I have come to a conclusion after 42 years in pensions that freedom from pensions works for some but only some. David Brown has started a company called Freedom to make it easier to make sense of their savings and have what Bec Wilson calls an epic retirement.
I have spoken to Mark a couple of times and to Damian Stancombe many times more. Their vision is liberal and it fills a gap for those who want an epic retirement that they have control of. Damian and Bec met when he was in Australia on his first retirement and I suspect an answer for many who otherwise would use an adviser is behind this post.
There are a lot of comments from people who I have worked with over the past 20 years. Laurie Edmonds is one
There is a school of thought that people can be educated to be financially up to using the products that have been designed for them. Laurie hopes that everyone can be educated to work out pensions as they have been developed.
Laurie and I disagree on this, I am quite sure that people who are getting on in life are not up to being educated and younger people don’t see the point. Most people do not want to be financially expert enough to work out how to build an epic retirement while the few who do will find Damian and David’s work interesting and maybe of use (without the latter the business has no value).
Richard Smith knows that what most people want is not freedom from pensions but pensions that give them freedom
There’s a lot to read here but the gist is in the titles. Pension Dashboards will open the doors to those who want to do pensions for themselves (though most of us will still rely on defaults to pay us a retirement income from our pots for however long we are alive).
I don’t think Pension Dashboards will give us am epic retirement but they’ll take us a step along the path to a sound one.
Other views on Freedom
There are a lot of other comments. Chris Wagstaff that despite their being nearly £4bn in funded pensions there isn’t enough to pay the pensions we’d all like to have.
Here David sounds like Torsten Bell, I would agree if I didn’t see the products of tomorrow on the way and looking like the pensions schemes we started out with in the middle of the last century
Josef Pilger wants us to check out what has happened in the Nordics and Holland. The Pension Bill is certainly looking towards the Nordic and Dutch model, a pension rather than a wealth market,
Wealth management -attendants moving chairs on the Titanic ?
Damian Stancombe thinks the problem with advisers promoting the solution as an investment matter.
Clever people like to do clever things so focus on investment strategies and longevity hedges. It’s akin to the deck attendant on the Titanic moving the chairs around before it hit the iceberg. Freedom is about moving the iceberg
I fear that many in pensions make money from managing our investments and little from administrating it. The investment consultants may be attendants on the Titanic but I am not sure whether we can do without wealth managers for those going for the epic retirement, perhaps Damian and David Brown are not quite as one on the value of them!
Various view of freedom and some from Freedom
Here we have a fair representation of the views around freedom and we have yet to hear Mark and Damian’s Freedom solution. I hope that this account of what’s been hosted is helpful.
Is Freedom needed for an epic retirement?
My conclusion is that there are a limited number of people who want an epic retirement and they will want to feel reassured by the deckchair arrangement of wealth management as well as a payroll solution of the cashflow management and payroll arrangements which looks to be the business of Freedom.
David’s important observation is that people are afraid to spend their money and need retirement pay done for them. If he works out a way for us to do it with Freedom, I think he will have achieved something.
I think he is on to something if he offers better administration of payments but he’ll need to work out how to work with those who can’t cope with freedom.
We also have to consider whether “pension freedoms” themselves create health problems in the pensioner population.
In an interview given with El Medico lnteractivo, Rosa Perez Losa, PhD, outreach secretary at the Spanish Society of Emergency Medicine and emergency coordinator at the public emergency medical service in Catalonia, Spain, while dismissing persistent beliefs that winning a major prize in Spain’s Christmas Lottery can endanger the winner’s health and is medically unfunded. she noted that receiving a large sum of money all at once can destabilise an individual who lacks financial knowledge or experience. This situation can generate anxiety and stress, which in turn may affect both physical and mental health, contributing to digestive problems, increased blood pressure, sleep disturbances, irritability, and depression.
Are there not the same risks associated with managing pension pots?
Are the medical risks reduced with DB or CDC pension arrangements which do not require the individual to make decisions, whether investment or product selection?
Should we think about pension arrangements as a Lottery?
“Should we think about pension arrangements as a Lottery?” Define “epic”.
PensionsOldie asks a great, thought provoking question.
Back in the States, nearly three decades ago, this then-rookie retirement guy noticed a significant change in attitude and behavior once accumulated savings in a 401(k) (today’s “long term” retirement savings accounts in the States) reached a “critical mass”. “Critical mass” varied among workers, but it was typically equal to or greater than one year’s gross annual salary.
In the states, most Americans in there 20’s, 30’s and 40’s, the vast majority have incomes below the top quartile, and probably 8 or 9 out of 10 have wage incomes below the median (when you include the $0’s). In other words, most have incomes below $60,000 US. So, retirement looks improbable if not impossible.
And, the TV/streaming ads of very young looking 60 year olds out having a good time actually come across as negatives to most younger Americans when they flip to the next screen showing their own personal negative net worth and another screen showing $38 Trillion (US) in national debt.
Getting people started on saving requires more education than an employer (or a federal or state government) can afford. So, we deploy behavioral economics schemes and default individuals into saving. Sounds good. But to ensure they don’t opt out, you need a second feature – liquidity – because these are often the worker’s first and many times only savings. So, you need to provide the “right” kind of liquidity – liquidity that isn’t leakage, and liquidity that can be accessed at any time along the way to and throughout retirement.
Education/instruction on how much is needed to accumulate for an “epic” retirement is a waste of effort on most Americans in their 20’s, 30’s, 40’s and even some 50 year olds. Anything more than 15 years out is remote – even if you know the time for action to prepare is now, today.
However, at “critical mass”, wealth accumulation and the possibility of retirement (epic or otherwise) becomes a possibility. Once people have 1 x annual wages in the pot (though inadequate preparation), and once they can access it (liquidity without leakage along the way to and throughout retirement) without exhausting their accumulated wealth or derailing their retirement preparation, behaviors change … they don’t cash out when changing employers, and when selecting a new employer, they look forward to the new firm’s 401k plan, etc.
In the states, the financial services industry selling life insurance figured this out a long time ago when they allowed owners of permanent or universal life insurance to borrow money. And, at least here in the States, those creating retirement income products are not targeting all or most or even a majority of Americans approaching retirement ages. They are targeting the mass affluent – those with accumulated savings > $400,000 US. Those of us who are not selling guarateeed, lifetime income products, are designing alternatives (including defaults with opt outs) that would make sense to most Americans where their social insurance incomes are insufficient to maintain their regular, everyday expenses (food, housing, transportation, insurance, utilities, etc.)
Bottom line, it makes no difference what lifetime income products you provide if the individual arrives at retirement age with insufficient accumulated savings. The value of the products, however designed, won’t be realized unless the individual has sufficient savings.
Finally, when it comes to wage-earning workers under age 50, my 45+ years of experience confirms that instruction/education on options for converting a “pot” of savings to a “pension” income are always a waste of time, effort and resources … if only because we will have lots of new products by the time they reach “full” retirement age – at least age 67 in the states for anyone born after 1959.