Will sacrifices to the pension gods be worth it?

Money in hand Plans to get people to accumulate pension savings are well under way with auto-enrolment but has the government massively overlooked what happens when people get to retirement with their, hopefully, big fat pot of pension money.

Pension minister Steve Webb had spoken a lot about getting people to retirement with a 'big fat pot'. We've already got auto-enrolment which will see around 8 million workers across the UK automatically put into their workplace pension and start saving for the first time. We also have the government looking at bringing in 'pot follows member' legislation that would let workers take their workplace pension with them from employer to employer to stop them losing the money or building up lots of little pots that are expensive for the industry to administer and prevent consumers from fully engaging in pensions because they don't see the worth in a small pot of money.

These are all sensible plans ad conversations that we should be having but there is a concern that the focus on accumulation has left a gaping hole at the other end, what's known in pensions parlance as the decumulation phase - essentially when you turn your pension savings into an income.

How do we make sure that people are getting the best value for their money and making the right choice about their money?

We need to make sure that once people hit retirement that money that they have saved can sustain them in their old age. There is a concern that we could end up facing the same problem faced in Australia.

Our friends on the other side of the world have mandatory pension saving but even though people are saving when they hit retirement they take their tax free lump sum, spend it, don't have enough money left to pay for their retirement and end up falling back on the state anyway.

There are already rumours that the government will tax the 25% tax-free lump sum in the UK in order to boost the coffers but this plan could also have a positive outcome for pension income and make sure we don't spend our retirement income in a nice holiday or a new kitchen.

Increased taxation not a popular policy but in the long run it could help us make sure that we have enough money in our ever-dwindling pension pots and that all the sacrifices we made to save in our working life are not wasted in old age.
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