"Building up a business or housing your family may take higher priority than tying up money in a pension and may be seen as producing more value to the family unit in the short term."
In the song the young girl asks her mother, ‘What will I be? Will I be pretty? Will I be rich?’ Her mother replies with the chorus, ‘Que sera, sera, whatever will be, will be, the future’s not ours to see’.
A member of a defined contribution pension scheme may ask a pension expert, “When will I retire? How will I retire? Will I be rich in retirement? How long will retirement last? Will my pension fund last as long as my retirement?”. Ok a lot more questions than the young girl asks her mother and no way do they fit the tune, however like the mother in the song, how can a pension expert truthfully answer the questions being asked. How many will reply: “Whatever will be, will be. The future’s not ours to see”?
Let’s work through those potential questions and see the problems with coming up with exact answers:
When will I retire? This depends upon your health, how much you have saved and whether you want to retire. Some of which you are in control of, some of which you are not.
How will I retire? This depends upon the same factors as above. Will you, out of choice or financial necessity, step down into retirement gradually or will your health prevent this option?
Will I be rich in retirement? This is subjective and ‘rich’ should for that reason be read as ‘comparatively wealthy’ compared with ‘my financial situation whilst working’. It depends upon when and how retirement takes place, how much was saved, the investment returns before retirement, financial conditions when an annuity is purchased, and/or investment returns during retirement. This could be a trick question because if it does not refer to the duration of retirement it is possible to be ‘rich’ for a short while by blowing the whole fund over a short period.
How long will my retirement last? If you retire at 65, around 20 years on average. However there is a 50% chance that you will live longer and 40 years is not impossible. Your health and lifestyle may indicate that your life expectancy may be shortened but we all know of the 90-year old who drinks a bottle of whisky and smokes 40 cigarettes each day.
Will my pension fund last as long as my retirement? If you have saved a sufficient amount, yes if you buy an annuity, but will an annuity income be sufficient to make you feel rich? If you do not buy an annuity but depend upon invested drawdown how do you balance the income you draw against the unknown period it must last for.
Faced with the above is it any wonder that the average person says, “Que sera, sera whatever will be will be” and therefore don’t engage with their pension as much as many pension experts wish them to.
They cannot see the future. Neither can pension experts. If pension experts pretend they can see the future, are they to be believed? If the future is all based on assumptions and averages that people cannot relate to will they trust the future that is presented?
Pensions are the most tax-efficient way to create wealth. However they are not the only way to create wealth. Building up a business or housing your family may take higher priority than tying up money in a pension and may be seen as producing more value to the family unit in the short term.
I agree with Michelle Cracknell when she says that we should stop saying people are not saving enough into their pensions. Particularly when those who make such statements are unaware of what other wealth creation they may be undertaking.
We need a more holistic approach to retirement planning. If you go back to the questions there is a theme. The more wealth you have created the more choices you have about your retirement, when, how you can retire and how ‘rich’ in retirement you can be.
This also means we need to review attitudes to retirement income planning. Does a pension income have to be for life? Can it be for a shorter period and used in conjunction with other assets to create a better retirement?
The future is not ours to see, but people can be encouraged to create a better future by taking steps to increase their wealth.
