Richard Smith has been finding out what people have been asking this year.
On this blog, I’ve been giving those who believe the best way for ordinary people to have confidence in replacing a wage at work with a wage in retirement is through their state pension first and then through the deferral of their pay by a payroll deduction. Matched with a contribution from the boss and help from the taxman, there is hope that they can build up a pension that will pay for what they want from the freedom of not being at work.
I h ave been lying awake at night worrying about what people want from their pension and I’ve taken to watching these videos. People are confused by all the things they can do with their contributions – salary sacrifice – AVCs- paying into a pot (or not if they’re in a Government scheme), combining your pots and why you should be paying more. It’s all the stuff that your workplace pension provider wants you to be asking (which is why Royal London and Aegon are sponsoring them).
But annoyingly for DC pension providers, people insist on wanting to know what they’re going to get as a pension. People find that what they’re getting from us pension geeks does not answer their question about income or how this income is taxed. That’s because workplace pensions aren’t (yet) set up to pay people a pension.
Now we may hear in years to come about “guided retirement” where you are nudged into drawing an income that goes up with inflation and is paid till you die. But right now that is not on the agenda. Right now, these videos tell you, (accurately), the options you’ll get when you start paying yourself from your pot.
The question “are you ready to retire is one that people will get more information on when we get a pension dashboard. When we can log into the dashboard on our phone or computer we will see the income that out pots as a pension. This is known as the estimated retirement income (ERI) and it will look like the pension you get from the state and if you are lucky from a defined benefit pension.
The dashboard will start to answer your questions that even the Pension Geeks can’t answer now. They cannot show you your income when your pots are converted to a wage in retirement -it’s just too hard. They have to point you to a “statutory money purchase illustration” (SMPI) to get your estimated retirement income. If you move jobs you’ll have be well organised to find SMPIs for all your pots unless you are a lucky one with a pension not a pot!
All this is complicated to explain and difficult to understand. Life will become easier when the dashboard helps people with Pension Awareness in a way that Jonathan and Rachal and Richard Smith have been wanting for well over 10 years now!