Why must pensions be so hard to work out? Experts need to get on with managing the complexity of them, says RACHEL RICKARD STRAUS
What lifestyle will you have in retirement? Dining out and lavish holidays – or frugal meals at home and counting every penny?
It’s a very important and straightforward-sounding question.
The only problem is that most of us haven’t a clue. Even those in retirement often struggle to know if their lifestyle is sustainable, whether they will run out of cash or have enough money for care or to leave to loved ones.
Planning ahead: What lifestyle will you have in retirement? Dining out and lavish holidays – or frugal meals at home and counting every penny?
While alarming, our ignorance is understandable. The answer to what retirement will look like is not simple at all.
Scores of readers have been in touch in recent weeks, desperate for help with calculating their state pension entitlement.
We have been deluged with questions since we wrote about how to top up your state pension.
Many are at their wits’ end, because working out your entitlement is ferociously complicated.
It requires you to determine if you fall under the old or new state pension system, scrutinise what you were doing every year for the last few decades, and ascertain if you ever paid lower National Insurance contributions in a process called ‘contracting out’.
You must then factor in questions such as whether you have ever been divorced, a carer, lived abroad… the list goes on.
Calculating what private and workplace pensions will afford you in retirement is equally gnarly.
The yearly statements we receive in the post from pension providers are often jargon riddled. Each provider uses a different set of assumptions to forecast what our pensions will be worth in future – so it’s hard to work out which is right.
Pensions are also easy to lose track of because employees are usually forced to open another one every time they start a new job. It’s easy to clock up close to a dozen pensions by retirement age – no wonder we’ve lost track of pension pots worth billions of pounds.
So what is the answer to this complexity?
The answer, I think, is not simplification. That would be simplistic. Instead, we need expertise and stability.
It shouldn’t matter that state pension calculations are complicated – if we could rely on the experts at the Department for Work and Pensions (DWP) to work them out for us.
Unfortunately, though, readers report waiting weeks for their queries to be answered and receiving conflicting information when they do finally get through.
The department also has a track record of miscalculating people’s entitlement – women in particular – so when people do get answers, they don’t necessarily trust them.
It shouldn’t matter that we have lots of pension pots from different providers.
It 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 work out what they were all worth.
A pension dashboard, where we could see a summary of all our pots in a snapshot, would solve this in an instant. We were promised a pension dashboard years ago, and sadly we are still waiting.
And finally, we need a Pensions Minister who has the time to get their head around the complexity and avoid simply adding to it by further tweaks and meddling.
That is why I’m pleased to see Guy Opperman is back in the job after resigning last week. Pensions Ministers do not tend to hang around for long – we have now had 14 Ministers in just 24 years – and only two have stayed for longer than two years.
I hope Opperman now has the time to give the industry a kick up the backside to get a pensions dashboard up and running – and to sort out whatever mayhem is going on at the DWP.
Experts need to get on with managing the complexity of pensions.
Then that frees us up to work through the other side of the equation: saving enough for the retirement we wish for, and planning what wonderful things we will do with our time.