/ Money

Update: it’s time to future-proof pensions

Pensions savings

What should be done to ensure pensions really do support a comfortable retirement?

I have given evidence to the Work and Pensions Select Committee as part of its inquiry on the pension freedoms. Drawing on Which? research and insight looking at the impact of the reforms, I’ll be making the case for greater safeguards for consumers who haven’t engaged with their pensions, improved services to help consumers make informed choices and the need for better value pension products.

Pension problems

For too long the complexity of pensions, high (and often opaque) fees and charges and low engagement levels across the sector have meant that people are often not financially prepared for a comfortable retirement.

We know that while the pension freedoms have given savers more control over how they access their pension, but more choice can also mean greater risk for individuals. The sheer scale of potential harm that consumers face if they make a bad retirement decision or fall victim to a pension scam underlines the urgency of the problem.

That’s why we are launching our new pensions campaign. We want the government and regulator to ensure we have a system that gives savers the right tools, products and information to help them make the right decisions for their retirement.

The pensions dashboard

The government has already committed to the delivery of the pensions dashboard, but it remains unclear exactly how we are going to get there by the 2019 deadline while making sure it works for savers.

A fully functioning dashboard needs to provide consumers with transparent, consistent information about all of their pension pots in one place. Savers should be able to see charges, projections of values, services offered and benefits associated with each pension pot to help them make informed decisions and comparisons.

If the average consumer is expected to have 11 pension pots in their lifetime, a dashboard is only useful if all 11 are visible via the dashboard. The government needs to mandate participation of all pension schemes and recommend that the Financial Conduct Authority consults on regulating pensions dashboard providers.

Better products

However, getting the right outcomes for savers is not just about the pensions dashboard. As well as help when planning for the future, savers need to have access to better products when it comes to making those key decisions at retirement.

Part of the FCA’s review of retirement outcomes is looking at the costs and charges associated with income drawdown products. That’s why we want the FCA to introduce measures to protect savers when they take money out of their pension this way.

In a sector that already suffers from low engagement and trust, it is especially important that we address these high fees now, particularly for those who have not made an active choice in the matter. That’s why we want the FCA to introduce better safeguards for disengaged consumers at the point of retirement.

Update: 21 November 2017

Ahead of the Autumn Budget (22 November), we have called on the Chancellor Philip Hammond to set out a clear timetable for the delivery of the new pension dashboard by 2019.

How do you feel about your pension? Do you have all the information you need to save for a comfortable retirement?

Holly says:
5 November 2017

With the new pension freedoms comes a down side my employer DB scheme is about to be closed and the scheme transferred to a Contribution based scheme because of fight to save the scheme and bad feeling on both sides conflicting and sometimes misleading information came from both sides leading to panic and a fear of the reduction of benefits upon retirement. I took my pension on reflection of arguments and as now left me in a poor position.

It is vital that G overnment steps in and makes people aware. The problem is with the ostriches who read no papers and listen to no news except sport or whatever and miss the warnings of danger unless they engage with the fact of retirement and their responsibility. How far the community/Government is responsible for people who ignore realities is debatable, of course. It would help if there were a big publicity effort every so often.

All my life relatives and other people have moaned about the paucity of the state retirement pension. The notion that people are not aware of its inadequacy is unsustainable given the mileage of media comment on it. The need to make additional provision is well known and for decades the weekend papers have been full of whole-page adverts from insurance companies and other providers. The problem is that it is one of those things that people think can always be put off, and that it is better to have a bigger car or an extra holiday or an extravagant wedding. I feel genuinely sorry for the people whose company pension scheme failed them, or was robbed, and for those who invested in quality funds run by bad managers and liars; they were doing the right thing but were criminally exploited, largely without relief.

What can you do though? Pensions seem to be impenetrable to most, with future benefits that have always been far from concrete.
So the choice of action is maybe just throw more money at it — money that’s in shorter supply nowadays with our current precarious economical situation.

If “money is in shorter supply” then where should it come from to pay a better pension? We should all know the likely limitations of the state pension amount and understand that, to provide for our retirement, we need to save. The advantage of pension savings is that they have income tax concessions.

