Pension saving is not just about how much money you put aside but also about what that money is used to fund. If your pension fund is investing in things like oil, ultra-processed foods and properties liable to flooding then those things are going to be worthless when you want your money back. Far too few people understand that – and this is the real pension crisis that we face.
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This is the transcript:
What are pensions all about?
People worry about their pensions. They save in their pensions. Politicians talk about pensions. But it seems that very few people really understand just what a pension is.
They think it's a pile of money that they put aside which they can call on in their old age. And in a very limited sense, that is true. You can, of course, save money in a pension scheme and hope to live on it in your old age. But there are massive preconditions that might make that possible. And if they collectively fail, you won't have a pension at all. And it's those preconditions that I'm really worried about here.
The generation that is likely to be most worried about pensions are people with, well, hair my colour because they've reached the point where they might want a pension.
But the generation that should be most worried about pensions are the ones that are following them. And that is because the deal in any pension arrangement is that one generation will create sufficient capital investment during the course of their lives so that the next generation will be able to give up some of their income to provide for that previous generation when that previous generation are no longer working. The capital that the previous generation will then have created will be used by the following generation to support them and compensate them for giving up their income. It is this bargain about the creation and use of capital which transfers value between generations which is the real core of the pension arrangement.
And it is that core of the pension arrangement that is, I think, so widely misunderstood.
Capital in this context is not money. Money is just a debt. And if you think that your pension provides you with security in old age, that is only true if you can sell off the assets that you have saved in to the younger generation who might want to buy them.
And if they decide that those assets in which you have saved your money are, to them, pretty worthless, because, for example, they don't support their lifestyles at the time that you want to live in old age, then, frankly, all your savings will come to nothing because you can't live off your money alone.
Money is not something that provides the means to live. You literally can't eat it. Money enables transactions to take place. But money is not the substance of any transaction. Money is the form that is used to deliver the transaction. And what I'm worried about here is the pension reality.
That, and more - the intergenerational contract that, as I've said before, is that one generation will create capital which will be used by the next generation who will forgo their income to look after those who went before them now living in old age and unable to look after themselves. So, unless the savings that people make, which have a monetary form, are invested in assets that are actually of real use to the generations to come, then frankly, as a pension savings mechanism, they're utterly useless.
The vast majority of the money that is now saved through pension funds in things like, for example, stocks and shares, are actually in assets that are going to be of remarkably little value to generations to come.
Let me use some examples. Oil fields are really not going to be of great value in 30 years time. Why? Because we know very well that we cannot burn the oil that we've already got, and yet pension companies are investing in the likes of BP and Shell and other oil companies, all of whom are spending vast sums of money to discover yet more oil resources. If they burn them, we will die. It's as simple and straightforward as that. Climate change cannot sustain the burning of these resources in which these funds are investing, and therefore the next generation really do not need that activity because it is deeply detrimental to their well-being.
The same is true of a great many other things.
The investment in ultra-processed foods is actually killing us in reality, and it is going to cause harm to the generations to come. And yet that is what pension funds are saving in because ultra-processed foods are highly profitable.
Saving in the financial services sector is, again, not terribly helpful.
It's all about hype, about the value of money, but not about the value of something that people can live on. And the next generation needs something to live on, not hype.
Saving in things like property, when so much property is at risk because of, for example, the failure to defend it from floods is, again, pretty pointless.
I went to a conference a little while ago where bankers admitted that 80 per cent of the properties that they own in places like the City of London are likely to be unusable in the future because they will be flooded unless we take major steps to prevent more flood water reaching the centre of London by raising the Thames barrier or creating a new one. This, they said, was a simple statement of fact. None of them were worried about it though, because they all believed that they could sell their property portfolios before the time came that this flooding would take place, which was utterly naive, because everybody, of course, holds the same belief, and therefore the market will at some point collapse.
The point is, they're all investing in assets that they know will be of no use to the next generation unless the state intervenes to protect it.
And this is also true, I'm afraid to say, with large parts of new housing, which is intensely vulnerable to flooding because of the way in which it is being built or because it is not being protected from flooding by action like improved sea defences.
