Johan Kriek  Founder – Quantum Leap

Johan Kriek focusses on UK pensions though he lives in Canada, I don’t know the full story but I find myself agreeing with his scepticism about Guided Retirement.

Guided retirement consultation has a glaring hole.

It says default pensions should provide protection against longevity risk.

But how much protection?

Imagine a default that provides a guaranteed income of £10 a month for life.

The income is guaranteed. It lasts for life. But does it give someone meaningful financial security?

I am not suggesting £10 is what government intends, or that such a default would automatically meet the wider requirements. I am asking where the line is drawn — and on what basis.

Now consider retirement CDC.

It aims to provide an income for life, but the income is not guaranteed. It can be reduced if experience is worse than expected.

How far could that income fall before the protection is considered inadequate?

And how should we compare that outcome with a properly governed drawdown arrangement, where income is monitored and adjusted as experience unfolds?

A fixed percentage withdrawal from the remaining pot illustrates the problem. In a simplified example, a percentage of a positive pot could continue to be paid throughout life — but the income could become negligible. The fact that a payment continues tells us very little about whether it meets the member’s needs.

That is not an argument that drawdown and CDC manage longevity risk in the same way.

CDC pools that risk; individual drawdown does not. The point is that both need to be judged by what happens to the member’s income, not simply by the presence of a particular product feature.

If government introduces a meaningful income standard, it does not have to be a guarantee. It could require providers to assess the likelihood and extent of income reductions under adverse conditions.

But that standard should then apply consistently across solutions.

What income might the member receive?

How stable is it?

What happens after poor investment experience?

How much is accessible when life does not go to plan?

And what happens to the remaining value on death?

These are different dimensions of a good outcome. They involve trade-offs, and those trade-offs deserve to be visible.

An income for life is not, by itself, a definition of a good retirement outcome.

Before deciding which products qualify, should we not first define what meaningful longevity protection is supposed to achieve?

#Pensions #Retirement #GuidedRetirement #CDC #PensionAdequacy