"I believe planning for retirement is more complicated than a simple accumulation of wealth."
In September 1971 I joined an insurance company as a management trainee. I can remember that day well. There were four of us, one an actuarial trainee the other three, management trainees. We were told which department we would begin our careers with. Mine was ‘Pensions 3’.
Not knowing anything about pensions, I thought I was going to be involved in running the company pension scheme.
How wrong could I be? I soon discovered that the company operated many other pension arrangements for other companies. ‘Pensions 3’ administered those schemes that did not fit easily into other categories. Expat pensions and specially agreed pension arrangements for large groups or employers. I was working with many household names, some much better known than the insurance company I worked for.
What made that first day memorable was that three out of the four of us did not have a bank account. So, part of the morning initiation was to be marched across the road by an HR clerk to open one. Seeing that 50 years later I still bank with the same company, I often wonder whether he received a commission?
I quickly developed a thirst for knowledge of the rules and regulations affecting pensions. I moved to more technical roles, my work involved conversion of existing pension schemes to the ‘new code of approval’ and contracting out of defined benefit pension schemes in 1978.
Every four or five years we had a Pensions Act or taxation changes that affected the pension schemes the company administered. Sometimes they even introduced new types of pension arrangement. Mergers came along and I quickly realised that if there was a way of doing the same thing differently each of the two insurance companies would have chosen to do so.
Then came Pensions Simplification, Pensions Freedoms, and Auto-Enrolment. Each turned established thinking on its head.
Towards the end of my corporate career, I became responsible for the technical side of all the retail product range. The insurance company mergers opened my eyes as to how easy it is to do the same thing differently. This role made me aware how insular the pension community I had evolved with were. Pensions are not the only way people save for retirement.
My final corporate role was to look at how the company I then worked for could take a greater share of the ‘at retirement’ market. That is when I really began to look at equity release. We spend all our time encouraging people to put more in their pensions for retirement, but what use is a pension if you do not have a roof over your head?
This brings me back to financial education. 50 years on, how many people leave school today without a bank account? A clue, why do banks make such an effort to market their student bank accounts? With the range of savings products available, including the range of ISAs, how does the consumer decide where best to save their money? Let alone how to invest it for the future.
I believe planning for retirement is more complicated than a simple accumulation of wealth. The return on an investment must be compared after any taxes due have been paid. This must include Capital Gains, Income and Inheritance taxes. Taking into account all the exemptions available, how do you manage the withdrawals from your accumulated wealth to keep your retirement tax bill down?
This brings us back again to financial education. Without it many retirees will pay far more to the Government than is necessary, reducing their lifestyle in retirement.
ISAs, Pensions Simplification, and Pensions Freedoms provide the flexibility. Equity release can provide additional funds and work around those freedoms to help increase the retirement income of individuals.
Thanks to auto-enrolment many thousands will each year be retiring with modest but growing pension pots. They are going to need help with their retirement finances, but that help will need to extend beyond their pension savings to how to use their whole wealth including pensions and housing wealth to deliver the retirement they are dreaming of.