Pensions Longevity of a Different Kind

A big WELL DONE to Stephanie Hawthorne of Pensions World on achieving twenty-five years longevity as editor. In a pension’s world where longevity is regularly in the headlines, it’s great to see a living example in the Pensions World.

Our world is often one of short termism, so great to see a journalist showing a different example. And winning the special “Award for Outstanding Contribution to Institutional Journalism” from State Street along the way. Here’s to the next twenty-five.

Why We Provide A Pension

Here's a good reason why we work so hard to ensure there are pensions for people.

 

Laughing All The Way FROM The Bank?

A survey from Fidelity, recorded in the Sunday Times, interviewing 500 people due to retire or planning to retire next year makes interesting reading. It suggests most are going to turn their backs on annuities and take all the cash they can. But how wise is this? Cash now, but poverty later?

Unless they are cautious with their new found wealth, they may well find it runs out a long time before they run out. Then what? In Australia, it’s called ‘double dipping’ – ie taking your pension as cash now and then relying on the State when you run out of money.

Is this what we can expect in the UK? Has the government relaxed the laws around pensions too much?

The Daily Mail Does It Again

Proof if ever it was needed that the Daily Mail can turn the most encouraging news into something negative. Something it has successfully done with pensions for years.

The ONS have just released their report which shows that life expectancy between the rich and poor is narrowing in the UK. Something to celebrate. We do care for everyone. We are a genuine democracy. We do have the best health service in the world. I could go on.... the message is we have a lot to be thankful for and a lot we are getting right.

So the report is good news, as reflected in the Financial Times headline 'Life Expectancy Gap Between the Rich and Poor Shrinks'. Not the catchiest of headlines- but it is the Financial Times!

Now read the headline in the Daily Mail, covering the same report: 'A fifth of baby boys living in the UK's poorest areas won't live to state pension age - official figures'. I guess they kept looking until they found the suitably negative statistic. I'm sure it's true. I'm sure we can do more. But the overall message is positive. Shame on them (once more) for the ability to whinge louder than the rest of us.

More than Pensions......

THE REASON I'VE BEEN AWAY FOR THREE WEEKS. LIFE IS MORE THAN PENSIONS.....

You drive for 5 hours from Johannesburg, through the mountains and over the Swaziland border. What greets you is quite breathtaking. Bulembu is an old mining town. When the mines closed nearly ten years ago, the 10,000 population moved out. Bulembu became a ghost town. Until someone had a vision of what could be.

Today a Christian trust owns the whole town. All 4,000 acres. The population is back to 2,000. There are successful industries in wood production, water bottling, honey production, a bakery, a dairy, successful tourism. All from nothing.

Most of all, there are 350 orphans saved. Bulembu has become a centre for rescued children. With the worst HIV rate in the world at around 40%, and an average age expectancy of just over 30, Swaziland is slowly dying. Children die daily. Bulembu is changing the statistics.

Their aim is to be a sustainable community for 2000 children by 2020. Their shirts carry the slogan ‘experience transformation’. And they are. In restoring a town, they are transforming a nation.

The Corporate Version of Caring for Your Parents

As you get older and your parents get frail, there comes a point when you have to decide how to care for them. If it’s a decision to put them in a care home, the costs have to be found. Often that will be through selling their home. And remember, it’s often your childhood home too. Sad that their care requires the sale of something with such precious memories.

When Defined Benefit plans were ‘invented’, they were affordable. A combination of longevity, market changes and strict accounting practices means that this is no longer the case. So what to do? The promises have been made. You need to care for those where a pension has been promised. So sometimes, you have to sell what is precious to you.

That’s what has happened this week with the Royal Geographical Society. In order to fund the pension promises, they are selling some of their precious artwork. Paintings that have been in their collection for over a century.

Sad that promises made require the sale of something so precious and irreplaceable. Witness the corporate equivalent of selling the parental home. But the ongoing care of the elderly has to be more important than even the most beautiful of paintings. Or houses for that matter. Or businesses too?.....

Second Rate and More Expensive?

There was an interesting article in Investment and Pensions Europe magazine the other day. Reporting on an OECD review of pensions in Ireland, the OECD recommended pensions compulsion. They indicated that their view of Auto-Enrolment was that it was second rate and more expensive.

My initial reaction was one of scorn. After all, aren't these OECD bods from Europe somewhere, clearly not British. But having set aside my Britannia prejudices, further thought on their comment suggests they may be right.

