Andy with youngsters on Lady Lucy. Intergenerational fairness!

I have been speaking with my old friend Andy Young, an MBE for setting up the PPF who has worked with Pension Ministers ,  most especially with Steve Webb. He has no blog and should run one himself but till he does, I will publish what he sends me.

Th story of him sending me this report by Fairer Finance is his recent conclusion that house ownership is a means by which people who have not “savings” can liquidate money to meet the bills of later life.

Andy’s comments to me are republished, without redaction. He has helped me and many not as dim as me, to a better understanding of retirement funding in the whole. It mentions Pension Commission 2 and work being done at Nest.

I hope he speaks to you as he speaks to me! I have emboldened to help the read!

Andy’s comment

This is an excellent report and should be part of the evidence base for anyone looking at “adequacy” of retirement provision.

Especially for those people who probably produce the largest so-called  “under saving” in most analysis – middle (ish) and over earners when under saving is measured against replacement rates or what to poorer people would be much more than “adequate”.

I have always had a very negative view of equity release ever since I advised on the regulation of life insurance in the 1970’s (Hard to shake off). But I know it makes sense if managed and charges for properly and fairly.

I have not critically considered the analysis but will.

Oddly I told Anna Brain at Nest Insight a few months ago that the U.K. needs to look at demographic trends when thinking of house building.

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How much saving can the world usefully use?

So my reaction to the saving is to return to my first ever project at GAD – the 1971 based population projection. Demography -as indeed I have done in a few comments recently.

And also a David Miles paper on how ageing of the savings world would depress investment returns.

The world is saving more.  India and the Continent of Africa.  And Europe is moving more to “funding”.

We can expect returns to be lower. Indeed as I commented yesterday on a German blog on the expansion of funding there alongside worries about the sustainability of their social security and lots of stories of un(der)funded public sector schemes – what is the prospect for investment returns in future?

Equity bubbles come and go as they are inherently volatile markets. QE for too long was a mistake. Now we face markets driven by longer term forces.  How much saving can the world usefully use?

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Some thoughts on houses and savings

My family, like many middle class families, has inheritable property which is too expensive for the older generation to maintain but of greater value to children and grandchildren.

A decision was mad a couple of years back to release equity from the property by way of a later life mortgage which would become redeemable on inheritance.

This enabled the house to be maintained and the parents (now parent) to live without worry. The couple had enough pension to miss out of pension credit but not enough to meet the expenses of the house and growing old.

This I think is an example of housing wealth bridging the later life funding gap. We found an IFA who executed the deal through Aviva, we had a bad time with another insurer with whom we thought we could work directly. Our experience is that intermediation is worth it.

I have had a good experience working with the Equity Release Council and with members of SOLLA, the society of later life advisers. The NHS does an excellent introduction to this service which you can read here

https://www.nhs.uk/services/service-directory/society-of-later-life-advisers/N10499610

Policy and execution

Andy asks if there can be too much saving. We had been discussing an article in the FT which I  wrote about yesterday

We would like to think we should be saving more but I am not so sure and I’m glad to see that Andy Young agrees.

My family are borrowing our way out of trouble for our elders. We will inherit the debt and maybe a tax bill when death happens.

To suppose that the retirement gap is as simple as retirement living standards point to, is to put too much reliance on savings and not enough on the earnings of the next generation and their capacity to pick up the complexities that families create. In truth, all members of families have different views and we do need “fairer finance”.

Retirement is not about one person but about all who live with , depend on and ultimately care for the pensioner. Retirement finance comes from a lot of sources and the work of Fairer Finance and the thinking of the likes of Young, Miles and Brain and  needs to be brought together by  the Pensions Commission (2).

Where pensioners are on their own without help, society has let them down. That is another matter and one that the Pension Commission may want to consider too.