It’s become customary to bemoan the lot of those with defined contribution pensions as opposed to the “gold-plated” defined benefit pensions of yore.
In other words, the over-simplification of a subject traditionally seen as dull and impenetrable by the mass-media is consigned to fit a narrative they believe will sell papers and lead bulletins. Case in point: the rare appearance of the gilt market in the mainstream media.
DC bad (more and more of us), DB good (fewer of us), we’re all doomed, keep buying/watching/listening, goes the story in the wider (not trade) media.
So the combined news that not only have annuities reached their highest level for 14 years – a 52 per cent rise this year - and that sales of those annuities have risen in 2021 – 13 per cent up on the previous year – should prompt everyone with a DC pension to pause for thought.
Do we DC’ers curse our luck at missing out on the fabled, guaranteed baby boomer DB income for life (shakes imaginary fist at oblivious, beatifically smiling, silver-haired pensioner) or do we seriously consider what our actual options are?
Notwithstanding the fact that the so-called “gilt market rout” has actually improved funding levels for DB pensions, that the Bank of England’s £65bn facility for buying them is largely untouched, much of what we’re told has been uninformed at best and alarmist at worst but it’s also had a similarly positive impact on annuity values. In other words: crisis, what crisis?
So let’s reset the narrative. In so far as annuities are concerned, what we’re currently seeing are the favourable conditions to consider a guaranteed income in retirement but you would be hard-pushed to know that from the relentless march of storm-cloud headlines on the state of the economy.
Annuities have been maligned since the pension freedoms of 2015, which gave people more choice about what to do with their DC pot. What followed was a period of ultra-low interest rates and inflation which suppressed not only their value but did little for the image of annuities, deserved or otherwise.
Fast forward to 2022 and there’s an element of rebalancing in that reputation.
Call it good timing or just the sensible application of our zeal to solve long-standing problems but we developed and launched Pension Potential earlier this year to offer an online service for the growing number seeking to assess the part annuities could play in their retirement.
It’s free for employers and easy to use and understand for employees. They can see clearly the value and type of annuity from across the entire UK market, which they can view in a personalised summary, laying out transparently the value of shopping around. There’s also the option to talk to an expert, should they want to.
And it goes without saying that while we don’t control what the markets do, being able to help people navigate their inevitable ups and downs is something we can offer.
So, I would urge everyone to look beyond the usual suspects, inviting us to hide in the cellar until this week’s/month’s/year’s crisis blows over and, instead, take account of what are positive advantages for DC pension savers in a world that will keep turning.