Pension policies such as auto-enrolment will not give people the savings they need quickly enough. But while the wealthy are using everything from property to vintage cars to store wealth, the masses are left with tough choices ahead.
A year ago I argued the lifetime allowance (LTA) cap of £1 million was unlikely to provide most prudent savers with an overly comfortable retirement private pension income.
Given this, an annual allowance of just £40,000 per year and £4,000 for those who are already in drawdown and want to top up, seems punitive. Still, for those with more than £1 million and a full state pension, it is possible to erode capital and plan spending according to those periods when money is needed, or wanted, most.
But I also underlined the fact a £1 million pot was, in any case, a pipe dream for most people.
A year later, where have we got to?
The marginally good news is that, with Brexit occupying the policy agenda, pension policy has not been interfered with by government. For this I am sure the financial services profession, and consumers, are profoundly grateful. Better news is that the lifetime allowance has gone up, slightly, in line with inflation. It is now £1.03 million.
Is, as my original article asked, £1.03 million enough to retire on?
There is probably little point in dying with £1 million in your pension fund, unclaimed.
I have seen too many colleagues in financial services over the past year not even live long enough to collect the pensions to which they were due. As a profession, we tend to obsess about running out of money in retirement, when perhaps we need to focus more on the danger of running out of life.
The good news is that we are all living longer, healthier lives. Life expectancy may have plateaued for the time being. But it is likely medical advances, with cutting-edge treatments such as gene therapy, will make quantum leaps possible.
But for most people, a pension of £1 million will still remain a distant dream. Several serious challenges remain.
The bald fact is that for most, in the private sector certainly, defined benefit pensions have disappeared.
For our children’s generation, accumulating anywhere near the lifetime limit on, let’s say, £15 an hour, looks beyond daunting. To them, it is just intimidating. And that is before we get to the question of long-term, end-of-life care.
Expecting people on modest incomes to save for their own potential care needs on top of their pension needs seems to me an almost impossible ask. Auto-enrolment into pension saving may help. But the effects will take years to manifest in any material form. And we all know the current savings rates are inadequate to provide a safe retirement fund, let alone care.
For some, radical alternatives to pension saving are being used.
Historical research I have conducted at the Institute of Directors revealed around 20 different ways people were using to save for retirement, from buy-to-let property portfolios to collections of vintage cars and wristwatches.
The first on that list has been severely hit with tax changes recently. But there are many other options. Pension saving is not the only fruit, and with the restrictions on such saving now, many savers will be wondering what the point of that particular route is.
Pros and cons
The state pension is far better than it was and remains affordable for the taxpayer, for the medium term. This is a good thing as it will provide a great underpin for the private savings of many, and provide choices for many more, such as moving overseas to lower-cost locations.
But we should be under no illusions that the vast majority of Britons have some very tough retirement policy choices ahead.
Malcolm Small is a special adviser at Copia Capital Management