James Coney  

People need a retirement income guarantee

James Coney

James Coney

The collapse in annuity rates to their lowest point since records began makes the pension freedoms seem like spectacularly good timing.

Had pensioners around the country still been forced to buy an annuity then the payouts today would have been deemed a national scandal. 

Today you will get £3,000 a year on £100,000 if you want an index-linked income for life, when 30 years ago you would have received more than three times that amount.

These low interest rates are a killer for retirees.

It is at the point of decumulation that low rates really matter.

But not just that, they also matter hugely if you are one of the few employers in the country running a defined benefit scheme.

Providing that guaranteed income for employees has suddenly become very hard indeed.

There is little doubt that trying to figure out how to get an income in retirement has become the most difficult financial planning decision an individual has to make.

The Financial Conduct Authority’s own analysis of the impact of the pension freedoms laid bare the danger of far too many savers prepared to sit in cash with their lifetime savings, petrified of losing anything.

On top of this, it would be wrong to see auto-enrolment as the panacea that will save the pension industry.

Yes, 10m people now have a pension who did not before, but how many of these do not know exactly where they are invested or how much they have saved?

I was, and am, a big fan of auto-enrolment.

But it is time to end the self-congratulatory sense of achievement of getting everyone saving; now we need to look at how they are saving and how much.

Even the pensions minister Guy Opperman is starting to worry.

This month he attended an event designed to boost awareness of pensions, but he has started to talk about better engagement with saving.

It is clear to me that the Department for Work and Pensions knows there may be trouble on the horizon.

The vexing question is how advisers can help. Reasonably priced advice for lower earners is a regulatory impossibility – the red tape just costs too much.

So is that where advisers should be looking at teaming up with employers?

After all, companies themselves are paying in to the pensions, they should want them to perform well too.

If ministers and pension experts are starting to worry about auto-enrolment, and consumer groups have been screaming about it for a while, it should really be time for regulators to find a way to help advisers offer some support to lower earners.

We have told 10m people they have got a pension that will support them in retirement, when what they will end up with is a small pot of money that will barely pay the electricity bill.