In other words, we are seeing vast amounts of money being invested in what are called stranded assets, and a stranded asset is an asset which is created now which appear on the basis of financial forecasts presuming that everything stays the same into the future to have value.
But the assumption that everything will stay the same is false because we know it won't. And, therefore, so much of this pension saving is useless to coming generations that they may not be able to keep people in the style to which they would like to be accustomed in their old age, however much money they might have put into a pension fund.
So, what we need to understand is that if pensions are going to remain relevant, they are nothing more than savings. And let's be blunt about it, that's all a pension arrangement is, and that saving must not just be represented by a financial balance, which is what it is in so many cases to so many people, but must instead be represented by underlying assets that are really going to be of use to the next generation, and the one after that, and maybe the one after that, because those are the people who I am going to rely on in my old age, and you are going to rely on in your old age. And it is not what we wish be done with that money that matters, but what they wish be done with that money that matters, and none of our pension savings arrangements take any of that into account at present.
So we do need pension oversight from the government, in particular, that does take these factors into account, that does require that pension funds do invest in assets which are of value for the future, that requires that they move out of sectors where there is a high likelihood of stranded assets like, for example, some forms of commercial property and most definitely oil, gas, and some other minerals, which we simply cannot use in the future, and instead move resources into those areas which we most definitely need, which are sustainability, sustainable energy, sustainable housing, and the defenses we need against, for example, floods, and so on.
That's what the pension contract requires. That is not what our government is doing. That is not what our pension funds are doing, all of whom are living in cloud cuckoo land.
If we really are to understand pensions, we need to understand that pensions must be used for the sake of funding investment for change. Until we do that your pension fund is frankly worth nothing more than the paper it is written on because it may not provide for you in old age. And that, to someone like me, is a matter of serious concern.
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A question for you as you probably know a lot more about pensions than I do. Instead of lots of private pension arrangements which must add to the cost of providing the services would it not be better if instead, money for all pensions was raised through the tax system (with some for of tax relief at lower levels or a govt contribution), and then you could have a graduated pension system partly dependent on lifetime earnings.
I think you would need an upper limit and also a very good base level.
The funds could then be invested in appropriate investments. My worry would be whether a government would be competent enough to run the system effectively.
You are describing the State Earnings Related Pension scheme that Thatcher got rid of to the detriment of millions in the 80s.
Would it be better if it was reintroduced?
Maybe
Thank you for a most important « signpost » article.
Using Michael Hudson’s basic analysis of powers in a society being 1) the government, 2) the very rich, powerful and influential and 3) the regular people, might it be that 1 and 2 are colluding to take advantage of 3 with no genuine concern for the environment and a sustainable future.
Might part of the problem be a « mass produced » education system which, unstatedly, teaches unquestioning obedience, social incohesion and socio-economic complacency through ignorance?
cloud cuckoo land – how funny, there’s almost an equivalent in german. It’s Wolkenkuckucksheim; rarely ever used.
I have tried to communicate the connections you make above numerous times to relevant and intelligent folks. To no discernible avail. It requires the same foresight as climate change prevention/adaption but seems not to be a priority for many.
I do wonder whether they collectively bet on getting bailed out, should the proverbial hit the fan. There will be biases and irrationalities at play as well.
Just ten minutes ago, by chance, I talked to a very soon to be pensioner who did not know the pension she’s due. Not even a guess. I know that the pensions of both of her parents were not nearly enough to sustain them and they only got lucky, bailed out, call it what you want – through home care, which, in turn, was only possible because the state supports it and they are middle class in a high-income European country.
The disconnect between people and their life support systems is truly staggering.
All the more important that you, Richard, point out in clear, simple terms!
Thanks
Thanks for this; you can’t say this fundamental truth too often.
I can’t save what I really need in old age – love, care etc. I can only ” build a new Thames Barrier” – something that WILL last and trust that the next generation, having been relieved of the need to build it (or continually bail out their homes) will use the “spare time” to look after me.
The problem is that the pension industry is scared to be radical; they are slaves to the pension consultants who just offer the same lazy advice which is based on backward looking data. Pension Trustees dare not ignore them for fear of liability if they underperform.
