MSE News: Pensions should offer insurance, minister says

"Workers should be able to protect their pensions by insuring savings against stock market falls, a minister suggests..."


  • marlot
    marlot Posts: 4,940 Forumite
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    edited 9 July 2012 at 5:50PM
    This is just tinkering around the edges. There was a recent report which concluded that UK pensions were expensive, and that other countries had much better models. We should be looking at those instead of adding yet another charge to our already weak private pensions estate.

    Can't find the report I was thinking of, but here's one which is similar...
  • dtaylor84
    dtaylor84 Posts: 648 Forumite
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    Is it just me, or does he seem to be saying he wants the industry to magic money out of thin air if pension investments fail to produce the returns desired?
  • jem16
    jem16 Posts: 19,404 Forumite
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    marlot wrote: »

    That report was later shown to be very flawed. It was basically comparing apples with oranges.
    FATBALLZ Posts: 5,146 Forumite
    Problem: Pension returns are crap.

    Solution: Tag the cost of an insurance premium onto pension funds so that they have less capacity to not be crap.

    Try harder.
  • Butterfly_Brain
    Butterfly_Brain Posts: 8,862 Forumite
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    He wants us to trust insurance companies to give us a fair deal....Don't be stupid they will want a huge cut, so pensioners will be hit yet again :mad: :mad:
    They are also fielding the idea that pensioners pay NI contributions on top of everything else :mad:
    Blessed are the cracked for they are the ones that let in the light
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  • Ectophile
    Ectophile Posts: 7,378 Forumite
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    Let's face it, the scheme would turn into another PPI.

    people would be encouraged to take out the insurance. But the premiums would wipe out much of the gains that the pension fund would have made, leaving people worse off.
    If it sticks, force it.
    If it breaks, well it wasn't working right anyway.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    edited 10 July 2012 at 12:08PM
    Over 30 years the 0.75% of pension pot value a year cost is a reduction of 20% in the pension pot value, enough to cover the typical bad year drop in the FTSE index, but getting the extra money if you don't happen to buy an annuity in one of those bad years. This proposal is a guarantee of less money in exchange for protection that is of minimal value compared to the investment growth that is being sacrificed to get it.

    Better financial investigation is a more sensible approach.

    This insurance approach will be of value for those who don't understand how investments work and who don't want to learn or accept it. Shame that it'll make them poorer than they could otherwise be.

    The insurance approach could also be useful in the years prior to retirement for those who plan to buy an annuity, if they can transfer into a protected set of funds gradually in the years prior to an annuity purchase.

    So it's potentially a nice niche product for some groups for some of the time, even though it'd make most sensible people poorer for most of the time if they used it long term.
  • gingeralan
    gingeralan Posts: 224 Forumite
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    It's one of those ideas that really doesn't need to be implemented. Work towards making final salary schemes affordable for employers and employees alike would be a much better idea.

    I have no faith in the industry to innovate for the benefit of their customers. I only contribute to my pension as it is final salary, I would not bother if this was not the case.
  • Pincher
    Pincher Posts: 6,552 Forumite
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    Is it one of those "Your capital is 100% protected if Lehmann Brothers doesn't collapse" type insurance schemes?

    Guaranteed returns on your investment, where have I heard that one before. Some idiot is going to put it under FSA supervision, so the government will have to pay compensation when it goes bad.

    Print more money to pay the compensation, gov?
    I'll have to buy some of them special paper first, couldn't lend us a hundred thousand first, could you?
  • jamesd
    jamesd Posts: 26,103 Forumite
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    edited 11 July 2012 at 5:29AM
    Pincher wrote: »
    Is it one of those "Your capital is 100% protected if Lehmann Brothers doesn't collapse" type insurance schemes?
    There are several ways to do it, including:

    1. Derivatives products like those that have been backed by banks which failed, causing them not to pay out.
    2. Exploiting the fact that most people will not draw on their pots at the same time, so that the total payout is low compared to the total amount invested, so allowing some risk-based investments like shares and corporate bonds to be used.
    3. Putting the money into cash or near-cash, which makes it an unsuitable investment option for long term retirement income planning.

    The second perhaps combined with a little of the first seems most likely. If it's the first, look for clauses that fully expose people to losses if a stock market index drops by more than 50%. That's the sort of drop where the protection would be really needed and where the payout to provide it in extremely unlikely drops of 80%+ could become very substantial.
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