Decisions on how our money is invested are being taken by DC investment managers on our behalf. The result of disparate strategies is that some savers are being introduced into funds that delivered 16% more than others. So one saver would have a fund of £100,000 at the end of their saving lifetime while another would get £84,000, for the same contributions and returns for the last twelve months of their career (so far).
The Corporate Adviser allows Rita Butler-Jones to pronounce on how DC pensions should work. This is a summary of her pondering.
Rita is head of L&G’s DC pension proposition.
I think that most people who have money taken from their pay expect that money to deliver the money back as a pension. I have spent a 35 day holiday in a hospital that has felt like a hotel. I have spoken to those supporting me from consultants to people who clean up the mess we patients make. The expectation is that they will be able to retire on a decent amount when they get to state retirement (67 for most of them). They do not consider the size of their pension pot or the way their pension is paid them. They want to know what the impact will be if they buy extra pension, a great proportion of the population do not consider the questions that worries Rita and L&G.
The reality is that most people don’t have a clue and what they get in retirement is down to chance. L&G can discuss analysis of their data but they don’t know what people who are patients and suppliers at hospitals like the one I’m at, are expecting from their pensions.
I am sorry, but having worked as Head of Sales at Zurich before it sold out to Scottish Widows, I know that the discussions between product providers at ABI meetings and internally, focusses on maximising the profitability and returns to the shareholders. Actually the idea of being required to offer default investment and default of default pensions from personal saving is not on the agenda. The value of running structures to shareholders and to management is what matters,
The reality of outcomes from one saver is hugely different from one investment income to another. There is no pension outcome, just choices of taking cash using a drawdown, buying an annuity or just taking the pot in one go. There is no default in DC, but the people in this hospital can explain what they expect from pension saving, What they describe is like an extension of their state pension.
Let’s be clear about this; what people are saving for is, by default, a pension paid to them based on their pension pot and people are completely misled about the performance of their savings and the idea of how much they will get as a pension based on their savings. Most people – as Rita said – give up on swapping their pot for a pension and just cash-out or partially cash-out.
It is shameful that DC pension providers see this as an acceptable. It is time for the Government make it necessary for a default pension to be offered, one that people can choose to opt-out from. The outcomes of savings should be measured as “value for money” compared with other savers and trustees who fail to live up to the standards of others should be forced to hand their money on to others so that people get an idea of what they are getting.
The current mess into which our money is invested is a disgrace. These two documents put together by the excellent Corporate Pensions, tell me that DC is a mess and needs a better regulation. May that happen in the second part of this decade.