Most, at the age they would best start saving, do not look ahead to retirement and, when they do, it may be too late to make adequate provisions. I would propose a state-operated pension scheme, free from political interference, to which everyone in work must contribute a minimum % of earnings from the start of their career, with a compulsory contribution from the employer. Pay in more if you like, or join another private scheme as well.

Self employed, I initially followed a friend’s advice and started a pension with a small independent firm that eventually went bust, though the fund was frozen and taken over by a bigger pension company. Once bitten, twice shy, I started a new one with one of the biggest providers. Years later a financial adviser pal said, “and after a few months did they send an eager young sprog to persuade you to ‘upgrade’ to an enhanced product?” Spooky, that was exactly what happened, and so trustingly I had done so. The result, I eventually discovered, was two pension funds (I had thought it was just the one, that was upgraded), and two lots of ongoing commission for two salesmen. And a pretty pathetic pension pot. After years of obfuscation and wrangling, I went to the Ombudsman, who said more or less it was my look out for not asking the right questions, but got me an award of £300 added to my fund, which equates to about £15 a year.

I agree there should be independent guidance for people from the beginning, with consumer feedback for all to see. I have not yet started my pension, of course I shall shop around, but this huge pension company still has the last laugh by being allowed to take even more money from my fund through an arbitrary “market valuation reduction” plus lord knows whatever else they have slipped into the fine print. All perfectly legal, of course.

The government’s workplace pension scheme is nothing more than easy money for the insurance industry.
It would have been cheaper, simpler but most of all fairer to both employers and employees, that a pension should have been provided for by increased national insurance contributions.

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There may be a simple reason. A friend who was in his mid-20s at the time had never had any form of credit and had his application for a credit card refused. He investigated and was told that it was because he had never had any form of credit, so was an unknown when a credit check was performed.

Mike Suttill says:
6 November 2017

There seems little point in entreating the government to safeguard pensions and provide adequate checks and balances when they, under Gordon Brown, created the problem in the first place by raiding pension schemes by taxing them. Subsequent Chancellors have not reverted the system or reduced the pension fund tax.

John says:
9 December 2017

and if a new Labour Goverment get in again they will raid your Pension’s again the Tory are not much better they put the age for women to retire from 60 to 66 and then made them join a workplace pension with no hope of this pension paying any money out after charges are taken out.
If the Goverment want to change the retirement date the new retirement date should only apply to the new employes starting work for the first time i.e school levers or some body coming to work in this country for thew first time.

Some years ago, before interest rates dropped right down, a private pension was suggest to us by a financial advisor.

I can’t remember the exact figures now, but we would have had to put a lot of money into the fund (100’s of thousands) to get out little more than the interest the money would accrue.

We worked out that even if I lived to 100, the pension company would end up with a huge chunk of the money. It just seemed a rip-off.

Lat year in May, the government told us that anybody with an Annuity locked into their ‘Pension Pot’, would be able to draw down the total in their Pension Pot in April 2017 if they wished.
Then, in April 2017, they changed their mind ?????
What the hell are these idiots up to. They know damn well that the people holding the Pension Pots are conning millions of pounds out of people like me and investing in things for themselves with this damn scam!

Mr E im in the same position tyred accessing my pension to be told im locked into an annuity i did not even know i was in an annuity in the first place i was told the pension would be given monthly from my bank account and the paltry amount i get means the pension company will benefit even if i reach 125 years lol

Karen says:
9 November 2017

I don’t know why they just leave things alone , I’m ready to give up work , I’ve tired and had exnouch , I’ve had two hip replacements , I have cronick Arthritis I’m 58 I really don’t think I can carry on ..
The only ones that benefit is the government, they don’t give a s**t about us ., I’m fumed .

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9 November 2017

Why are pensioners TAXED, You work all your life pay tax all your life, then just because your pension exceeds your personal allowance you pay Tax . WRONG . They should never have been a personal allowance for pensioners. You work all your life and SAVE, THE WORD is SAVE, Your pension is a saving then its converted in to a income then Taxed WRONG, That should of never of happened, your Pension should be classed as a Pension and not taxed, The cost of living keeps going up and the bit of pension we get is Taxed, You don’t see these things when your working, you only see this when you retire.