It’s another case where rational decision at an individual level delivers irrational macro policy….. and requires intervention. But what?
Either government must tell pension funds what to invest in or tell pension funds to buy gilts and invest in the required projects directly.
Perhaps government could offer index linked forward starting annuities at (say) a real yield of 2pc (cut out the middle man) and hypothecate the money to infrastructure projects. This could be tax advantaged with other investments attracting tax in the usual way.
I like that idea Clive
Thanks
An interesting thought.
Thank you for this.
My interpretation of the message here is that it is very strong evidence indeed for a state backed pension based on fiat money.
The market based approach, based on the flimsiness of the assets, under regulated as well as vulnerable to (say) environmental factors and also subject to flimsier valuations is inculcated with risk that is hostile to the more long term role of pensions.
Whilst I agree that pensions can also be invested in stuff like green technology and other emerging technologies, this post serves to remind me that money is man made, and that capacity should be used to address the shortcomings you seem to be addressing here.
In other words, the state capacity to underwrite or provide for this social good cheaply rather that it being cast to profit seeking markets is the preferable option to me.
Market dogma still rules, and through the lens of pensions, once again market frailties and inadequacies are ruthlessly exposed.
This post should also go the other channels you hang out on.
It is crucial.
Thanks, PSR
“Perhaps government could offer index linked forward starting annuities at (say) a real yield of 2pc (cut out the middle man) and hypothecate the money to infrastructure projects. This could be tax advantaged with other investments attracting tax in the usual way.”
Wonderful idea Clive and if they were offered i would bite your hand off as would many many others. Unfortunately real yields have only ever been there for a fleeting moment in the last 20yrs (maybe less than a week probably around the time of the liability mismatch when Truss was PM). That’s the same as saying it would massively increase the Govt cost of borrowing so probably no more than a pipe dream unfortunately.
So what rate would you suggest?
And please don’t use equities for comparison because they are I fused by overvalued stranded assets.
Well, perhaps 2% is too high but 1.5% is not too far from current market rates….. and if we take the RPI/CPI basis into account we are not far from CPI + 2%
Also, there is no reason why the government can’t offer rates more attractive than market rates to individual savers as a matter of policy to encourage savers (although who is eligible and in what size would have to be thrashed out). Singapore does this with CPF savings where for many years rates paid on cash were far higher than market rates….. in order to keep citizens supportive of the system.
My points are
1) Government is better equipped to direct the infrastructure investment required
2) Most folk just want a guaranteed pension in old age and would prefer not to take equity market risk.
3) Why pay the private providers to deliver annuities (hedged with gilts) when the government could offer them directly.
Thanks Clive
When pension fund managers consider the economic effects of climate change at all, they typically swallow uncritically the estimates of Nordhaus and his kind.
Here’s an example:
* GDP loss of 1–2 per cent at plus 2 degrees of global warming – note: that’s 1–2 per cent less than would be the case with no climate change, not 1–2 per cent below present GDP (latest scientific paper on the AMOC: 30 per cent slowdown by 2040 at this level of global warming);
* 2–3 per cent at plus 3 degrees (climate scientists: consequences ‘catastrophic’);
* 10 per cent at plus 5 degrees (about double the COVID reduction); climate scientists: ‘beyond catastrophic, including existential threats’.
Never underestimate the deleterious effects of the economics profession on just about everything.
Agreed
See Steve Keen on this
That’s where I got the information from!
Congratulations on reaching 2,500 blog posts Richard, and informing us on every day issues we need to be aware of and educated on.
I look forward to the next 2,500.
2,500?
I have done 22,493 posts according to the blog’s data. Where did you get yours from?
On the home page after the blogs of the last two days, I see “1,2 … 2,500 Next”
Assume this as 2,500 different topics . Apologies if wrong.
I think it is 2,500 pages of about 10 each….
I have written a mighty lot here, probably well over 6 million words.
I am over 60 and was long ignorant about employer pensions. I now work in care, left a job recently and was horrified at the admin fees on the pension they had auto-enrolled me on. It would have eaten my few 100 quid before I retired. Warned colleagues and moved money to a Nest pot from previous job, moved all to their ‘ethical’ fund. Pensions are confusing, it is hard to make good choices, we end up with a string of little pots as we move from job to job. Intelligent state intervention sounds good.
