From Jim Hennington, a long term friend to this blog. He has recommended to us Brits we read an American organisations evaluation of the options open to those in DC pots in Britain (and Australia) if they still have a pot at retirement

I remember when Lifestyle arrived 25 years ago. It was similarly adopted as a way to get certainly from your pot in later age. Thanks Jim and thanks TIAA – the ultimate owner of our Schroders.

To clarify , 80% of people who exchange pot for annuity within a year of starting what we call “decumulation” but this represents less than a third of those with money to spend.

TIA’s report has a number of excellent diagrams which  spell out the options that those getting to retirement with a pot might have .

They show that the United Kingdom is the most successful of the “individual choice” national pension systems with a quarter of income replaced by voluntary (opt-out) income. Only Sweden , Singapore and the Netherlands replace more and they have compulsory saving. Because of a means-tested state pensions, the average Australian contributes very little towards retirement and gets relatively small retirement security.

Despite cries that we ought to contribute more through the auto- enrolment system, TIAA’s research that we pay a lot towards our retirement (if tax paid is included). Only Netherlands and Sweden have a better result in terms of replacement income once retired.

Of all systems , ours is unique for allowing people to opt-out of a pension that they’ve been automatically enrolled in.

Auto enrolment has been  mandatory for employers and requires an opt-out from employees. It has worked and so have pension freedoms (at least at a short-term political level). Pension freedoms have given people confidence to pack work in before any other country in TIAA’s survey. That’s because many people are blown away by what look awesome pots and set out on what could be a 40 year journey through retirement.

The grim reality will become apparent when the Pensions Dashboard explains how little retirement income they will get in retirement (this will reduce further when the income is displayed as providing a retirement income that goes up in line with inflation.

Thanks to folk at TIAA. They have done us  a favour explaining how those relying on a DC pot to supplement the state pension are placed, relative to our neighbours.