People look at Damian above and wonder what is happening to their pension savings
For most people, the pension they get is something from the State, which they can find from a link advertised by the DWP. If you haven’t worked out your entitlement and when it’s coming your way, you can click here to do so.
The state pension forecast for you is here.
That this link takes you to a forecast pension based on your history of national insurance payments is the “gilt edge” for pensions, if only it was likely there elsewhere, I hear my friends and family saying. The hope is that by the end of the decade it won’t just be the state pension but all the pensions yet to come, will be on display this way.
For a decreasing number in the private sector but stable number in the public sector, there is a pension entitlement from being at work and in the works pension scheme. It pays a pension that can be forecast like the state pension but also some cash and some flexibility on when the pension starts and how it protects the family and you if you get terminally ill and die. This pension is reasonably easily accessible through the employer but decreasingly so for those who’ve left employment with this kind of pension. For them there should be hope later this decade that they can see this pension alongside their state pension.
Then there is a third type of pension which is not like the state or forecast pension scheme mentioned above. This is one paid from a pot or swapped for a pension and it is the one that mystifies my friends and family who are not close to pensions and who think of the state pension as the gilt-edged pension ahead of them. Except of course the state pension is not going to pay them the income they need to meet their retirement needs, housing, family and meet their aspirations for themselves. There has been a lot of work done on what people need as an adequate income from the savings pot and the general conclusion that what they need is a great deal of money paid into the pot to make sure they are alright.
This last layer of work is being challenged by this Government, keen that pension funding does not get estimated like national insurance a “pensions tax”. The Government does not want the amount paid to the pot to go up but for the pot to reach further paying more as a pension, like the gilt-edged pension provided by the state and by some company pensions.
This is why a Labour Government has pushed through a (soon to be generally available) collective pension that looks to the general public (no criticism) rather like the state pension and rather better than a mystifying pot which they have to turn into a pension themselves.
I’m sorry to over-simplify things for experts, but this is really what the Retirement Guidance being introduced by the Pension Schemes Bill actually does and it’s what the UMES CDC and the Retirement CDC are a part of.
If you are a Pensions Minister as powerful as this one is (he is busy designing the Budget) , then you see the importance of making pension saving affordable, understanding and as effective as it can be. Which is why the Pension Schemes Bill and the CDC legislation replace the 2017 promise to increase pension contributions (something which was always gong to be a future Government’s problem but now has been become his).
There is of course a way to cushion the fall and the impact of broken promises to a pension industry who had been banking on a lot more money going into the pot – a lot more importance in terms of “pension taxation” – as Bell suspects increased mandated contributions would be seen. That cushion is the Pension Commission (number 2) which will allow discussions about “adequacy” and “inclusion” to drag on a few more years.
There is one more important matter for pensions this Government. I think it very likely that before the end of this Government (backstop June 2029), we will have access to a dashboard (by we I mean everyone who has done pension saving and those who haven’t but have a state pension – eg everybody). A few clever clogs will still think of their retirement savings as a “pot” and manage their own cashflows in retirement (often with the help of an adviser). I say “clever clogs” because they will be the kind of people who opt-out when they can of being in collective arrangements, opting out of DB schemes as they will of CDC schemes and even defaults they would otherwise get from their DC plans “at retirement”.
But if you are in Government, you are not overly bothered how the opt-out clever clogs do, you worry about what pre and post retirement pensioners get by default. The new legislation is very important to Bell and Reeves in a way that the Pension Commission is not (yet) and perhaps may never be if another Government says thanks but no thanks to the Commission’s findings.
The dashboard will tell people what they will be get from their savings in terms of “pension” – lifetime income. That income will be based on an actuarial roll forward (SMPI) of the known pot and a conversation of pot to pension using annuity conversion rates as a proxy.
The ordinary person will know what they get from the state pension and from DB pensions and they will have an estimate from the pension dashboard based on the above formula and it will be that which will be news for them, as they won’t have seen their pots in one place expressed as a pension.
My suspicion is that the income shown being paid will be the point of push-back for many, many people. It will then that CDC will become a “real option for many” and then that they may stick their hands up (as I did to ask this question of Torsten Bell)
“I fancy more pension in retirement, how can I get a better pension (Sir)”.
Now have a listen of Damian talking about the deal for savvy working people…
Damien gets rather more views and comments than the Penson Plowman. He suggests a funded CDC type system for everyone from cradle go grave, organised by the people who do the State Pension. I’d be happy to see this happen – a funded replacement for discussion by the Pension Commission 2.
Damien Jordan is on Linked in here. He was excellent in Manchester earlier this autumn