The choice is, tax the payments into your pension, and don’t tax the pension, or, as now, give tax relief on your payments and then tax the pension if above your personal allowance. I don’t see why you can have tax relief on both the savings and the pension.

I agree with Malcolm. Taxation is designed to collect more money from those who can afford to pay.

For several years, under the triple lock guarantee, state retirement pensions have risen at a higher rate than the cost of living. Now the tide is turning but the triple lock is still in place and will in due course ensure that state pensions keep pace with inflation. In worrying about the bad times so many people overlook the good years.

The government will take you money from you in any way it can ! If one way does not provide enough money they then think of and use another ! you have to pay somehow for all the governments wasteful spending One solution go and get all the benefits you can by not working and give up your present lifestyle of spend spend spend

It is abhorrantly wrong to tax pensions!! It can not be morally correct to pick money from the poorest amongst us!

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Everyone gets an income tax free personal allowance of £11500, and you can add some of your spouses allowance. Pension is income.

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When the state retirement pension came into effect in 1948 nobody had paid any National Insurance contributions yet millions of people received state pensions as soon as they reached 60 or 65 years of age. People whose only income was the state retirement pension also qualified for pension credits to increase their incomes. While we can debate for ever whether the state pension is adequate, the basic principles are fair. People on higher incomes pay a lot more direct and indirect tax than people whose only income is from the state, and pensioners are also entitled to many other reliefs and allowances to reduce their costs of living. As Malcolm has pointed out, people who rely exclusively on the state pension and other basic allowances will not pay income tax. They will, however, pay VAT and excise duties on expenditure but most essential foods are exempt.

George Morley says:
27 November 2017

John Ward, You say that the basic principles are fair ! Yes but only if you live in the UK or a country that the Government see fit to grant any annual uprating which they do to about 660,000 pensioners abroad living in the USA, the EU and other places like Macedonia or the Philippines !
Meanwhile 550,000 pensioners also living abroad get nothing and I am nearing 20 yrs without any increases because of the Frozen pension policy which cover most of the Commonwealth countries where most of them live . There are others like Bali and Indonesia.
This policy affects those living in the UK in as much that they are denied the freedom to emigrate to certain countries because the pension is effectively decreasing over the years.
Out of all UK state pensioners -,96% get their full pension which is dependent on the contributions made whereas just 4% never see an increase having also made the necessary contributions !
Please mention this when making a comment about the UK state pension. Thanks.

I appreciate your point of view, George, but since all state pension benefits are paid for out of current government revenues [not the contributions made as you state] I cannot see why pensioners [and taxpayers generally] in the UK should be required, through their income tax and VAT, to uplift the pensions of people who live abroad.

I suspect that the places [such as the EU] where pension increases are paid have reciprocal arrangements but I have no specialist knowledge. It is possible that the cost of living in many foreign countries is significantly lower than it is in the UK; that might have been a factor in people’s choice of domicile. Heating costs are also much lower in many other territories that are popular for retirement.

I can assure you, George, that there is no appetite in the UK to extend the uprating of state retirement pensions any further than is necessary under international obligations.

The tax on pension is abhorrent as the tax was paid on the original source of income. So a pension is not unearnt income, it is saved income that through a devaluating currency appears to become larger over time through those who launder it and call it a fund. when really its a casino.

Once you retire you should not have to pay tax on any income from pensions, you go without to aquire private pensions to boost you income when you retire, which then puts you in a position where you cannot claim any benifits other than the state pension, saving the government money, they thank you by taxing you on your private pensions at a rate of 20%.
As Sue says……..” abhorrantly wrong to tax pensions”

You have not paid tax on the income that was used for your pension contributions. Would you prefer to have your contributions paid out of taxed income (no relief) and then have the pension paid tax free?

