The National Employment Savings Trust and the associated pension scheme is now operational, so I logged on to their web site this week to find out what is happening, information on member numbers, amounts being collected, saved and invested, etc, with absolutely no results.
You can get personal pension estimates, general assumptions and a lot of publicity PR statements, but little else. Growth rates of between 2 and 3% above inflation and charges are aimed for, with inflation taken at 2.5%; charges are given at 1.8% of contributions, with an annual charge of 0.3% of fund value.
This would suggest growth returns around 6% or more, but with no explanation of how this will be achieved, where invested and whether investment costs are included in charges. Pensions are based on annuities with interest of 3.7% for a level annuity dropping to 0.2% for inflation linked, somewhat confusing with no further explanation.
Although it is early days, barely six months, it all seems vague and superficial and more like an advertising website with little real data or information. I tried to use their pension estimate ready reckoner, filled it in to be told they were experiencing problems at present.
There is no indication to what extent the State is involved and how truly independent the Trust is, there were the usual waivers of subject to life expectancy, market and policy changes, which makes any estimates almost useless. This is the normal insecure Financial services approach.
There was little sales drive or inertia, no exhortations to save for a pension to avoid destitution in old age and no simple worked examples on contributions, times and ages, but this could be construed as a commitment or possible pension guarantee.
If you are saving money over a 40 year period, you need some firm basis to decide how much to save to give a firm income when you retire not possible estimates subject to a lot of ifs!, which reduce as you approach retirement, when it is too late to correct.
The basic weakness of nest is the reliance on outdated annuities, whose returns fluctuate almost daily, making it impossible to plan ahead, even for one year. The other weakness is the defined contribution basis, where all the risk is passed back to the member, avoiding any guarantee or responsibility by scheme managers.
If you are handling someone’s savings, you must accept some responsibility for the way you manage and invest that money. Such risk is greatly reduced if managed in a group environment, which can absorb market fluctuations, making contributions subject less to direct age and more average related.
Changes in Life Expectancy can also be better managed in a group, where risk is shared and sustainable payment levels arrived at on a sound basis. The effects on pension payments are not as great as are currently being decided, with present annuity levels at least half of what they could be for a 2.5% inflation proofed pension.
The whole of pension provision is being decided on a running scared attitude, instead of a logical approach to the basic factors. Fund liabilities are exaggerated, leading to the collapse of defined benefit schemes, although there is the start of a revival in the USA, where they are being shown to be the best economic solution, with major side benefits to Employers. To be continued in the next blog.
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