I’m reading Bevan’s ‘In Place of Fear’, sadly finding so much of it pertinent over 70 years after it was published. He describes a social environment where insecurity and complexities ‘make our lives too unpredictable and tumultuous, and exclude the hope of more serenity in man’s relations with society’.
For many working full-time, in average to low-paid work, there isn’t time and energy to things that would help us make better decisions. There’s no surplus to pay for advice. Life is, I imagine more complicated, certainly frenetic, now than around 1950. I now have time and energy to read more than the novels that kept me going in a stressful 40hr admin job. Very tempting with many issues, to seek relief from ‘a threatening situation, and from the burdens of intellectual choice’.
At secondary school I had a few teachers who drew out our thinking skills. My children went through the school system when teachers had very little room for anything outside the national curriculum. I’ve no idea what to advise them on pensions, and on resisting the bread and circus of fast-food and the mindless side of the internet.
On a more cheerful note, I’m glad to read that Mr Bevan was also a in favour of a mixed economy. Keep broadcasting, Mr Murphy! We need you.
Thanks Anne
What we need is a national pension provider who is incredibly transparent about what they do
The government could provide this.
Apologies, my paragraphs did not survive, should have made more space.
They probably will be there when posted ….. the editor is weird on WordPress.
There has never be any attempt to inform the public about how pensions work – or d ont work.
Again the language is used to ‘manufacture compliance’ …..from ‘defined benefits’ – where you sort of know what you will be getting, to ‘defined contributions’ which sounds just as ‘defined’ but now you only know what you are pouring into the black hole but have no idea what you might get back in the end.
As you keep saying Richard people should be discussing what their contributions are investing in.
Thanks
I will be doing this more than once.
I like your insight, that investing for your future retirement should be thought of in terms of investing in the future world you will retire in as well as for the income you can receive as pension.
I believe that the majority of new money going into pensions these days is actually going into occupational “defined contribution” schemes or into SIPPs. Within those the individual scheme member is choosing how to invest the money, it isn’t a large-scale decision of the pension funds though they do choose the menu of investments the individual can select from. As far as I can see those investments offered are what used to be called “unit trusts”, a pooled investment which includes shares in many companies and/or government bonds. There is good reason, a person would be unwise to invest their savings for the future in a single new venture that could fail, when investing in 100 such ventures minimises the impact of failure of one or two of them.
However there don’t seem to be the unit trusts (now apparently called OEICs) that specialise in not only the things that will matter to the world in a working life’s time, but in new investments rather than the second-hand shares already in issue (which you have complained about previously). The question is how those could be created, so they are available to be offered as an option in DC pensions. They would have to consist of a large enough collection of diversified projects to minimise savers putting their future livelihood at risk, and carry an annual management charge comparable to the index funds which are the current investment of choice in pensions. Clive Parry’s suggestion is an attractive one to form one component of such a fund, but others would be needed too.
The situation is different of course for the declining universe of defined benefit schemes, where the contributions are pooled to create a single large fund under the control of specialist managers. In those cases they have access to investment opportunities not suitable for unitisation in OEICs, and I believe some do invest in infrastructure projects like wind farms – though probably not for the reason of investing in the future world, they also invest in things like airport expansions.
There is one answer.
The government needs to do it.
NS&I already has critical mass.
There is one answer. The government . . . .
Chilling words if true.
There is no answer to any question without it
More fool you if you do not know that
Well there was an earnings related defined benefit scheme run by The Government – SERPS
SERPS was so good, they scrapped it because it let the cat out of the bag.
Someone mentioned SIPPS – what proportion of “omnibus passengers” feel able to make choices on where their funds go?
What is “ethical”?
What is “green”?
What is “sustainable”?