Let's deal with the easier one first. Yes, Auto-Enrolment is bound to be more expensive than mandatory plans. All the opting in and opting out results in complex administration and, I would suggest (well and truly wearing my Grumpy Old Pension Men hat), it produces a good income to a lot of providers and administrators. One compulsory system is definitely cheaper.

Now the more difficult argument. Compulsion or Auto-Enrolment? In the end, I think it is more to do with politics than pensions, as is often the case. Thatcher destroyed compulsion. Blair put Frank Field out to grass when Field 'thought the unthinkable' - and it proved to be just that!

Australia, New Zealand and Chile were the countries Field looked at. It works there. It could have worked here. But too late now I think. We have Auto-Enrolment for better or for worse. More expensive yes. But second rate? Not necessarily. We have to face up to extended longevity, to the fact that 'pensions' will never be top of a young persons shopping list and push on through. It has to work.

Pensions Gone by 2050....

That’s the prediction of Michael Johnson from the Centre for Policy Studies. If that’s what the Centre would do, I’d retire them now!

Pensions get a lot of bad press and Johnson seems to be saying that not only will this continue (seemingly helped by his headlines in the Daly Telegraph: “Pensions will not exist by 2050”) but that youngsters will not invest in something so far into the future.

So far so old hat. It’s been the problem for as long as there has been a pension plan to join- we don’t think we will get old. We don’t think we can afford it, so put off the day. I remember presenting to some DJ’s at Kiss FM- talk about not accepting they were going to get old!

Johnson says that young people today should only invest in workplace pensions if their employer is making “sizeable” contributions and if they are 40 per cent taxpayers, meaning they get more tax relief. He says that if this is not the case then it is “almost certainly not worthwhile” for young people to save into a pension scheme. In the meantime, Johnson points to ISAs as the preferred investment.

With friends like Michael Johnson, who needs enemies? What a load of old…. retirement talk. The Auto-Enrolment of members of pension plans is good news. It means more will invest and more people will have more in old age. Of course there are problems to solve (annuities for example). And the pension may not be at levels akin to previous defined benefit plans, but it’s still a pension; an income in later years with tax benefits along the way, including tax free cash.

Longer term than ISAs and ensuring there is something there to make the final years good years, pensions are here to stay.

The term ‘retirement’ may fade away as people take part time jobs, live healthier longer and manage their life balance – but that’s another discussion entirely.

Stating the Obvious

Sometimes the headlines on pensions and finance require an appropriate amount of humour. For example, the headline in this week’s Guardian that announced a 10 year low in dealings on the Stock Exchange. When was this measured? Last week. The final few days of the Olympics on home territory.  Come on guys!

Or the recent headline in Professional Pensions magazine telling us that employers expect to see an ageing workforce.  Yes…. Tomorrow they will be older than today.

The most obvious pension headlines though relate to communications. Journalist after journalist expresses surprise that the general public know little or nothing on the subject. When we have to struggle with the quantity of pension jargon proposed by the DWP in their glossary of auto-enrolment terms, it's no surprise.

Vive la différence?

People are living longer. Governments don’t have the money in the long term to pay pensions, so are increasing pension ages over time.

News a couple of weeks back showed this was happening again- in Bulgaria. But not in France.

With the previous government having negotiated hard to push up the state pension age from 60 to 62 (at 62, still one of the youngest retirement ages in Europe), the new French government is partially reversing the change.

It was a cheap way of getting elected- just promise to reduce pension ages again. And President Hollande has kept his promise.

Like a lot of Europe, France faces an ageing population. It also runs its pension systems on a Pay As You Go basis. So there’s less employed feeding more retired. Hollande’s estimate of the cost of pushing back on the  pension age is €3 billion a year from 2017. In reality, it will be a lot more than that.

A cheap election promise, albeit selectively applied to the population, has sent all the wrong signals. France will have to raise its pension age in the same was as other countries have in recent years (Spain, Italy, Germany, Ireland and, of course, the UK) and when it tries to, the riots will start again.

What price politics.

Retirement at 86?

It's been quite a week. None of us will see a Diamond Jubilee celebrated by our king or Queen in our lifetime again. I’m not particularly a monarchist and the Queen is not a justifiable position in a truly democratic society, but the majority of her subjects would have it no other way. I'm grateful that she has served so well and brought purpose and meaning to a ‘United Kingdom' through her service.

And how things have changed during her reign. The Actuarial Post records that 'a boy born in 1952 was expected to live to 78 and a girl to 83. A boy born in 2012 is expected to live to 91 and a girl to 94.'

Proof indeed of the need for higher retirement ages, though I doubt many reading this will still be fully employed at the age of 86 as the Queen is!