If you speak to most people about pensions there is only one thing in their mind, an income that takes over when they retire and provides security for the rest of their life.
We have made life a lot harder for ordinary people by deciding that a DB pension is different from a DC pension which is different from a CDC pension.
When I speak to my colleagues at work , they get annoyed when I talk about pensions as what people expect from saving from salary, sacrificing salary or topping up from their bank acc0unts. It is nuts to them that we are so adamant that we define what they’ve got coming to them by what they’ve paid.
So for instance, the national insurance that most people pay is a kind of defined contribution to most people that buys them into the state pension. They aren’t interested in the particulars until they are close to retirement when it becomes very important.
Likewise most people think that payments they pay into work pensions will come back to them when they stop working as a retirement wage. Ray Chinn confirmed to me the other day that when he was at Nest, they asked savers into Nest what they thought they were buying and over 40% of those asked said they would get more state pension.
This assumption that money is being taken via auto-enrolment into Nest now impacts over 13 million people and why any less than 40% (lets say five million people) are any the wiser defeats me. Why should people be more interested in how DC, CDC and DB pensions differ from each other (let alone what a cash balance DB pension is!).
The note I got last night from a work colleague who worried that I was confusing DB and DC pensions (and a lot of other acronyms to boot).
I realised that in my simple way I have started thinking of pensions (whether DB or DC- or CDC) as ways of providing people with security in later life. Somewhere in my brain I have lost the capacity to differentiate income from a DC pot from any other coming my way as I grow old. Infact the state pension and my private pension have become one in my mind and the only thing that confuses me is whether my pot of DC money is going to be paid to me like all the other pensions,
I am convinced that this is how most people think of pensions and I think we need to take a step back from our ever so complicated lives and remember that whatever the rules and the regulators and value for money and the complexities of how money gets paid back to people, it all goes into one ear and out the other.
What is needed , for those who don’t want to spend time on pensions , is a very simple statement of what we are going to get paid when we retire. Some, the kind of people who think that Nest will pay state pension , may want to leave their learning at that kind of level, some will want to know more and some will come expert.
Our job is to make it simple enough that those who simply ask for someone else to arrange the papers and show them where to sign, feel they can trust the system.
I am not wanting to open doors to scammers (and I know that scammers look at the opportunities) but I think that ordinary people think they are being scammed when they lose touch with what is coming their way and many people simply don’t understand what their savings are going to give them.
I’m very pleased that people will see their entitlements to pensions promoted on the pension dashboard, I am very pleased that in the King’s Speech the King suggested that we will have a default of a retirement income from DC pots and I’m pleased that we have legislation coming up which will make this happen.
It shouldn’t be complicated and whether the way that income comes to us is insured annuity , certain pension or uncertain pension isn’t going to fuss most people who will take what they’re offered.
Of course we will have frightful arguments about how income is paid from people’s savings and many people will choose to have their money back and do it themselves but none of this should be an obstacle to deciding for people whose interests we look after, what we recommend – the default!
Postscript; this great comment comes from a pension manager looking after the benefits of 13,500 members
