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Pensions nonsense…and pensions sense November 14, 2017

Posted by WorldbyStorm in Uncategorized.
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Worth reading Merryn Somerset Webb of MoneyWeek magazine (great name by the by) in the Guardian who points up the nonsense that comes courtesy of the financial industry in relation to pensions on a regular basis.

Somerset Webb writes;

How much should you be saving – and have banked already – for your retirement? Listen to the financial industry, and the answer is an awful lot more than you probably have.
According to Jean Chatzky, a financial journalist at US network NBC, by the time you are 30 you should have at least the equivalent of your annual income saved for retirement. By 40 it should be three times your annual income; by 50, six times; by 60, eight times and by retirement 10 times. How do you do that? You save 15% of your income every year (most of it into the stock market) from the age of 25 onwards.

And:

Chatzky has been savaged for this advice this week (she put it on Twitter) with the young asking her exactly how, burdened by student debt, high housing costs and stagnant real wages, any of them can ever dare to dream of saving at this kind of level. But it’s unfair to take this out on her: she is simply repeating some standard financial industry stuff – fund manager Fidelity offers almost exactly the same benchmarks on its website, for instance.

And continues by making an absolutely vital point…

But despite the fact that they sound precise and scientific, these benchmarks are really fairly arbitrary. The fund management industry is a huge selling machine, one that uses the same greed- and fear-related sales pitches as everyone else to flog product (the more we save, the more they earn). But in real life it is impossible to project 40 years into the future in this super-tidy way.

The other day I was looking at a supplement from the SBP from last month which covered pensions and thinking will I bother to examine it, then decided not to because I was pretty certain it would reiterate at length precisely the sort of stuff that Somerset Webb describes. Long articles telling people that they have to save unfeasible amounts of cash at times in their lives and careers when it is for the overwhelming majority quite simply impossible to do so.

So into the bin went the supplement.

Somerset Webb offers instead a pragmatic approach, that people will have income streams into their 60s, most anyhow. That the situation isn’t quite ‘as bad as you think’ with any with pensions having at least something put aside.

And finally and ‘more heretical’ as SW puts it…

Life is a constant balance between the needs of the present and the needs of the future. When you are young, the present seems a lot more important. It’s hard to think about saving. And with money too tight to mention, it’s even harder to save. In this situation, using fear to push people into saving can be counterproductive: very few people attempt to climb mountains that look impossible to climb.

Good advice from the industry then would be to tell people that anything is better than nothing; that they need to find their own balance between prioritising consumption today and consumption in retirement (every pound saved represents consumption deferred); and that saving into inexpensive funds with sensible managers will be almost as important to the end result as how much is saved in the first place.

I don’t actually agree with the overall thesis in relation to pensions, I think that the state pension should be universalised across all citizens with other employment pensions, whether state or private, gradually withdrawn and with the state pension at a solid sustainable level for a good retirement. But that isn’t going to happen soon. And in the meantime it is good to read something about pensions that isn’t couched in the frantic self-interested rhetoric of the pensions industry.

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