How does average citizen choose between – cows (grass fed or intensive, Kuwait or Cumberland?), soy beans (on cleared rainforest land), anaerobic digesters (generating energy and pollution, but reducing fossil fuel use, and reducing landfill), biofuels (ditto but competing with food for land use), lithium mining (supporting renewables, but v destructive of environment & indigenous land) or solar panels (raw materials?, labour conditions in place of manufacture). Already, millions of eyes are glazing over. Who has time to research all this AND get to the shops on time or change the baby’s (renewable sustainable) nappy?
Is not the reality that we might avoid alcohol, gambling, tobacco & weapons, but after that, its so confusing that most ordinary people, if they choose at all, just tick the “managed” fund box.
I had this conversation with a retiring low pay public servant a week or two ago who was savvy enough to know she didnt know stuff. But apart from that, she was a lamb to the slaughter, the lions being the finance industry.
Sansenelli, it is hardly worth waiting for the private sector to come up with something. They have come up with several thousand investment funds (judging by Google) but none that meet this requirement. They have had the opportunity.
But if government leads, they could follow. Clive Parry suggests something with a 2% real interest rate; I guess you might argue that if they led with something less than that it would leave a space for privately run funds to compete and do better. (I don’t know whether it is true, but I saw it claimed somewhere that on average share investments beat inflation by around 3% long term). It would be better if there were a choice of such funds, both for pension savers and for the projects seeking finance.
Thank you, Jonathan. Appreciated.
I’ve been around the pensions rollercoaster, and experienced all the lunacies of the system.
1st employer (small prof form) – we paid into a personal pension. No employer contribution.
In & out of SERPS as govt advice changed 180 degrees.
Had private pension with Hambro. Yuk.
Got out, went for the 100% safe option, a mutual with a “guaranteed annuity” for savvy wise professionals who have cautious natures. The late great notorious Thatcher con of Equitable Life!!! Aargh – eventual got some compensation, should have been more but a nice letter told me that gov “couldn’t afford” the full amount so I should just take pittance on offer.
Pigswill to that!
Next. New profession – Into a non-conformist church scheme. Good DB terms. First post, no employer contribution.
Next post got standard contribution terms, 10% employer, 5% me. (Compare that with current contribution rates that are ridiculously low).
Then our pension scheme got changed to DC, so now had a DB (closed) AND an active DC scheme.
Retired, got pensions. State full new, DB. + DC occ scheme, plus tiny private DC scheme. My other personal Private schemes keep getting sold over my head, finally, via sev intermediaries, being sucked into giants Reassure & Aviva. I begin to lose track of who owns what. My occupational professional Administrators prove to be incompetent, possibly even incompetent. Legal battle. Money spent. Fund looks v wobbly for a while.. Amazing hard work done by denominational trustees to safeguard the scheme. Also battle over legalities with actuaries over denominational rules and structure, affecting actuarial calculations – painful rules imposed on individual church employers if they pulled out, with charge placed on their buidings.
Eventually this year, closed (in payment) DB Scheme sold to insurance co. to preserve our DB terms. We are assured our pensions are safe.??? I hope so.
One of my small private schemes is in payment, another with “guaranteed annuity” terms, which comes into payment when I am 75. But the “guarantee” bit reminds me of Equitable Life. Scary.
I have plenty to live on, I am fortunate in so many ways, but I am totally cynical about the long running permanent gov pension con. As for all the new drawdown freedoms on pensions, I am incandescent with rage that people were offered that “choice” when so many people have never made a financial decision like that (or had access to lump sums like that) in their lives. My good neighbours, who are not stupid, are nevertheless utterly vulnerable to the circling sharks. I try & help, but of course, musn’t advise.
The government CAN do it, if only each new gov didnt keep changing the rules.
Much to recognise there
Well, although you might think “he would say that, wouldn’t he, because he is a financial adviser”, there are good options available to consumers in the pensions world today. For instance, you can buy RPI-linked annuities with your pension pot – few do as people are very bad a discerning the difference between nominal and real returns, until this is carefully explained. It is true to say that annuities are the only financial product with 100% protection from the FSCS and, ultimately, the state.
Mutually-owned life offices do provide competitively priced pension saving products, with lots of ‘sustainable’ (or ‘ethical’) savings funds (Royal London, for instance).
