Yesterday I published Brian Henderson’s brilliant thoughts on Value for Money as a way of helping individuals determine for themselves what is their best way forward at retirement.
He converts the current VFM assessments to a tool known as Retirement Value Scorecard that a financially literate person could use for working out his/her way forward. It could be used by advisers, it could be adapted for employers taking decisions on behalf of staff. 
In practice, this could be a tool for employers as well as members though the answers may be different. It gives a framework for thinking when deciding whether to arrange the workplace pension into a CDC (collective workplace pension), a CDC pension purchased at retirement (R-CDC) or a DC pension (flex and fix with an annuity) or an annuity straight off.
His estimate of the values of these options is set out using the traffic light method with green a “go forward” , red “don’t go” and amber “be careful”.
His conclusion is that “flex and fix” fills most of the boxes green and would be the logical answer to “what should I use” for the educated user.
Brian concludes that the answer for people will probably be a bit of each. I can understand why any highly educated person would think like this and hope that those few who are offered all these options in future will organise their finances along these lines.
Smart people tailor solutions to their unique requirements
But here is the reality of people at retirement. People neither have the cognitive understanding of their situation or the tools to implement these optimal solutions. The vast majority of employers don’t have them either and some large employers , though they may have consultants who can guide them through all this , accept that the majority of employees cannot take such decisions.
When we set up accumulation arrangements under GPPs and COMPS and CIMPS (the versions of workplace pension we talked of 25 years ago) we thought that people could take decisions about contracting out, of contributions they would make and of funds that best suited their needs as they built up the money that would purchase them an annuity.
All this has been collapsed into simple decisions, 1) do I opt “out” and 2) do I pay more than I have to be “in”.
But the majority of us aren’t that smart and just want a pension
Here is where Brian and I have to split! For myself, arguments for a mixture of all the retirement options may be strong but I have an overriding requirement and that is not to think about my pension when it is in payment. I really want to get paid an amount more or less what I expect with variation depending on inflation and maybe a little to do with markets.
I don’t want my pension (state or otherwise) to pay a bequest, or to flex with my health or wealth – I simply want simplicity! I don’t think that many people in their fifties or sixties (when thinking ahead) think of anything but the wage they will get in retirement to pay the bills and look after their dependents.
Brian Henderson’s Retirement Value Scorecard should be used by financial advisers and those taking their own advice. For the rest of us there should be Collective Pensions.
