Articles - Boring Boring Pensions


Pensions are fascinating. In my line of work you would expect me to say that, but I do get bemused as to why more people don’t think the same. Maybe it’s a hangover from the days when of the traditional ‘Defined Benefit’ (DB) or ‘final salary’ pension schemes. In those days you didn’t really need to think about your pension. You just worked until you were 60 or 65 and the scheme paid you your pension until you died.

 By Dale Critchley, Policy Manager, Aviva 
  
 But now we are in a world where Defined Contribution (DC) pensions are the norm, so surely people should be paying a bit more attention.
  
 In the DB days there was little you could do to influence your pension pay out, short of making sure your final salary was as high as possible. But in times of DC pensions there is plenty that can be done to try and boost the amount of money we have saved for retirement.
  
 We can increase our own regular contributions, we can find an employer who has a more generous pension scheme, we can choose our own investments or get a financial adviser to do it for us, we can consolidate our pension pots to avoid paying higher charges. I could go on.
  
 And despite all that, people still aren’t really engaging with pensions. Some research we ran found that 17% of people avoid talking to friends and family about pensions for fear of appearing boring.
  
 That’s despite retirement planning being shaken up in the past decade.
 - 2011: The default retirement age is scrapped. We are now free to work as long as we want and our employer can’t ask us to finish at 65.
 - 2012: Auto-enrolment is introduced. So far, almost 10m people have been put into a workplace pension scheme. Most people in work now have a pension plan.
 - 2015: Pension Freedoms are announced. An annuity is no longer the default option. A DC pension pot isn’t necessarily a long term income, individuals can spend their savings as they like.
  
 And those are just the ‘big ticket’ items. There’s been plenty more technical developments along the way that have had an influence such as charge capping, the growth of Master Trusts and the Retirement Distribution Review (effectively the end of commission for financial advisers).
  
 There’s plenty that’s still to be done to help people become more interested in their pensions though. More than a third of people we surveyed told us financial education would help and a similar figure said easier ways to access information about their pension would help as well.
  
 The DC industry, is doing it’s best to digitise pensions. Online access is almost universal for modern pension schemes, we have our MyAviva app and recently we even launched a skill on Amazon’s Alexa so people can ask how much they have in their pension.
  
 The industry can – provide information and tools to members, trustee governance can make a difference, but substantive change requires members to make the right decisions. The money in our DC pensions belong to us and come age 55 we will be able to do what we like with it.
  
 If lack of engagement is because of a DB hangover then we’ll only make the most of the DC opportunities if we take the time to understand what we have, and plan what we can do to influence our retirement income, perhaps over a cup of strong coffee.
  

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