Poor pension performance

Bostonerimus1

SouthCoastBoy said:

With dc pensions now being the vast majority of pensions in the private sector, there does seem to be a knowledge gap that needs to be closed. The number of conversations I have with people that have very little or no interest in their pension is disconcerting. The shift to dc has removed the responsibility to the employee. I imagine in 20 or so years it could be quite interesting.

For those in db obviously it is a totally different game.

The "interesting time" is already here. DC pensions have transferred risk and costs from employers to employees and now the only bright spot for many retirees is the "triple lock", but high inflation, falling DC pension levels and poor knowledge of how to manage drawdown is a bad triple combo. The hardship level is creeping higher into what would have once been considered middle class. While I worry about retirees, I really feel for all the children who will probably never get the opportunities that I got as a working class kid growing up and going to university in the 1970s.

arnoldy

We are overcomplicating this and blaming Joe Public unnecessarily IMO. If Life styling is now only used by the 1 in 10 who buy an annuity it should NOT be the default choice. This should have been a fairly simple missive from the FCA to the industry, but unfortunately the FCA have messed this up. The default choice should have been stay invested in mainly equities not bonds, Companies should not have been able to move people into life styling with a positive action from the consumers. Also what's the point of the "pension wise" meetings if they dont highlight the issues re annuities/drawdown/life styling. 

dunstonh

 The default choice should have been stay invested in mainly equities not bonds

But should it?
Gilts have had their worst period in over 100 years.   However, the loss is still less than equities during a typical larger event (of which we have had three in the last 25 years).   

So, if they don't like the loss on gilts in a 1 in 100 year event, then what would they be like on the more frequent larger losses on equities?

The reality is that it is difficult to see a solution that would make everyone happy.

Also what's the point of the "pension wise" meetings if they dont highlight the issues re annuities/drawdown/life styling. 

Pensionwise people are not trained or qualified to take on that sort of thing.    Whilst pensionwise has a place, I regularly find I have to unwind the thinking put in the persons head by pensionwise because a different method (or combination of methods) is the best option. 

Bostonerimus1

arnoldy said:

We are overcomplicating this and blaming Joe Public unnecessarily IMO. If Life styling is now only used by the 1 in 10 who buy an annuity it should NOT be the default choice. This should have been a fairly simple missive from the FCA to the industry, but unfortunately the FCA have messed this up. The default choice should have been stay invested in mainly equities not bonds, Companies should not have been able to move people into life styling with a positive action from the consumers. Also what's the point of the "pension wise" meetings if they dont highlight the issues re annuities/drawdown/life styling. 

Hindsight is 20:20. Historically bonds have been far less volatile than equities and a good source of income and coming up to retirement the thinking was to take risk out of the portfolio and move into a more conservative income producing asset allocation. But I take your point as I used my bond allocation to buy into my employer's DB pension plan in 2013 because I looked at interest rates and thought that they had no where to go but up. Well I was initially wrong as they fell even further, but now I'm right. I give the industry a bit of a pass as they were bound by the orthodoxy (admittedly largely of their own creation) and who could have predicted the Ukrainian War and Liz Truss? 

I'm not sure asset allocation is the problem here as losses in equities have usually be larger than with bonds in troubled times; I think the issue is the structure of pensions in the UK (and in the US too) which has fallen prey to too much free market thinking and replacing DB pensions with DC pensions. The UK also has a state pension which is one of the worst in the OECD making the situation of the UK retiree even more perilous when markets are not cooperating.

LHW99

You do have to be a bit careful Bostonerimus1 when comparing the UK state pension with others. The UK has generally relied on occupational and personal pensions rather than the state provision. Qualification requirements are different (for example, Belgium requires 45 years for maximum state pension) as are the costs-of-living in different places.

We should also be a little careful IMHO in entirely blaming people close to retirement for not understanding their pensions. When these people were in their 20's and 30's, finding out what any pension fund invested in was not easy. There was no internet, any information you wanted had to be requested by letter, and most newspapers did not list the majority of pension funds, even if they had a page on share prices. I remember whem I was first able to take out an FSAVC (1980's?), it seemed easier to find out the name of the managers cat than to work out the geographical split or top 10 investments in something called "the managed fund" - and I was interested.

Most pople of that era were brought up to trust bank managers, pension managers, the company accountants etc, and while it is obviously the case that more people should have taken more interest in their pensions, stockbrokers were barely available to the man in the street and the Plain English Campaign was only founded in 1979 and took some time to have much influence. Most pension documents were barely understandable for many people and they just signed up (hopefully) where the HR guy (it almost certainly would have been a fella) told them to.

Cus

If you had a large percentage of a DC pot in bonds, as part of some old default 'buy an annuity at the end' plan, then surely the fact that yields have gone up so much means that the same DC pot is earning a lot more income than before, so a lot less 'withdrawal' is needed? So net/net similar? What am I missing?

Bostonerimus1

LHW99 said:

You do have to be a bit careful Bostonerimus1 when comparing the UK state pension with others. The UK has generally relied on occupational and personal pensions rather than the state provision. Qualification requirements are different (for example, Belgium requires 45 years for maximum state pension) as are the costs-of-living in different places.