Where the problem with understanding pensions lies, I think, is yet another example of the insidious financialization of just about everything. In my experience, when people retire, what they really want is a reliable income. In recent decades, however, the PTB have encouraged the fallacious concept of ‘net worth’, which is completely meaningless. “My house is worth £500,000, my ISA, £50,000, my pension pot £250,000” and so on ad nauseam. No, they are not! All these things merely have nominal value, until they are sold to someone who already owns similar assets.
When I started out in this business in the very late 1980s, the firm I worked for set up pensions for the retiring employees (it was a tiny part of the Lonrho conglomerate). An employee was promised a pension of a certain amount on retirement, but not from an employer-sponsored pension scheme as such. Annuities with life office were arranged instead. A good approach I thought at the time, and still do.
Remember, many financial advisers are reluctant to advise annuity purchase because their remuneration model is based on a percentage of ‘assets under management’ (which is crazy – if the value falls, so does you income!), whereas there is only the opportunity to charge what is a modest one-off fee to arrange an annuity via the underused ‘open market option’. Our small business has advised clients to spend nearly £30m of their notional pension pots on annuities in the last couple of years or so, turning the pot into a guaranteed lifetime income, nuanced to the individual’s personal requirements. At a recent seminar, ‘colleagues’ literally laughed at me when I told them this – they all want their 1% or so of your money, but I have a clear conscience.
Thanks Mark.
Those seem like wise words to me.
Mark
Can you suggest when and how a minimum wage worker with little education and even less time, can possibly make decisions about their pension pot pittance?
Richard,
I am glad to see a form of consensus among you and your regular followers. Can I firm this into a specific proposal?
NS&I should issue “Pension Bonds”. These would differ from standard bonds in that they would pay an actuarially calculated pension, rather than interest and return of capital. They would differ from annuities in that purchases would be eligible for tax relief.
I would suggest that the value of a bond should linked to inflation + 1%, but the pension linked simply to inflation. The bonds would be convertible into an actuarially calculated pension at any time after the age of 50, so that the later the bond was converted, the higher the index-linked pension would be. For simplicity, a bond would be linked to a named individual. If the project was successful, it could be refined and made more complex.
Pension Bonds would have several advantages: 1) They would avoid the actuarial treadmill. Pension fund managers base their fees on the nominal value of the assets the fund holds, but actuaries (just like Richard) take a more pessimistic view to demand steadily increasing contributions and lower benefits. The managers take the higher fees and the members the lower benefits. Since a Government Bond would be considered a safe haven, it would not require a margin of safety. 2) Offering a slightly better return on the bond than the pension, would encourage holding the bond rather than taking the pension, giving the Government longer access to the money. 3) Pension Bonds would cut out the middleman, allowing the Government access to the funds it needs, without needing to give the Financial Services Industry its cut.
In the longer term, trustees of a pension scheme might well want to use an extended or parallel scheme. They would convert some or all of their assets into Pension Bonds, reducing or eliminating the risk to members. The financial industry would hate it, but we would get better public services at lower cost.
This would need serious financial modelling
I have no time for that until well into the new year.
There was a time when the government sold annuities in the UK, but I believe I’m right in saying that they were ‘mispriced’ due to actuarial science being embryonic. Edmund Halley (yes, the comet man) produced early mortality tables, based on accurate death records from Breslau (nowadays Wroclaw in Poland) of all places in about 1693, which gave the government a basis to work with. Now we have centuries of data and annuities are, in truth I think, accurately priced. Mortality cross-subsidy, for instance, is fully understood.
You can already buy NS&I products via a SIPP.
A hidden advantage would be that, unlike the Teachers or NHS public sector schemes, this would effectively be a funded scheme and the Government would have the assets available to invest
… seems reasonable to me but I would be worried about what pension I would get. It would be “actuarially calculated” but using what interest rate. If this had been in place when gilt rates were very low I think a lot of retiring folk would be very unhappy. I am suggesting using today’s yield(market) curve to “lock in” a known pension (in real terms) for a given contribution today. It would mean that a £1 pension contribution today might get a different pay-out than £1 invested next year… but you would have certainty at the moment you decide to invest/contribute. It does not have to be a market rate, it could be enhanced by government if it chose – at least up to a ceiling (£1,000,000 ??). The government could publish a table periodically (quarterly?) that would state what pension, in “today’s money” a £1 contribution today would buy upon retirement depending on age.