Persephone Dunlop says:
13 November 2017

Ha ha I put some money into an ISA years ago thinking it would be there for me when I came to retire at 60. Then the government moved the goalposts on retirement age for women (twice), and, despite gaining a PhD at the age of 60 (I wanted to keep up and be properly qualified) I have found myself pretty unemployable in my field since: because I’ve been a freelance + Visiting Lecturer for too long to be in the running for an age-appropriate job in academia. I also now find myself in the position of receiving regular requests to publish in the academic press – where publishers do not pay their contributors (we’re expected to have regular jobs in universities); plus many academic publishers insist that I give up my copyright to them as well as receiving no remuneration, and some have refused to negotiate on this point. So I’m now largely living off the money I put aside to go towards my pension. Thank you, government, I’ve been paying in all my life (I checked: fully paid up for 41 years).

So the government sold you on, you must have a pension for your retirement back in the day, and now you are at the other end you are realising that it is going to be a half-empty box.
Its a shame we all went through the indoctrination system, instead of being educated then some of us may have seen what was coming. Oh, that’s right parliament did know that’s why it was set up that way.

I agree with those who regard tax on pensions as being so badly wrong by this and past governments. Like the house is a man’s castle, so is his monies he has diligently squirreled away over the working years of his life. It is the pensioner who has forfeited other things in order to save for his retirement, certainly not with the help of HMG. Get a life, you tax-chasers! We didn’t vote for you so you could rip us off for our hard-earned freedom. It’s ours and should remain sacrosanct in every case.

in order to save for his retirement,“. These savings will have been free of tax, unlike many other savings. So HMG has helped. The state pension is funded partly by NI contributions which, again, are taken off gross income – not taxed. The first £11500 of income, with tax concessions on certain interest and dividend income, is also free from tax. Where do you draw the line at deciding when to tax?

I would like to see all pension contributions given tax relief at basic rate only, and an annual limit set before relief on any additional contributions is removed – say at £20 000 a year. Or any suggestions for a figure (just plucked this out of a hat).

The tax on pension is abhorrent as the tax was paid on the original source of income. So a pension is not unearnt income, it is saved income that through a devaluating currency appears to become larger over time through those who launder it and call it a fund. when really its a casino.

Tax is not paid on the pension contributions people make from their “source” (earned) income.

David Altaner says:
14 November 2017

Why should you not tax pensions when you draw on them? It is income, it should be taxed. Seniors already get enough benefits, from transport passes to fuel allowances and so on, and young people get very few breaks.

I agree David. However, young people have all their working lives to advance their education and improve their financial position. The retired rarely have any further opportunities. They can take on part time work. exploit a profitable hobby, trade on ebay, I suppose but are much more restricted in increasing their income.

Some further news about pensions, affecting anyone who was ‘contracted out’ during 1978-1997. https://www.which.co.uk/news/2017/11/millions-to-miss-out-on-the-chance-to-see-if-their-state-pension-is-correct/

Dave Walker says:
18 November 2017

David Altaner are you living on another planet, you have already paid taxes on your earnings so why should we pay again we have worked over 40 years to get these pensions. Also you go on about seniors getting enough such as free passes on buses and heating allowance’s again these people have worked hard and long enough to get these privileges. I expect when you become a senior to decline all that is offered to and give them back you fool.

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UK pensions are a disgrace. Successive failures by Government to address the problem leave most future pensioners (myself included) in a parlous state.

Despite working for over 35 years and contributing to a pension scheme for 34 of them I will not receive a comfortable income level unless I contribute a further 10 years or more. The pension providers have grown incredibly wealthy on the back of the money they receive from me (and my employer) and they are entirely unaccountable for poor decision making. I will explain.

A few years ago I received an illustration from my provider that showed all versions of their investment packages (using a different ratio and type of investment) had performed worse than the market average. I queried this; how could all six of their schemes be worse than the market average? That suggests that they are inept. Their reply? To revise their estimates and what a coincidence; three of their schemes were now above average! How is this allowed? I asked them how it is possible to change the figures at will and their reply was that this is just an illustration so it isn’t binding. True, but who is holding them to account? The FCA were not interested.

Secondly why is it acceptable to swap corporate providers every few years without compensation? What I mean by this is that I have worked for two different employers for a decade or more and in each case the pension provider was changed because the new provider said they could improve the returns. Really? This is either true or it is not. If true then why did the existing provider not do better? And what compensation should we receive? If it is not true then how would we know? How can we check the performance against the promise when there is so much jargon, get-out clauses, and ‘for illustration only’ nonsense?

