Robert is a good guy and likes what I like – simple pensions. But why does he not want CDC to become an alternative to DC and DB? Is is not radical? Is it not simplifying pensions for people?
I found myself having to comment on LinkedIn rather than on the Times article because clearly Times readers are more bothered by wealth and IHT than that most radical of ideas – a pension.
What is going on Robert? I know you represent Scottish Widows who have said they don’t intend to offer Retirement CDC through its master trust but this is an article about what the Pension Commission is saying and it says something about collective decumulation in Chapter 5 that you cannot ignore.
While we may consider “engagement” with DC, a way of getting people to take good decisions, it is quite obvious from the charts that those who can afford a sustainable pension are those who can afford to buy sustainable real income.
We know that the withdrawal rate needed to pay yourself an income for life that keeps pace with inflation is represented by the light blue box (4% or less of capital) and we can see that people only start doing this in any number when they have a pot of £100,000.
When people work and save to state pension age , when they have a full state pension and at least 14 years in AE (as you will have if you started AE in 2012) then a combination of tax free cash and real retirement income makes for a real income that is accelerated by collective accumulation and decumulation of up to 60%.
We should be ambitious to give people the best retirement income, not moaning that employers and workers aren’t paying away more of their income.
If we are concerned about adequate income in retirement, then we must start by getting people saving into pension schemes that pay a real income to them when they get to a realistic age. The State Pension Age is now 67, that is the default age for taking pensions, if you take income before 67 you’ve got to understand you reduce the income you get. If you choose to cash out, you have got to understand you are sacrificing your income.
Reading Robert’s article in the Times I heard a call for a radial retirement shake up. We had that in 2014/15 and what we now need is a return to a world where people think of their pension as starting with the state pension and building on it. We need people to think of the retirement wage they’ll get so they can stop working. It is a radical shake-up because we’re not asking ourselves the question “can we afford to stop working?”
The pension dashboard which looks likely to arrive this time next year will show people the harsh reality of a statutory money purchase illustration as an expected retirement income. It will not show a pot like a Scottish Widows/Lloyds Bank app. It will not show early retirement. It will show ordinary people the reality of being in later middle age (old age does not start at 67).
This means default retirement income that pays real pensions till the day we die, and if we have a spouse, until he/she dies if we die first. These are radical because so few of us are doing this any more and CDC will set a path that more and more employers will follow.
Flexibility from 55 (57 from 2028) is a luxury few earners cannot afford.
Sacrificing income for cash is a luxury that almost all of us cannot afford.
Entering a level pension/annuity or drawdown is akin to giving you a pay cut every year we have inflation.
These are as much a truth as that contributions are too low.
We cannot magic more money out of people’s pay, but we can give them deferred pay when they can no longer work.
The insurers are still pushing engagement with our pots as a way to afford retirement. They are being immensely irresponsible promoting “flex and fix” as a kind of wealth management when most people are underfunded for retirement.
What most people need is a way to afford to retire through what’s left of their sixties, their seventies, eighties and beyond. They need to offer protection for their family , especially their most loved one.
Flexibility is something that most people cannot afford. We manage our finances around a known income called “pay”, not around “wealth” – the mysterious pot that our pensions have become.
I despair of insurers for this irresponsibility and feel sorry for Robert Cochran who clearly tows the party line. I have just heard his boss Jerry Bucher on the VFM podcast (Director of Scottish Widows workplace) , this irresponsibility comes from the top.
The ABI can promote a line for its workplace pension members and it clearly is. The insurer’s line denies the ordinary person a pension and replaces that promise with a false hope that in retirement will be wealth.
the mysterious pot of wealth