Would it make sense to restrict tax advantage to this investment, only? Or would that be too Draconian?
It could surely be administered by NEST or NS&I.
Much to agree with
And entirely reasonable to restrict tax relief to this alone, I think.
I suppose this is a story of my financial life lived by probably millions like me .
I’m from a mining town in South Yorkshire , left school at 16 with average grades at a time when you had two choices in South Yorkshire , coal mining or steel works .
The consensus in 1978 was that you needed A levels to go to university and in any case I wanted money in my pocket to enjoy the things you enjoyed at such a young and free age .
As a consequence I’ve earned fairly low pay all my working life and had to work bags of overtime and weekends to attain what would be considered a decent wage .
When I got married and we had kids we made a decision that my wife would stay at home until the kids were old enough for her not to do so , we believed that would offer them the best opportunity to have a great childhood with stability .
That meant I had to work even more overtime and on occasions take a second job on at night to pay for holidays , Xmas , the car packs in or even purchase another one when it couldn’t be fixed .
When the kids did come of age and started venturing out in to the real world we’d then help them out , paid for weddings , helped with deposits and then of course our grandkids came along and we helped out even more , we helped out because by this time the one wage we managed to just about get by on was no more and two wages were needed to get by for our kids and grandkids .
I’ve had more than one conversation about education and attaining higher wages in the past and I always think well fair enough if I’d done just that , that would mean somebody else would have had to do the jobs I’ve done anyway so that’s not really any kind of solution in my opinion .
I’ve four years to go before I hit retiring age and to be honest I’m not sure what kind of financial life I’m going to have , I’ve about £50k in a pension pot plus my state pension .
Here’s the thing , finally after all these years both myself and the wife are at last in a position to think about ourselves and we are having three good holidays a year and seeing something of this world while our health and age allows us to and what will be about pensions , savings etc etc will be .
I’m probably just one of millions in this country in the same position , we’ve paid our taxes , we’ve contributed massively to society , I don’t want any medals or seek any entitlement and you know what I wouldn’t change a single thing .
If I’ve to work beyond 67 then so be it but those three holidays a year we enjoy aren’t up for negotiation .
Rachel from accounts can put as many hi viz jackets on and visit factories up and down this country but pound to a penny she wouldn’t understand folks like me or even have a clue about a normal working life .
Sorry government about my post working life financial provision it’s just real life had a bit to do with it .
Thanks for relating this.
I fear that with a £50k pension pot you will be working well beyond 67 if you want three holidays a year.
I will be 67 in March. I can’t imagine retiring.
I have 3 holidays a year – each last 4 months. EVERY day is a holiday when you have retired!
That is my nightmare Clive.
My freedom will be leaving institutions behind,
Andrew, make sure that your wife has enough NI contribution history to qualify for the full state pension, here https://www.gov.uk/check-state-pension From next April, the basic state pension will be very nearly £25,000 per year for a couple. If she doesn’t have the 35 years she needs, she can buy that – it’s remarkably good value for money.
The £50,000 elsewhere will provide a (small) top-up to your state pension. If you don’t have any debt, you should have enough income to have a decent retirement. Like Richard Murphy, I don’t believe in conventional ‘retirement’, health permitting.
Thanks for the advice , much appreciated .
Andrew
May I suggest that your advice to Andrew is dependent on whether they own their home, part own it with a mortgage or rent it?
It looks as if some of these ideas might fit with the Labour pensions review. Do you agree? I presume you will be contributiung the the current consultation?
If I get time
But, reviews are rigged
I came across this critique of the opaque practise and lack of oversight in large pension hedgefunds in my browsing and thought it might be of some interest. Reeves raiding of the UK local council pension pots feels dodgy to me.
https://caia.org/blog/2024/08/09/unsurprising-failure-largest-hedge-fund-world
Thank you
And well worth reading
Pension raiding has a long and dishonourable history, morally far worse than stealing the charity buckets from pubs. So I can see the attraction for Reeves.
