My conclusion from reading Corporate Advisers report on DWP’s latest research is that the happiest of retiring savers today are being paid a defined benefit.
The happiest in future will come from those who are on their way to a CDC “wage for life”. If they can get saving for a pension , as quick as regulation will allow them, then good for them
Authorisation gets underway for whole of life schemes in just under three weeks and at last any employer can take the burden of doing their own pension away from them and replace the burden with what they thought they were getting – “deferred pay”.
The DWP have discovered that what British citizens are capable of doing, does not extend to choosing a way to decumulate from their pension fund
Knowledge of drawdown, annuities, fees, charges and investment risk was generally low among ordinary retirement savers, with many struggling to differentiate between products or assess long-term implications, according to research by the Department for Work and Pensions.
This research explored how individuals aged 53–67 understand, approach, and make decisions about pension decumulation. It focused specifically on how people choose when and how to access DC pension savings in a landscape where individuals now bear more responsibility for decision-making compared to DB pensions.
According to the DWP, people accessed pensions for a range of reasons, including reaching state pension age, health or work changes, bereavement, divorce or to supplement income. Health and caring responsibilities were particularly influential, pushing some towards early or unplanned retirement, meaning respondents were accessing pensions sooner than planned.
Understanding of pension access routes also varied considerably. The 25 per cent tax-free lump sum was the most widely understood and often the only option respondents felt confident about.
The experience of the industry so far is expressed by Tracy of Broadstone. It is a mixture of frustration and misplaced confidence that this is a problem that can be “educated” away.
Kelly Parsons, head of DC proposition at consultancy Broadstone, says: “The findings lay bare a persistent knowledge and confidence gap among savers, with many people reaching key retirement decisions without the understanding or support needed to make informed choices.
“Better engagement and earlier financial education are essential if savers are to understand not only the options available at retirement, but also the decisions they can make throughout their working lives to improve their financial resilience, especially as individuals begin to take greater responsibility for managing their DC savings.”
I suspect the DWP is on the side of whole of life solutions that take the decisions away from these poor uneducated savers.
The DWP findings were based on 55 qualitative interviews with a diverse group of respondents varying in income, health, pension pot size, employment histories and family circumstances.
Perhaps next time they could look for diversity of education. But then again
Even if these interviews included well educated folk like Andy..
I’m not sure that they’d be able to DIY what Bill Sharpe called the nastiest hardest problem in finance.
Of course, I too am baffled by the choices that DC pensions present me at retirement. This DWP research says that pensions are too hard for you and me.
Why can the Government not reflect on this and put in place measures that encourage employers to (re)open DB accrual?
After all surplus sharing is embedded in DB through the “balance of cost” framework which encourages long term productive investing. Further the surplus sharing framework focuses the surplus on the particular employer and its current and future operations rather than encouraging the distribution of dividends to a distant, likely overseas based private equity owner. Loss of resources to insurers and advisors profits can be monitored and controlled. All of these put the employer in a favourable position against its counterpart who entirely loses any benefit from paying DC contributions into a distant and potentially inefficient mastertrust industry.
Members are re-assured by the deferred remuneration promise and issues such as the gender pensions gap and inter-generational fairness (are albeit only) partly addressed.
It is legislation that destroyed employer’s confidence in DB pensions. Is it now not the time to re-assess the consequences and consider what can be done to correct those mistakes.
Look to the opportunities!
I don’t think the research tells us anything we didn’t already know. Anything involving numbers leaves about 50% of the population struggling and feeling anxious. Add in human bias against thinking long-term, a lack of confidence and trust in the system (“Advisers rip you off” “If they don’t steal it the government will” “They keep changing the rules, I thought I could retire at 60” etc) then of course people disengage, then find they have to, and are overwhelmed.
The two things I know of that really can help are Pension Wise and MoneyHelper. Free, impartial, independent, backed by the UK government and highly rated by those who have used the services.
Pension Wise provides personalised guidance on the options for using DC pensions. It’s available as an online version with live webchat support or a booked telephone call. Customers can have as many appointments as they like.
MoneyHelper provides a pensions helpline, webchat, WhatsApp for personalised guidance on any query, on any UK pension, in any language, for any customer, anywhere in the world. No appointment is necessary.
MoneyHelper provides a variety of pensions services including specialist appointments for those facing divorce, safeguarding calls on transfers, and help for those recovering after financial crimes and scams. There’s also an extensive website, Facebook group, outreach events and presentations in conjunction with employers, schemes and the DWP, and responding to customer written enquiries submitted through the website.
MoneyHelper is much larger than just pensions support too. It aims to provide a one-stop shop for all money and pensions guidance, including debt advice. It aims to provide appropriate support for those with particular access needs, e.g. live translation and BSL services.
Everything can be reached through the website at https://www.moneyhelper.org.uk/en or calling 0800 011 3797