I’m not sure which part of the social megasphere this conversation took place but it is between Richard Smith and Damian Stancombe so the conversation is between people who see things from ordinary people’s points of view (consumerists as they are downgraded to).

Consumerists aren’t of course downgrade-able because they exist in a world where they are surrounded  by people who need them, me for instance. I need to know the thoughts of people like Richard and Damian who know more than those who throw charts at you.

What is Richard saying, why is Damian taking notice?

What Richard is saying is that what people will see when they load up their personal pension dashboard will be quite new to many. They will see the pension they could get from their pension pot, based on a Statutory Money Purchase Illustration (SMPI). The SMPI is rather old fashioned and is based on what a group of actuaries believe you can convert cash into lifetime pension and it assumes you are normal in life expectancy for someone of your age and that  you want an income that does not go up with inflation but stays flat.

Those are all the technical details, what Richard is talking about is the impact of finding out that the income you get from a pot at  (say) 60 on these rather rough calculations will be around one fifteenth (1/15th) of the pot – but you’ll get it every year till you die.

It would of course be less if you want the amount you get paid to go up (at a fixed percentage, or with inflation) and it could go up if you can prove you have a short life expectancy or if you chose to take your money later (say at 65 which we still think is retirement age, or 67 which will be retirement age very shortly ) or 68 -(the state retirement age for those a long away from retirement) or whenever you choose after 55 (which is the minimum age for taking your money either as cash or income or something in between).

What people will say when they see this pension number is anybody’s guess. I imagine Richard is right, people will look at the pension numbers quoted for their pots and say either

1. That isn’t enough, I need to get more in my pot (work some more or wait till it grows)
2. That isn’t enough – where can I go to get a better rate of pension?
3. That’s what I’m getting, I’d better cut back on the cruises and other foreign holidays
4. Can I take my money out now and blow it and rely on the state.
5. I am surprisingly pleased to find out that I can retire on a good wage and not have to work anymore.

I set out over 40 years ago with the vague hope that people would reach their retirement and find out (5) – that they had got from state (and then second state) and private pensions enough to walk away from work and enjoy what was left of their life.

Back then the earliest retirement age was 60 and people thought 70 was a good age (three score year and ten as the church told me). And back then (the 1980s) we considered pensions were affordable because they covered less of life. So liabilities for pensions and annuities were calculated differently.

But what went on, as we got healthier was that the minimum retirement age fell to 55 and people’s expectation was adjusted by an industry who believed that wealth management and not pensions could see us through. It can see the wealthy through and leave money at the end to meet the needs of the next generation but this is not what pensions about. Pensions are about the ordinary people (I include myself in that group) who have no expectation except what other tells them.

So going back to the conversation between Richard and Damian, the answer to Damian’s question is that many people will have revealed to them the buying capacity of their pension savings through the pension dashboard and it is going to be a nasty surprise or a realisation of what was suspected but never written down.

The argument between Government and Employers and Providers included at the end of the conversation by Richard is already going on. None of us likes to admit that the pension saving system is inadequate so we dress it up by telling people they have substantial amount of savings, as if it’s doing well compared with their building society or ISA or even free capital if they sold their house.

But this is a hopeless argument, because what is needed is for people to know how much income they can get in retirement and for the rest of their lives and this is the “nasty, hardest question” of Mr Sharpe.

So thank you Mr Smith and Mr Stancombe for having this conversation in public. It is one that we consumerists need to continue to be having wherever ordinary people (most of us) are about.

Richard

Damian