I write this on New Year’s Day. Peace in the Middle East and Ukraine are top of my 2024 wish list.
Nothing I can do or say can make any difference there, but where I can make a tiny grain of difference is in pensions at home. Our current system only gets a B grade from Mercer in its 2023 global pensions index.
A leading nation like the UK should not be content with a B grade for any aspect of financial services. Use all your power to get that A grade in 2024. In daily work with clients, advisers can really make a difference, often far more than the industry behemoths, from life coaching to securing their future.
I have spent nearly 40 years reporting on pension scandals, from Maxwell, Equitable Life to transfers, rip-offs, high charges and generally finding flaws with every purple prose PR pensions note in my inbox from financial institutions.
There is too much toleration of the mediocre, particularly from government, rather than striving for perfection.
So, how can the UK get an A grade in pensions? A good pension system should be backed by oodles of money, whether from the state, the individual or the employer.
Behind the best pensions is money, money, money, no matter what the system, be it state, funded, unfunded, defined contribution, defined benefit, cash balance, collective defined contribution, or personal pension.
Advisers, remember the acronym Kiss (keep it simple, stupid). Recently a relative asked me for pension advice. I told him to go to one of the many excellent IFAs. His response was “they confuse me”. That is not an unusual response.
Pensions should be as user friendly as a utility, just as accessible as clean water coming out of tap – we don’t need to know about chemical treatment of sewage.
In pensions even apparently the simplest and the best pensions – final salary pensions - are fiendishly complicated behind the scenes with liability hedging, longevity swaps and so on all in the mix.
Build a state pension to last
For me sustainability and predictability are key: remember the massive haircut Greek state pensioners took after the financial crisis of 2008, so a large pension is not enough in itself, it must either be properly funded by contributions or the GDP must be growing so it can be financed out of tax.
The now unsustainable final salary scheme enjoyed by millions was the perfect pension, but employers just cannot afford the expense, volatility and longevity of the members – those risks are now born by the unfortunate employee.
I do not believe in starting from scratch again – it would be a total nightmare for everyone involved. Perhaps we should have stuck with Serps (state earnings related pension schemes) rather than have gone down the auto-enrolment route, but would Serps have been unsustainable? I am no actuary. I just don’t know. We are where we are.
