Understand Defined Benefit vs Defined Contribution at last

jamesd

kidmugsy wrote: »

If that's the alternative, the man in the pub will do what he's done for a couple of generations - he'll assume that the taxpayer will stump up.

I think that it would be fair to say that a good deal more help is required for an average person to use these sorts of tools. It's not impossible but it's the sort of thing that needs to be an integral part of drawdown planning tools with non-advice handholding to help get things filled in properly.

kidmugsy

jamesd wrote: »

I think that it would be fair to say that a good deal more help is required for an average person to use these sorts of tools. It's not impossible but it's the sort of thing that needs to be an integral part of drawdown planning tools with non-advice handholding to help get things filled in properly.

It's not just the complexity: would the average mug punter have the intellect to understand the need not to spend to the maximum every year, and the character to effect it?

Just think of the number of commenters here who clearly don't have the faintest glimmer of understanding of the point of an annuity. Of course they justify themselves by saying that annuities are a rip-off, but often that's transparently a feeble rationalisation of what they really mean which is "give me the money so that I can spend it all pronto". Annuity rates could double and you'd still see the same drivel spouted.

jamesd

There's scope for products that just vary the income automatically once you sign up for it, so you don't need to do the work. The initial/floor income can also be expressed as a "base income" and "bonus income pot" available only if results are normal or good and that can be taken on request if available. Given human nature that way of expressing it is more likely to work.

I think that relatively few people could or would want to do all of the things I described even though they improve the expected result, so automation is how I envision it being packaged up into a product. Complete with built in state pension deferral provision and automation unless there's an indication of adverse health.

Either of us could probably come up with a design that would beat what more than half of the population could do if left to their own devices.

However it's done, collectively a solution to make this easy enough for most people to use has to be found because the reality is that this is the problem that people are going to be faced with, if they are fortunate enough to have made the right decisions to accumulate a pot of some sort earlier in life. That's an other area for potential automation of design, beyond mere lifestyling. In US studies taking some money out of pay increases to increase pension contributions has been found to be effective, presumably because people never had the money and didn't have to take any action to have it done.