Robert Maxwell (Mirror Group. https://moneyweek.com/505757/great-frauds-in-history-robert-maxwell ), being one famous illegal example, but “legal” raids happen all the time.
Of course, Chancellors are constantly doing it, changing rates and rules around NI & State Pension payout rates & index linking & taxation.
I am just catching up with this important discussion now as I have been visiting family over the last few days. Its good to see new ideas about how to provide secure pensions, and the original post and the following comments have highlighted a number of key issues. I’ll throw another idea into the ring. What follows are ideas developed in the context of how to provide pensions in an independent Scotland.
There are three main objectives behind what I propose – (1) to restore earnings related pensions for all citizens (2) to invest pension funds in supporting the decarbonisation and sustainable development of the Scottish economy (3) to provide a means for Scottish citizens to “repatriate” their existing pension rights so that their pension savings are not managed by funds in what will be a foreign country and their pensions paid in what will be a foreign currency – it is assumed that Scotland will have its own currency.
I can only provide an outline here, but the earnings related pension would be provided a combination of a state earnings related pension (SERP) and a defined benefits based national pension fund/scheme (NPF). How much that target pension should be as a percentage of earnings (replacement rate) and the proportion of that pension delivered by the SERP and by the NPF are matters for democratic choice. An example might be a pension of 90% of earnings with SERP contributing 40% and the NPF 50%.
The NPF to be designed as a “pay as you go” (PAYG) scheme meaning that pension contributions are the primary source of total annual pension benefits. The fund is created initially by a legal requirement for all new employees entering the workforce after leaving full time education and their employers to pay pension contributions into the NPF. Over the next 40 years no pension benefits will be drawn from the growing fund –no pensions would be paid until the first cohort reach retirement age.
Citizens who are already working and are contributing to other pension schemes are offered the opportunity to transfer in to the NPF. DC pension posts would be converted into a contributions credit in the NPF and their DC pension converted into an earnings related/DB pension.
The NPF funds are invested in accordance with a legally prescribed mandate which replaces the common law of “fiduciary duty”. The mandate requires the NPF to prioritise investment in the Scottish economy and in projects and businesses. All investment decisions must comply with socio-economic and environmental principles set out in a Bill of Rights and which are also transcribed into company law. Investment decisions also take account of “sustainable cost accounting”.
The administration of revenues and pension payments NPF is managed centrally but the administration of investments is decentralised into a network of local offices with close ties to local and regional economies and communities. This network will provide access to low cost capital provided by the NPF.
Low cost capital is available from the NPF because it is funded primarily from contributions on a PAYG basis – there is no requirement for “maximisation of returns” and instead investments can be made on a “no loss” basis. Unlike multiple separate employer sponsored DB funds the NPF will never experience an excess of pensioners over active workers. The worker/pensioner ratio will be based on the overall national demographics which are known and are predictable. Employer DB schemes eventually experience an imbalance between contributing members and pensioners and become increasingly reliant on investment returns. The current active/pensioner ratio in Scotland’s LGPS funds now stands at about 1.1:1 (not taking into account the number of “deferred members” which exacerbates the imbalance); this is why contribution rates have increased over time and benefits have been cut. The same applies to all DB schemes, most of which have now been closed down and people forced into inferior DC forms of second pension provision.
If for a NPF R is set at 50% and there are 3 workers to every pensioner (P/W = 1/3) the PAYG contribution rate would be 1/6 (16.7%) split between employers and employees. I think the initial contribution rate for the NPF could actually be set as low as 10% because there will be no drawings from the fund by the core membership for the first cohort. Of course members transferring in will draw a pension before then but it is impossible to predict what the numbers will be and this is a matter that will require constant monitoring to ensure that the fund has access to sufficient liquidity during the whole 40 years of transition. I say “transition” because after 40 years the NPF would be the source of all second pensions in addition to the SERP. After 40 years everyone working before the start date of the NPF will have retired and all new workers would have joined the NPF.
Much to think about
I admit that at this moment I have got the time to do that – so I throw it over to others.