We should also be a little careful IMHO in entirely blaming people close to retirement for not understanding their pensions. When these people were in their 20's and 30's, finding out what any pension fund invested in was not easy. There was no internet, any information you wanted had to be requested by letter, and most newspapers did not list the majority of pension funds, even if they had a page on share prices. I remember whem I was first able to take out an FSAVC (1980's?), it seemed easier to find out the name of the managers cat than to work out the geographical split or top 10 investments in something called "the managed fund" - and I was interested.

Most pople of that era were brought up to trust bank managers, pension managers, the company accountants etc, and while it is obviously the case that more people should have taken more interest in their pensions, stockbrokers were barely available to the man in the street and the Plain English Campaign was only founded in 1979 and took some time to have much influence. Most pension documents were barely understandable for many people and they just signed up (hopefully) where the HR guy (it almost certainly would have been a fella) told them to.

It is certainly difficult to compare state pensions which is why I included the OECD reference as they have looked into this and the UK does not come out well with UK workers paying in more than in many countries and getting a fairly small pension. The low percentage of income replacement of the UK SP might well be due to a historical reliance on occupational pensions which is part of the problem now that DC pensions have replaced DB pensions; when those DC pensions perform poorly the UK retiree cannot fall back on a comfortable SP.

Lack of financial education and preparing people for the switch from DB to DC pensions is part of the problem as is many people's fear of maths and money matters in general. I still find it amazing that schools do not teach financial literacy along with English and Mathematics. But I don't think that people are incapable of doing the simple things regarding their pensions and they have had over two decades of the internet to help them research. It's a cultural thing; people still have a DB mentality, but they have DC pensions and that combination is dangerous.

LHW99

Bostonerimus1 said:

LHW99 said:

You do have to be a bit careful Bostonerimus1 when comparing the UK state pension with others. The UK has generally relied on occupational and personal pensions rather than the state provision. Qualification requirements are different (for example, Belgium requires 45 years for maximum state pension) as are the costs-of-living in different places.

We should also be a little careful IMHO in entirely blaming people close to retirement for not understanding their pensions. When these people were in their 20's and 30's, finding out what any pension fund invested in was not easy. There was no internet, any information you wanted had to be requested by letter, and most newspapers did not list the majority of pension funds, even if they had a page on share prices. I remember whem I was first able to take out an FSAVC (1980's?), it seemed easier to find out the name of the managers cat than to work out the geographical split or top 10 investments in something called "the managed fund" - and I was interested.

Most pople of that era were brought up to trust bank managers, pension managers, the company accountants etc, and while it is obviously the case that more people should have taken more interest in their pensions, stockbrokers were barely available to the man in the street and the Plain English Campaign was only founded in 1979 and took some time to have much influence. Most pension documents were barely understandable for many people and they just signed up (hopefully) where the HR guy (it almost certainly would have been a fella) told them to.

It is certainly difficult to compare state pensions which is why I included the OECD reference as they have looked into this and the UK does not come out well with UK workers paying in more than in many countries and getting a fairly small pension. The low percentage of income replacement of the UK SP might well be due to a historical reliance on occupational pensions which is part of the problem now that DC pensions have replaced DB pensions; when those DC pensions perform poorly the UK retiree cannot fall back on a comfortable SP.

Lack of financial education and preparing people for the switch from DB to DC pensions is part of the problem as is many people's fear of maths and money matters in general. I still find it amazing that schools do not teach financial literacy along with English and Mathematics. But I don't think that people are incapable of doing the simple things regarding their pensions and they have had over two decades of the internet to help them research. It's a cultural thing; people still have a DB mentality, but they have DC pensions and that combination is dangerous.

That is all fair comment, however until very recently the UK National Curriculum didn't really include early financial literacy for primary pupils, which is where it really should begin. And while I agree that computers have been available since at least 1981 (BBC Micro) and a form of www since 1989, their use really didn't take off until the early 2000's, and that mainly among the relatively young (20's-30's) / scientifically curious. On the whole over 50's didn't take them up until rather later than that when the UK Government began to encourage it.

So certainly research has been possible, but those getting their pensions now would have been less well prepared for the necessary research, and not really in the mindset that it was necessary.

Not trying to make excuses, but there are certainly multiple reasons why that particular age bracket, now trying to make sense of something that has chugged along under the radar for many years, are feeling lost. And whilst the switch from DB to DC is / was a big change, many people had DC pensions in the 1970's and 80's (my late mum for one) but when they came to retirement they were just popped into whatever annuity the company was prepared to offer, very few of them would argue as alternatives were't promoted in those days.

Altior

It doesn't matter what level of education there is, many people will still plead ignorance, and/or screw up their personal finances. Then blame everyone else (including Liz Truss), apart from themselves, for their own errors. These boards are full of it, and you would expect members of this board to be at the more clued up end of things. Who knew 1% mortgage rates would not last, for example. One thing that is completely lacking in education for about the last thirty years I will concede, is teaching personal responsibility and resilience.  

DigSunPap

A 25% reduction in your pension pot's value since 2020 has probably been due to the extensive market volatility we have seen. Try to diversify your investment approach. As you're 70 and considering drawing down funds soon, prioritise stability and a conservative approach, potentially moving towards safer assets or annuities while still maintaining growth potential.