Back in the day my employer (and many others) took a pension holiday because the funds were growing very well so they continued receiving the employee contributions but stopped making employer payments. Years later the scheme has under-performed over time and there is a deficit so where were the lawmakers to ensure that my pension was not allowed to deteriorate to suit my employer?

And finally the raid on pensions by Gordon Brown (combined with selling UK gold at the low point of the price cycle) was an act bordering on theft in my view. This was not Government money; it belonged to the pension fund members.

So what should the Government do to future-proof pensions? How about reversing the impact of their past decisions and making the UK a leader in pension provision as it once was?

Re your employer payment holiday point … I was in the same situation some time ago. I was also on the trustee board for the pension scheme for a year or so and heard the Actuaries advise the board that the pension scheme was overfunded and that the employer should be allowed to take a payment Holiday. The Actuaries were the professionals employed by the pension fund to give impartial advice and yet the employer went bust 3 years later without paying one more penny into that fund. Clearly the Actuaries advice was wrong. Is there no come back on the Actuaries ?

“Update: 21 November 2017
Ahead of the Autumn Budget (22 November), we have called on the Chancellor Philip Hammond to set out a clear timetable for the delivery of the new pension dashboard by 2019.”

Isn’t 24 hours notice a bit quick to give Phil time to do this (if he hasn’t already considered it)? I’d prefer politicians to make considered decisions, not make them up overnight 🙂

Ha, you make a fair point. We didn’t give 24 hours notice, we raised this a few weeks ago and it shouldn’t be news to the Chancellor either… I suppose we have to wait and see what happens tomorrow.

Ha, @ldeitz 🙂 Fair point also.
Wonder what he has in store? I would like to see an independent pension provider – maybe operating a bit like National Savings – where we could be free from the feeling that commercial interests are undermining our savings. As an option though. I believe many pension providers do a good job for us; it is finding them. Perhaps a Which? Trusted Pension Provider register, or even Which? Pension Advisers now the mortgage business seems to have entered profitable waters.

I feel very lucky by comparison to many of the comments here – I began paying into a contributory scheme at 25 years old; when I moved company, I lost some of the value but had a good ‘new’ contributory scheme. This year, this scheme wanted me to agree to their buying out some of my pension, on the basis that I would be better off given my expected life-span. I refused, as I come from a line of long-livers, and I would have been worse off eventually. I never had time off to have children, worked for 38 years, and actually get more State pension than does my husband. That, together with my contributory pension and a small (very small) AVC payment, mean that I am happy with my pension income. No, I don’t like having to pay tax on what I get, but I did get to make the contributions tax-free through my working life. You have to accept the swings and roundabouts!

A lot of the people are put off by the high and multiple fees that pension holders are hit with.
in a lot of cases there are too many middle men taking a cut. just a 1% fee can reduce a pension pot by 21% over the lifetime of the policy.
Also these fund managers/providers take there pound of flesh whether the fund does well or badly.
Perhaps they should be paid on results.

If you ask a pension provider to look after your money and try to make it work for you then they need remunerating. It should be made much clearer exactly how much, in total, you will be charged each year (£ or % of fund) so you can do an initial comparison of providers.

The problem of paying by results is that stock and bond markets go up, and down, outside the control of the provider so even when they purchase a “cautious” basket of investments for you, they may still well fall in value in a particular period. Somehow you need help to assess the quality of the investment firm and this will be difficult – past performance is not a reliable predictor, staff change……. And your particular performance will depend upon the degree of risk you have chosen. I see no guaranteed way of dealing with this, unless perhaps there are benchmark portfolios independently chosen for varying degrees of risk, and your provider is judged against these.

you have just outlined the very problem that a pension has as a financial product. give me your £50 so I can gamble on black. Sorry, you lost! but I made £10 yey for me!

If you want money to work for you, then you can choose to do so yourself. Interest rates (on cash) will lag behind inflation but, in the main, stocks and shares for example over a long period will keep ahead, particularly if the dividends are reinvested. If you know your onions you can do this yourself; if not (like most people) you need to find a professional to do this for you, and they will require a payment. However, many perfectly reputable schemes exist to help you.