The corporation of London are surprised that City employers aren’t as satisfied with pensions as they are!
The intent is to do the right thing for their staff but if the “Global City’s” employees don’t get pensions, what hope is there for everybody else.
I have spoken to a few investment banks, asset managers and brokers of various kinds. The general feeling is that staff are well catered for by a well funded DC workplace pension. Many of them deliver services not just to their staff but to many other employer’s staff.
The gap between the employer’s view and that of their staff does not come as a surprise to me at all. Typically I will hear statements from staff along the lines
“I know I’m in my company’s pension scheme, it’s just I don’t know what to do”.
I feel that way myself, faced with a pot of money that could plummet in value if investments in the magnificent 7 (or perhaps 8 now? ) go wrong. It’s not just that I’m invested in things I don’t understand, it’s that I have very little invested in the UK and nothing that I know of that’s stimulating UK productivity and growth.
As for my contributions. I’m faced with the nastiest , hardest problem in finance. If proof of that is needed, almost everyone I know (including myself) don’t know how to set my pension up so that it doesn’t run out on me as I get old and that it does keep up with inflation as the state pension does.
The answer from the City of London is “financial wellbeing” which is not as woolly as you’d think.
Closing this gap is essential to delivering the UK’s broader growth agenda. Initiatives such as the Mansion House Accord demonstrate the scale of opportunity, unlocking significant long-term investment into UK businesses, infrastructure and high-growth sectors. But realising this potential depends on a workforce that is engaged, financially capable, and supported to make informed long-term decisions.
To improve workplace financial wellbeing this new report, produced in collaboration with nudge, is calling on employers to prioritise more personalised, life-stage financial well-being support that centres on education and is built around real-world scenarios. Roundtables conducted as part of the research showed that employees felt that current support was often too generic.
The report also calls on government and regulators to clarify guidance vs regulated advice boundaries; expand trusted financial education support into the workplace; and support consistent employer standards.
I agree with all of this and the essential point that employees don’t know what wage in retirement they will be getting. Everything comes back to two simple numbers, what is the tax-free cash and what the pension I will get when I need my pension?
Can we please stop assuming that people working in the City of London “get pensions“? Financial well-being is what you get when you know you will be alright when you want to stop working or when you have to stop working through ill-health. The questions that matter are about life and death and what happens for my spouse or partner.
It is about knowing that your pensions are paid from a well invested fund or from the Government. Investment is secondary to an individual to the outcome but I can see a higher level of engagement if you work in the City of London! But even so , I suspect that financial wellbeing comes with a sense of good governance from the people due to pay our pensions.
Financial wellbeing doesn’t need generic education. It needs reassurance that the deferred pay from “pension” deductions from pay, will offer a wage to live on – in retirement.
With the flexibility and decision on how to take a pension being given to individuals. It’s confidence that’s needed to make the right decisions. Unless you are Ina position to outsource advice to a financial adviser. That confidence is needed over life, from pocket money to apps to debit cards, lending , mortgages , saving and investing. People have to consider all these things. Not Just looking at a pension pot in isolation.
I suppose my answer is that most things don’t need managing like the modern “pension”.
While the CDC model changes who bears the longevity risk (moving it from the working members and employer to the short-lived members), it cannot escape the fundamental laws of maths.
Regardless of how a scheme is structured, the absolute size of the total investment pot remains the primary determinant of retirement income.
No amount of clever pooling or risk-sharing can compensate for inadequate contributions or poor investment returns. If the total pot is too small, the income produced will be low for everyone—regardless of whether you die tomorrow or live to a hundred.
To continue to imagine that CDC beats pots is rather like producing an omlett without eggs.
Clearly risk has already shifted to the most apathetic. Indeed some employers might apply the much quoted “60% more” to reduce current contributions.
If you think that CDC will be invested like DC, you have missed the point of my recent blogs. While DC is constrained by the de-risking of individual pots , CDC is not. The time horizon of CDC is infinite, it can only close in extreme circumstances. John, I know you believe in effective investment, I think CDC will be considerably more effective in its investment than DC pensions. Unless very big (like Nest) there really is not much competition.
Henry, if we agreed on everything one of us would be unnecessary
In the states, I’m finishing my 47th year in corporate employee benefits. During that time period, it is clear what workers want (again, at least here in the states).
Here, median tenure of American workers has been less than 5 years for the past 7 decades. Median tenure of American workers age 50+ has been less than 10 years for the past 5 decades.
In other words, American workers have had 11 different employers on average by the time they reach age 50 (averages can be deceiving, of course). And, two thirds to three-fourths of American workers who retire at their Social Security Full Retirement Age of 67 (born on or after 1/1/60), will have a different employer than the one they had at age 50!
So, what do most want? One thing they don’t want is a series of DB pension plans where accruals stop and are frozen each time they change employers – with a deferred commencement date at age 65 or 67. All studies in America show a vast majority of workers who once had a DB pension plan have, where offered, elected a lump sum cash payment to be spent immediately or rolled over to invest in an Individual Retirement Account.
No, American workers want portability and control. When they leave an employer, most fail to even consider leaving the monies in the predecessor employer’s plan – even where it is superior to the next employer’s plan or an Individual Retirement Account. They fail to recognize that the plan is a separate legal entity here in the states.
Yes, some want you to be responsible for them, but those are the same workers who don’t realize that the pension is part of their total rewards (such that they are receiving less in other benefits or wages) – a plan where the plan sponsor controls everything – accrual rates, funding, payout provisions, etc. And, in the states, we are down to only about 10MM Americans in the private sector who are actively accruing a benefit in a defined benefit pension plan, where most of those plans now have cash balance formulas (DC look-alike) and lump sum payout provisions!
So, todays pension plans in the States are primarily for public employees and represented employees. Those lucrative public pension promises have mostly been bailed out only by superior stock market performance since 2008 – funding was SOOO bad, some states and cities still have significant issues. Those union pension promises often far exceeded agreed upon funding, and many have now been bailed out by a $90+ Billion allocation from the Biden Administration – where, because of massive deficit spending, those costs were added to our national debt, meaning the bailout will be paid by generations too young to vote and generations yet unborn … people who themselves, won’t ever have a defined benefit pension plan! .