There are two ways of looking at pensions.
The top down way looks at pensions from the perspective of those who have wealth because they own the subject, they are the pension experts for whom the minutiae of how auto-enrolment to DB funding work. They fret over pension dashboards and inheritance tax, they worry how people will manage their drawdowns and underpinning all this worry are spreadsheets which look at how decisions will impact their and their immediate client’s wealth.
The bottom up way of looking at pensions is very different. It looks at how we can stop our pension system leaving people behind. I see pensioners at church and on the streets and shops and I wonder if they are getting by and when I talk to them , I realise that the PLSA figure of £14,000 pa as a minimum to stay out of poverty is a nonsense. Most elder people do not have a view of annual income – it’s weekly and for them, an increase in the cost of a stamp or a pork chop or baked beans is a financial blow. For them, the revenue is the state pension, the benefits that help them pay their bills and perhaps a little money that comes from a pension they or their spouse once earned.
We still have a lot of pensioners getting paid pensions based on the pre 2015 changes and there are many awful things that are happening to the pensions they are getting. Some are getting GMPs with no increases since they started getting them, some are immigrants with nothing coming from abroad and very little from the DWP. Many of these are among the 700,000 old enough and poor enough to get pension credit.
We can consider pensions as something that matters to those who pay our salaries, the wealthy or we can think of them as the things that keep elder people going. Most of us do what we get paid to do and the vast amount of interest is in managing the wealth of the 20% who are likely to find pensions an IHT consideration.
In the middle, between those who are struggling to pay bills and those who are worried about their wealth are the vast majority of people in the UK neither poor or rich for whom a pension is the thing that will stop them having to work. Some have decided to run their own businesses and not bother with a formal pension, some have sunk their money into properties that they hop will be their pension , but the vast majority of this 60% are expecting their pension saving will provide them with a pension. They are trusting the politicians and those who have set up and manage the pension system, to pay them an amount to retire.
For many people the time they retire is a combination of health, money and the circumstances of the family. There is a lot of uncertainty that they cannot predict but they no exists. There are some things they want to know are there. The State Pension is there, defined benefit pensions are there and for a lot of people there is an expectation that they will get a pension from their pensions saving. 13m have expectations of Nest , as many again have DC expectations from other names.
We are kidding ourselves believing that these people will “engage” with their pensions. 99% of people in Nest are in its default. Not far short will be in other pensions, even if those pensions have tried to engage their savers and the employers who participate have done the same.
We need to stop thinking that pensions are a means to making us money and recognise that they are things that we have a duty help the 60% in the middle get satisfaction. My admiration for Paul Todd is that he thinks that way as COO of Nest. He thinks how Nest can fill the gap between expectation and what people are likely to get. He has insufficient contributions, he has a charging structure that isn’t favorite and he is restricted from doing what he’d want to do for his 13m savers when they retire. But he does the best with what he’s got.
This is the attitude that I’d like to see in pensions. There is little that private pensions can do for those lowest earners who comprise 20% of the population, Pensions have been and exploited by the top 20% for some time, they need to come and join the 60% who are neither rich or poor,
More of making pensions better for the millions in the middle and less worry about the tax planning of the top earners who we get nudged into thinking are most important. Workplace Pensions are a means of being paid an income for as long as you need the money. They are not going to help those who have not worked nor those who have no need of their pension, they are for the mass of people who we should be concentrating on.
We need to be looking at pensions as heaven not hell.