This question is floating around on social media and gave me some thought over the weekend. It follows up an article I wrote about Steve Webb’s comments on the Pension Commission.

“Otherwise why bother with pensions? We might as well go to ISAs”

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Here is the eminent CH commenting on Steve Webb’s blog

The reason is because saving into a pension is nearly always more tax efficient and therefore will leave someone better off in retirement that they would have been contributing to an ISA instead.

That uplift in wealth is their reward for giving up immediate access and agreeing to lock away the money until their late 50s, and for suffering ongoing taxation constraints that incentivise them NOT to rapidly withdraw it all unless their pot size is only very small.

Many people highly value the flexibility offered by the current system, allowing them to combine taking ongoing income with occasionally taking larger capital sums when their needs or lifestyle warrants it. No surprise that this tends to be those people with far greater financial literacy and who’ve taken time to understand how to approach the decumulation question. Decumulation IS more complicated than accumulation, but nor is it rocket science.

A general increase in financial literacy would work wonders for the UK. eg. Rather than having to cajole people to invest in assets over the long term instead of saving in cash deposits delivering zero real return, they’d make the much better choice themselves. Rather than withdrawing their PCLS in one go and ASAP, only to have it languishing in taxable savings accounts earning nothing, they’d be leaving most of it invested in assets inside of their pension wrappers so that their tax-free component grew (much) larger. And so on.

While your preferred approach is to offer a fixed set meal to everyone every day, many others welcome the opportunity to exercise their personal choice by selecting and perhaps preparing their own meals to suit their own needs or tastes.

There’s room for both approaches — or a blend of approaches — of course.

Thanks CH; we seem to have an obsession with promoting almost everything other than pensions. It was good to see Martin Lewis doing a “pension special” a couple of weeks ago but when you consider the importance given to home ownership, ISAs and cash, it’s not surprising that pension saving gets squeezed.

We’ve just had a pension commission that has emphasized the need for more pension help for women, the self-employed , low earners and those who aren’t familiar with our system (such as recent immigrants). We don’t just need education, we need promotion from trusted sources.