an annuity, they are not hung up about the type of covenant , they trust that they are protected by trustees, insurers , regulators and by some form of safety net.
None of these things come into play when you are in drawdown. Your mistakes will not be bailed out by FSCS or PPF, there are no trustees to set the rates for you, the insurers are not guaranteeing your decision, you are on your own.
This is no small matter. As we move towards the third decade of the century there will be people who have pension pots worth more than anything else they own. We know this from more mature DC systems.
But where Britain differs from other countries is that we have succeeded in providing defined pensions to millions of us. Despite the occasional failures from Maxwell to ASW, we have created a lifeboat that is capable of underwriting large schemes when they get into trouble. Employers have stood behind schemes and now capital backing is in place to step in where sponsors fail or want to withdraw. The insurance option is – though expensive – available,
It is to our credit that we have stood behind our promises and created a regulator and a lifeboat that protects members. Which is why I believe that the future of DC is DB (or CDC if risk-sharing can be supported commercially).
Even the DB decisions which my relative was trying to take are hard. They are loaded with questions that are hard to answer, questions that can only be answered by making assumptions on market returns, inflation and longevity that most of us are ill-equipped to decide on.
But the difficulties of making these decisions in DC are so amplified that for most of people “pensions” are a matter of hit and hope. Without a safety net DC drawdown is too hard. People put trust in advice but even advisers cannot manage the waves. In their world the best lack all conviction while the worst are filled with a passionate certainty they have the answer.
By comparison, the state pension , that has no cash sum, no transfer value, no choice of benefit calculation and is paid in full from a certain date till death , remains the most simple trusted retirement benefit we have.
We must strive to keep options for people as simple as we can, to provide certainty and protection to people who haven’t the confidence to take decisions for themselves. We must be understanding of the difficulties of the decision making process and be patient in helping people towards the choices that most suit them.
This is a huge endeavour which is what the pensions industry is really about. The PLSA for the first time in my memory, spent more of its autumn Conference talking about spending rather than saving. We do not have a savings problem in this country, but we find it very hard to spend our savings and that is where we must put our energy over the coming years.
The simple answer to the question is “choice”. We want freedom but when we have it , it is burdensome. We are now reaching the extremity of choice and soon we will be looking to simplify through “done for us” solutions that demand little for us than acceptance that we are using an option that is right for most of us. That may sound like a cop-out to libertarians but it sounds a lot more like the state pension to me. People like and trust the state pension yet its the one that gives least choice – go figure.
You should receive an invitation letter from the Pension Service about four months before you reach State Pension age.
To get your State Pension, you must claim it.
You can claim online, by phone, or by post.
If you haven’t received a letter, you can still claim up to three months before reaching your State Pension age.
You’ll need to provide your National Insurance number and possibly evidence of your date of birth.
You may also need to provide the date of your most recent marriage, civil partnership, or divorce, and the dates of any time spent living or working abroad.
The Department for Work and Pensions (DWP) asks for your bank account details when you apply for a new State Pension.
Your new State Pension will then be paid directly into the account you provide.
DB schemes, whether managed in-house by an employer or former employer, or outsourced to a third party provider, certainly used to do something similar if you kept your contact details up to date.
That was easier, obviously, if you were still employed by the same employer who sponsors the DB scheme.
The issue you’re highlighting is a significant concern in the UK pensioner population. Here’s a breakdown of the facts and the reasons behind the lack of service at the point of trying to take benefits from a pension:
1. Member ignorance: Many pension scheme members are unaware of the options available to them when it comes to taking their pension benefits. This is often due to a lack of understanding of the pension system, as well as a lack of clear and concise communication from pension providers.
2. Decline in financial advisers: The number of financial advisers in the UK has indeed declined significantly since 2006, from 300,000 to 30,000. This has left many pension scheme members without access to professional advice when making important decisions about their retirement income.
3. Exclusion of members: The pension industry is often dominated by discussions between providers, regulators, and commentators, leaving pension scheme members feeling excluded from the conversation. This can lead to a lack of transparency and understanding about the options available to them.
4. Unintelligible literature: Pension providers often send out copious amounts of literature to pension scheme members, but this literature is often written in technical jargon that is difficult for non-experts to understand. This can lead to confusion and a lack of clarity about the options available.
The reasons behind this lack of service are complex and multifaceted. Some of the key factors include:
1. Regulatory changes: The pension industry has undergone significant regulatory changes in recent years, including the introduction of auto-enrolment and the pension freedoms. These changes have created a complex and often confusing environment for pension scheme members.
2. Cost-cutting: Many pension providers have reduced their costs by cutting back on face-to-face advice and instead relying on online resources and automated systems. While this can be more cost-effective, it can also leave pension scheme members without access to professional advice.
3. Lack of competition: The pension industry is often dominated by a small number of large providers, which can lead to a lack of competition and innovation. This can result in a lack of choice and a lack of transparency for pension scheme members.
4. Complexity of pension products: Pension products can be complex and difficult to understand, even for financial professionals. This can make it challenging for pension scheme members to make informed decisions about their retirement income.
To address these issues, there are several steps that pension providers, regulators, and commentators can take:
1. Simplify communication: Pension providers should strive to simplify their communication with pension scheme members, using clear and concise language to explain the options available.
2. Increase transparency: Pension providers should be more transparent about the options available to pension scheme members, including the fees and charges associated with different products.
3. Improve access to advice: Pension providers should work to improve access to professional advice for pension scheme members, either through face-to-face advice or online resources.
4. Encourage competition: Regulators and commentators should encourage competition in the pension industry, promoting innovation and choice for pension scheme members.
5. Support financial education: Pension providers, regulators, and commentators should work to improve financial education and literacy among pension scheme members, helping them to make informed decisions about their retirement income.
Ultimately, the lack of service at the point of trying to take benefits from a pension is a complex issue that requires a multifaceted solution. By working together, pension providers, regulators, and commentators can help to improve the experience for pension scheme members and ensure that they receive the support and guidance they need to make informed decisions about their retirement income.
The other significant change over the past 20 or 30 years is the divorce of the pension scheme from the sponsoring company. In the late 20th century many and particularly smaller employers self-administered their pension scheme and the trustees administering the scheme all had some connection with the Company. This provided a continuity of contact during and after employment that has now been lost with all administration now being handled by large multi-scheme call centres working off standardised scripts which so often do not reflect the subtle nuances of the pension promise made by the employer at the time of employment. During my time as a OPAS advisor, the majority of complaints in non public sector schemes were resolved by the intervention of the Company, usually through the HR department or officer, and occasionally by the use of discretionary powers available to the Company.
Similarly trustee boards overseeing the pension service providers were predominantly in pension terms lay trustees who were able to assess the service being provided against the particular needs of the members, whether they were member or employer nominated.
The so-called “professionalisation” of the Trustee role is in my my view totally misguided because it further divorces the member from obtaining the benefit of the informal contact channels through the employer or with former colleagues who may faced similar issues. In many cases this gives real value to the Member. This also applied with DC contracts where the individual was able to enlist the help of the employee benefit consultant or IFA who had introduced the scheme to the Company and who provided a contact and interpretative link between the member and the insurer.
TPR is part of the problem – after all they put the Trustee’s duty to act in the interests of members and beneficiaries only as point 6d on page 10 of the General Code. This surely is the primary requirement of any trustee and over-reaches any regulatory “guidance”! To me, in seeking to professionalise trustees it appears TPR are seeking a trustee cohort who are expert at following their codes and bureaucracy remote from the Members they are serving.
We should have an interesting discussion in the Pensions Playpen on Tuesday.