With ever more people falling into the “Just About Managing” category as inflation increases faster than many pay packets, pension saving is likely to feel the pinch. Employees and employers both need clear and simple guidance on the choices to get the best outcomes.
In the infamous Jam Experiment (the psychological study rather than the jazz quintet of the same name), ten times as many customers bought some jam when offered a choice of six flavours rather than 24. Similarly, sales of Head & Shoulders went up 10% when the brand range reduced from 26 to 15 varieties. What on earth was Mr Heinz thinking when he decided to advertise a whopping 57 varieties? He could have taken over the whole world if he’d stuck to plain old baked beans in tomato sauce!
One of the authors of the Jam Experiment (lyengar) turned her hand to pensions later, finding that US plans offering just two investment options had a 75% take up rate – falling to 61% where they had 59 choices, which is even more than Mr Heinz. Back in 1999, Baber and Odean found that the least active traders got an 18.5% return compared to 11.4% for the most active traders. The average investor who switched stocks lost out by 3% over the following 12 months. Nowadays few people would object to a return of 11.4% but we’d all definitely want to get a little bit extra if it’s available given the current low expectations of future returns. Read more »
In 1977, Monty Python’s Life of Brian asked ‘What have the Romans ever done for us?’ to which it appeared, well, quite a lot actually. However, with the imminent changes within the pensions industry, the question you may have to consider is rather ‘What has the Government ever done for us?’
For starters, there is the introduction of the new basic State Pension which from 6th April 2016 will deliver a clearer State Pension for future pensioners. The current basic State Pension and State second pension (S2P) will be abolished and replaced by a single-tier, flat-rate State Pension of £155- a-week paid to everyone who has paid 35 years of National Insurance contributions (NICs).
A change of this magnitude will be rightly debated and queried, and as administrators there are questions that we can expect to be asked, namely why the government has introduced such a significant change. In turn, we can also expect many pensioners to now have a greater focus on their personal pension benefits as members look to clarify how the changes may affect their total monthly income. Read more »
Spence & Partners latest blog for Pension Funds Online
It’s been 7 months since the new pensions freedom flexibilities came into effect, completely re-drawing the landscape of retirement savings. During that period, around £5Bn of cash has been withdrawn from the pensions system, both from cashing in small pots and drawing income out of larger ones. However, with an average “cash-in” value of around £15,000, Lamborghini dealers are still waiting to join the party.
Concerns about profligate retirees blowing their retirement savings have so far not come to pass, with general feedback from the industry that people tend to be quite sensible in the decisions they are taking over their retirement income. This is not particularly surprising – it seems a little unlikely that someone who has saved all their working life would suddenly spend the lot as soon as it become accessible; hard-working savers deserve more credit than that. Read more »
Well, according to Michael Johnson a research fellow at the think tank the Centre for Policy Studies pensions will cease to exist by 2050.
His argument seems to be based around the fact that pensions are a long term investment and as such young people cannot connect with them. He goes onto say that the 24 to 35 year olds should be encouraged to invest into ISA’s and then can dip into them when they need some cash. Read more »