How most people think about the pensions market

An anonymous comment from a friend not going to the Pensions UK conference . “They” are those who represent us.

What really p****s me off is, they could’ve been doing retirement incomes for the last decade, but only now, cos GR legislation is making them, are they starting to talk about them. I’m not sure markets actually work in pensions.

I get it that Pensions UK has now accepted that pensions are more important than pots to Government, what I don’t get is whether the membership of Pensions UK gathering in Liverpool actually believe that.

The generation of pension managers brought up on employers using their pension schemes as an HR tool to manage people into retirement, to retain people who need more pension to retire, to think of pensions as deferred pay has gone. Well they’ve gone from the Pensions UK attendees at these conferences.

DB schemes have become a football to be kicked around the funding park. At one time they were considered lucky to survive, they could bring the sponsor down and be consolidated into the PPF. Today they are in such surplus that for many the idea of being bought out by insurers (let alone submerged into the PPF) is being questioned.

If you asked people up and down the streets of Liverpool what matters them about pensions they would answer not about funding levels but about the future income they’d get from the one pension they really understand- the state pension.

What has overtaken defined benefit pensions as the main discussion point of conferences is the defined contribution “pension” which once meant “money purchase” an an annuity and now means pension freedom. Unsurprisingly , most people don’t think of these pensions as a way of getting paid a wage in retirement but as a pot that’s invested but  extremely hard to understand.

pot

We are told again and again that what matters to members is their “outcomes” but right now there’s very little understanding of what the outcome’s going to be.

Within a year (we hope), people will be able to log on to their pension dashboard and see all the pensions and all the pots illustrated as pensions using a SMPI – a statutory money purchase illustration converted into an ERI (estimated retirement income). It’s not until you click through on your DC savings that you see the pot and many people won’t click through.

The “outcomes” that pensions dashboards will unveil will be very different to the pots that they have been shown before. This is what I see when I open my largest DC pot

Although this is labelled a worksave pension scheme, what follows is a number which is not my pension but my pension pot, not an income but a capital sum.

This is the dilemma that I have and many people who are old enough to take their money now. We don’t have a default retirement income that looks at all like the state pension which we understand and what we get when we have the pension dashboard will be based on a product (the annuity) that went out of favour in 2014 and is returning not with a triple lock, nor any kind of increase but as an income that is guaranteed to go down in real time every year that we have inflation (which is every year).

This is what the pensions market has brought us, a beggars mess of information that has no consistency between what we get from pension providers and what we get from the Government’s Pension Dashboard. Neither show us anything like the pension we do understand and talk about – the state pension and the triple lock.

I will come to the Pensions UK’s big idea in another blog but I want to put this question to the Pensions UK conference arrangers. Is this Conferences addressing the needs of ordinary people to understand what they are getting in retirement? Do these pots have any relevance to those who want a wage in retirement? Has our pension system been hi-jacked by wealth managers at the expense of the retirement income pensions used to be? Here I side with the “p***ed off pension expert who reckons the Pensions UK attendees haven’t been tackling pensions for more than a decade.

The markets do NOT work in pensions; our trade association has to address the problem we have with turning pots to pensions. “Outcomes” are currently unsatisfactory.