I was listening to a podcast from MoneyBox called the Death of Retirement the other day with a growing sense of annoyance and, possibly, outrage. There were a variety of reasons for this, most of them boiling down to ignorance, most of it my own.
For a start, the podcast kicked off with a panel of “experts” interviewing a “millennial” who was in her early twenties and was looking for some advice on pensions, as she suspected she wasn’t saving enough into her plan at the moment.
“How much do you currently contribute?”, asked the kindly host.
“Well, I looked at my last wage slip and I’m putting in nine pounds a month”.
“FFS!!! Are you raving mad!!!???”, screamed the host. “You’re heading for abject poverty!”
Oh sorry, that wasn’t the host screaming. It was me. You see, the host and panel, in a fantastically polite and paternal BBC fashion, were far too sensitive and non-judgemental to make any such uncontrolled outbursts. Instead, they gradually tiptoed toward the suggestion that maybe, possibly, depending on her circumstances and an uncertain future, this might not be enough.
“Do you know what your employer is contributing?”, gently prompted the host.
“Well, unless it’s about five hundred quid a month I’m totally screwed”, joked the young girl. No, sorry, that was me again, and I wasn’t joking.
When it comes to this stuff I think I’m in a state of willful ignorance, because I kind of assume that, by now, surely, 99% of the country are aware of the financial catastrophe that old age is going to bring with it and are taking steps to avoid it? Okay, maybe not 99%, but 75% must be?
Alas, a quick Google search on “What is the size of the UK average Pension Pot?”, pours cold water on this notion. It’s currently sitting at 50k, according to the This Is Money website. (Pause to remind myself that this is the TOTAL POT and not what it’s going to give as an income every year). A 50k pension pot currently pays an annual annuity of about £2,500 a year.
I’ll admit, I find this frightening, but then I do live a rather gilded financial life. Many people have to survive on incomes of around £10,000 a year so, if you combine a 50k pension pot with the state pension, then you’re heading for that amount. Plus (I believe) there are other government support mechanisms available to supplement this income, such as housing benefit.
This is a good thing, I think. I want to live in a society that provides a social security net for all, providing everyone is contributing in a fair manner. (I did try to expand on what I would define as “fair” in this context, but that turned into a bit of a rant that included dreaded words like “Brexit” and “NHS”.)
So, setting a lot of political issues aside, I see “fair” as being a bit of “give and take”. You put something in as does your employer and the government. That’s pretty much what we have at the moment. It’s not a perfect system but it’s better than nothing. The key, for me, is the first part of the sentence, “YOU put something in.” Part of the reason why a lot of people are heading for a State Pension and very little else is because they failed on that first step – they put nothing in.
The BBC seemed easily enough to find young people who are still bridling against the notion that they need to contribute to a pension. “I just don’t trust pensions”, says one. Another “Just can’t afford it”, and objects to the fact that her employer can decide where her pension money goes. Against this, perhaps the young millennial putting away nine pounds a month is to be congratulated – at least she’s doing something!
How can this situation be changed? Well, if you listen to this series of podcasts, it seems that enrolment of employees in company pension schemes has been a success. There clearly needs to me more of this kind of thing. But, for me, the pensions “industry” has to become much simpler, transparent and fair. And it needs to have the same attraction that investing in property has. It should be publicised as being just as safe and just as beneficial as having a roof over your head. But, at a nine quid a month contribution to a pension, the roof will be falling in as opposed to holding up.
sex health money death 
I don’t think it’s just millenials. I’m a 53 year old female and a lot of women my age who grew up expecting to work, haven’t had a pension unless they worked for a big company or the Civil Service. One of them joked that she was going to be the worlds oldest hairdresser, only it wasn’t really a joke. It really is the definition of kicking the can down the road.
As for trusting pensions….well I don’t trust the government (of any colour) not to tinker with them and not to my benefit.
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I really think that we’re heading for a two tiered society for pensioners. Those with public sector pensions will be forever planning the next foreign holiday and/or new car purchase, whereas former private sector employees will be wearing three jumpers huddled around a one-bar electric fire…
If pensions were properly understood or cared about by the masses, those without a defined benefit public sector pension would be rioting in the streets over the disparity. Whilst those making the rules benefit from this unfairness, it isn’t going to change.
It works both ways though, I’m sure that most civil servants don’t realise just how fortunate they are in this respect.
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I’m not getting into do civil servants get paid less to counter the increased pension or not argument, but I do think you are right that we are on a colision course between those who are managing on State Pension and bit of a top up with some form of government credit and those that have a significant pension.
I work for myself, so my pension has come from that, but not that many people will have that option or they’ll be running a shop and not have enough income to pay into a pension. The increase in self-employed/Ltd is scary. I’m in haulage and there is a big pressure for drivers to become self-employed/Ltd company and I spend time explaining on a turck forum that often HMRC will take a dim view (eventually) of what they are doing and secondly that a few extra pounds an hour has to cover sick pay, holiday pay and pensions. It isn’t worth it.
