For the past 10 years I have struggled with a pension pot that I cannot turn into a pension . I do not want an annuity, it is not a good deal.
I spent two years working with Pension Superfund to set up a Pension Superhaven , developing a pension scheme where folk like me could convert my pot into an occupational pension. Pension SuperHaven was a kind of pension superfund for retail customers like me wanting a pension not a pot. We failed, it failed and customers like me still have no pension but just pots!
Here is L&G on the subject.
It simply shouldn’t have happened:- millions of us finding ourselves at retirement with a pot not a pension.
L&G’s spokesperson is Jayesh Patel. Ironically, he finds his article beside the most popular article on Corporate Adviser! My argument is that we should never have had pension pots in the first place!
Nice to see John Greenwood’s Pension Mutual report most popular on the Corporate Adviser site
The familiar answer to inadequacy is for us to save more but isn’t there another way?
The insurer’s answer is for us to better fund our pots better, “addressing under saving for retirement” is the expensive way but it does not resolve the problem.
The Government are saying that swapping pots for pensions using a whole of life CDC pension could improve the pension people get at retirement by up to 60%. Not only does that help people address under-saving (making the bar lower) but it addresses Jayesh’s problem at retirement.
Doesn’t the pot to pension problem needs to be resolved before we get to retirement?
I could not resolve the “pot to pension” problem with Pension Superhaven. It’s not going to be easy for DC schemes to give members pensions at retirement. Jay explains how hard it will be for DC providers to get people like me to choose to swap pots for something else.
Retirement is extraordinarily complex for members. At the same time as navigating profound changes in their personal lives, they must also manage a myriad of financial decisions: where to invest, when to take income or cash, how much to withdraw, how the state pension fits in, and how to avoid unintended consequences, such as triggering higher tax rates or losing entitlement to state benefits.
It’s no surprise that Nobel Prize–winning economist Professor William F. Sharpe described the challenge of turning a pot of money into retirement income as “the nastiest, hardest problem in finance”. This is why there is demand for simpler income options at retirement.
There is another way than trying to turn pot to retirement income
Muntazir (Monty Hadidi) is head of Pensions at First Bus head of UK Pensions Strategy, Governance and Member Engagement. He is quoted in this IPE article as staying open minded
His problem is that his large workforce are expecting pensions but getting pots and that is causing them a problem. The view he has is that CDC does not give people headaches with “pension pots”. For him, CDC pensions are accumulated over lifetime and are what people engage with. He hints that in future that may be the way for people to swap pay deductions not for pots but pension!
Of course, cutting the individual pot out of the equation is difficult for commercial DC master trusts . It means unwinding 40 years of relentless pot-building into pensions. That is the situation we have now and Monty’s asking for the UK to “stay open minded” to CDC so another generation doesn’t find itself with the problem I and my generation has!
I suspect it’s not just Monty Hadidi and Jayesh Patel who are waking up to Bill Sharpe’s “greatest problem”!
