Pensions: why inert saving just isn't enough

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Accumulation and decumulation are two words in the pensions vocabulary that are guaranteed to make everyone's eyes glaze over.

This horrible jargon can be boiled down into more simple language: saving and spending.


The 'accumulation' phase of a pension is all the years that you are working and diligently saving or accumulating money. The 'decumulation' phase is when you hit retirement and you turn your pension pot into an income that you can spend.

The government has made great strides in getting us accumulating by auto-enrolling workers into workplace pensions. Even though people have been given the chance to opt-out of saving just 10% have done so which is a huge success.

There is a slight problem though. Auto-enrolment relies on inertia, hoping that people are too lazy, or too disconnected from their money, to bother opting out and they save by default.

This essentially makes the public think that the government has got this pension stuff sorted for them and actually they don't have to worry about it too much. This is true to a point as the government will start automatically taking more from employees and putting it in their pensions. Over the next three years employee pension contributions will rise to 4%.

But I think we are storing up a bit inert problem for the future: namely that people will be totally disengaged with the money they have saved.

This wouldn't matter too much if there was a default way to get at your pension cash when you hit retirement but there isn't. When you get to retirement you have to make one of the biggest financial decisions of your life: how to turn your pension pot into income.

You can buy a standard annuity, a fixed-term annuity, an investment-linked annuity, go into capped drawdown or flexible drawdown, or chose not to take it at all. Mind-boggling isn't it.

So how on earth do we expect people to make the jump from inert pension savers to switched-on retirees who know exactly what they want from their retirement and what the best product for them is?

At the moment there is hard to see a bridge between the two and you would be surprised at the number of people who don't even realise they have a decision to make when they get to retirement; they think saving is the only decision they have to make.

If we want people to get more out of their pensions then tackling the accumulation phase is only hald the problem.

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