Why is it so difficult to earn a pension? Rachel Rickard Strouse says that experts must be able to manage their complexity
What kind of lifestyle will you lead in retirement? Eating out and lavish holidays – or frugal eating at home and counting every penny?
This is a very important and understandable question.
The only problem is that most of us have no idea. Even for those who are retired, it is often difficult to know whether their lifestyle is sustainable, whether they will run out of money, or whether they will have enough money for care or to leave a loved one.
Planning ahead: What kind of lifestyle will you lead in retirement? Eating out and lavish holidays – or frugal eating at home and counting every penny?
Our ignorance is alarming, but understandable. The answer to what retirement will look like is far from simple.
Dozens of readers have contacted us in recent weeks, desperate for help calculating their State Pension entitlement.
Ever since we wrote about how to top up your state pension, we’ve been bombarded with questions.
Many of them are at the end of their minds, because it is terribly difficult to develop their right.
This requires you to determine whether you are covered by the old or new state pension system, look closely at what you have done each year over the past few decades and see if you have ever paid lower National Insurance contributions in the process, which called a “contract”.
Then you have to factor in things like have you ever been divorced, looked after, lived abroad… the list goes on.
Calculating what private and occupational pensions will give you in retirement is equally difficult.
The annual reports we receive in the mail from pension funds are often filled with jargon. Each provider uses a different set of assumptions to predict how much our pensions will cost in the future, so it’s hard to know which one is right.
Pensions are also easy to lose because employees usually have to open another one every time they start a new job. It’s easy to count almost a dozen pensions by retirement age – no wonder we’ve lost billions of pounds in pension funds.
So what is the answer to this difficulty?
The answer, I think, is not simplistic. That would be simplistic. Instead, we need experience and stability.
The fact that State Pension calculations are complicated shouldn’t matter if we can rely on experts at the Department for Work and Pensions (DWP) to work them out for us.
Unfortunately, however, readers report waiting weeks for a response to their inquiries and receiving conflicting information when they finally do.
The department also has a track record of miscalculating the rights of people – women in particular – so when people get answers they don’t necessarily trust them.
It doesn’t matter that we have many pension funds from different providers.
This wouldn’t be a problem if we could see them all in one place and didn’t have to wade through pages of pension statements to find out what they were worth.
A pension dashboard where we could see a snapshot summary of all our banks would solve this in an instant. We were promised a pension panel years ago and unfortunately we are still waiting.
Finally, we need a Pensions Minister who has the time to understand the complexity and avoid simply adding to it with more tweaks and meddling.
That’s why I’m glad to see Guy Opperman back at work after resigning last week. Pensions Ministers don’t tend to stay long – we’ve now had 14 ministers in just 24 years – and only two have stayed longer than two years.
I hope Opperman now has time to give the industry a kick up the bum to get the pensions panel up and running – and sort out what’s going on at the DWP.
Experts need to manage the complexity of pensions.
Then it frees us up to deal with the other side of the equation: saving enough for the retirement we want and planning what wonderful things we’re going to do with our time.