Boulding

This is a great post from Adrian Boulding in response to my blog yesterday  “Help me with our pension..”

This story can be better understood if we segment the market into three tiers. Those with £1m in a top end Sipp should use an adviser at retirement.

Those with £0.25m in a Sipp with good systems probably don’t want to pay 2%pa in adviser fees and would benefit from the sort of digital self-help/guidance/robo-advice solutions that Jonathan could help providers to build.

But the majority of people are in tier 3, with workplace DC pensions that if they could turn them efficiently into a lifelong retirement income would give them a really useful top up to the State Pension, like maybe doubling it. Most of the noise in the pensions press is about tiers 1&2, but that’s not where most of the people are.

This is spot on. Most people who have  amounts of pension due them from their pension pot would be better thinking of giving themselves a pay rise from the state pension and then working from there towards what they need to earn or get hold of otherwise.

If I have a State Pension of £12,000 and a pension of £3,000 – that’s £15,000. An indexed pension at 67 of £3,000 costs through a unisex annuity (healthy person) around £40,000. This is a typical “pension” pot buying a proper pension paying to spouses and with proper protection against normal inflation.

Adrian would like us to point out that we would probably get 25-30% more from a CDC pension , slightly less if we could transfer into a DB pension but all of these options are a long way from .

These are the kind of things that people should be asking themselves at retirement, they should be garnering pots and bits of pension from their past and (with the help of a dashboard- easier) getting a consolidated pension as part of their workplace offering.

We can’t afford pension advice for everyone, nor have we the capacity to deliver it. Instead, we need pension schemes that can be trusted. One thinks in the DC world of Nest, People’s , L&G’s and Lifesight. All of these things to invest heavily in pension functionality that make them a good place to get your pension, bring your bit and pieces.

There will be smaller schemes that will develop new ideas which will capture imagination. Is it not possible for pension schemes to become well regarded because they provide good “lifetime income”?

I hope that we will find new ways to provide pensions that add extra value than can be achieved by insured annuities. I hope that some will be guaranteed and some will float with market rates. I expect people to get extra pensions for putting some of its value “at risk” and I’d hoped that generations to come, will not be asking for advice but demanding information so they take informed decisions.

And for most people, we will need defaults which will take people into proper pensions. I know that Adrian and I think a lot about this and I have my feet in both camps. We might call DB and CDC pensions separate but they are not hugely different, nor is the annuity, though I suspect it will lag in pay-outs.

We have yet to think about value for money in retirement but I have such thoughts spinning in my head. I wonder if others have such thoughts?