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“it seems that enrolment of employees in company pension schemes has been a success. ”
Yes and no. Yes, if by success you mean it’s gotten people starting pensions when they may not have done.
No, because people seem to think just paying into the company pension will be enough and someone needs to tell them it isn’t.
For companies providing a decent match of say >5%, there could be a reasonable pot at the end of it.
But many companies are providing the bare minimum match, which is only 1% currently. In April next year, this match goes up to 2%, with employee contributions going up to 3%. Finally the top minimum match for companies will come in April 2019 at 3%, with employee contributions going up to 5% to make it 8% in total.
Still nowhere near enough really.
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I think one of the most important points in this post is the requirement for reform in the pension industry. In other countries, like Australia, its not even called a pension. Pension sounds like something so remote and boring and unnecessary when you are 21. There was a good FT article recently where the author referred to pensions as a legal tax haven and free money – it needs to be sold more like that to get young people interested in it otherwise why would you give up your night out to put money aside…
Its also about knowledge, transparency this leading to a feeling of being in control of your money. I think pensions freedoms go some way towards this, but the industry needs to reform too… I would say I am relatively financially savvy, but IFAs scared me when I was younger with stories of the ‘penalties’ for combining or moving my pension pots from different firms. The only ‘penalty’ I have since discovered, is leaving my money with some of those firms who were charging me a fortune in fees!
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I have a couple of scientific degrees, yet didn’t understand even the basics of my pensions (despite really trying) until the halfway point in life, by which time I’d lost a lot of opportunity cost via rip-off providers. In this environment of legally-condoned effectively scamming, that passes for private pension services, if a single company came out with a sh*t-simple decent deal, a Vanguard equivalent if you like, they should corner the market. Opacity is a cloak for corruption and ineptitude; twas ever thus.
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I agree 100% but I fear this will simply be the next ‘misselling’ scandal. Initially, with interest only mortgages – ‘Sorry, err, what do you mean ? I now have to pay you £375k for *my* house’ followed by ‘Sorry, err, what do you mean ? I now have to exist on £6,344 a year for the rest of my life ?’ Some of this pain may be obviated (for a minority) by inherited wealth.
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She was paying 9% (not £9) – matched by the NHS – to be fair
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Did you actually listen to this podcast ? She says she’s aiming for a £300k pot at 65 to give her an income of £10k (which isn’t unreasonable) and the expert says £250k at 4% would provide £10k. And she’s willing to commit £3k p.a. I’d say she’s the exception to the rule.
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She definitely said she was contributing £9 a month. The fact that none of the panel picked her up on this if she meant 9% speaks volumes.
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I agree with FI Warrior and CMacK. The private pensions industry is still run for the benefit of the financial industry not savers and retirees. Although I no longer live in the UK I have a pension invested Standard Life. It is all but impossible to find out what fees and charges I am paying to SL. They are not included in the annual statement or on the SL website when you log into my account. And this is one of the biggest UK financial service providers. It is scandalous that this obfuscation is still allowed by the regulators in the UK.
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The pension industry probably does have a long way to go to improve itself – but i find it hard to conclude that it is just a bunch of scammers. If you cannot find the fees to your Standard Life pension with a single phonecall you should move it somewhere else. There are dozens of places where the fees are at least explicit (if a little convoluted to calculate) and you can invest in the Vanguard products if that is your wish. In fact Vanguard themselves will be bringing out a SIPP in the next year or so (after introducing an ISA recently)
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Yes, I will be very interested on the Vanguard SIPP when it comes out.
The pension scandals have really stuck with the population so they are very wary of the pension companies. Why save when you get estimates that are well short of the actual figures?
My current employee is paying 5% to match my contribution – but that’s their max and its the best I have seen in the private sector in which I work. The worst was 1%. At least I have something to add to my state pension.
I listened to these podcasts and like some are worried by the multitude of pension pots we end up building over our working career and having to lose out on value to consolidate them. None of mine add up to £50k never mind give me a £50k annual payment – that’s just a dream!
3 jobs in 3 years has resulted in 3 pension schemes with a sum total < £10k.
Dread to think what my final annual pension will be – even the state cannot tell me due to my 'contracted-out' years in employer pension schemes. All they tell me is that it will be <£150 p/w current rate.
No wonder we are all so distrustful and disillusioned.
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I’ve successfully used a SIPP to engineer a situation where my net pay is greater than my gross pay
One of my finer pieces of financial engineering. I pay 4% based on my gross pay (thats IT and NICs combined) with that 4% constituting less than the emloyers NIC kickback I receive.
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