In a word, tell me how you feel about pensions

This week, I asked my Instagram followers to describe how they feel about pensions in a single word.

The answers ranged from “lucky” (a friend in her 60s grateful for the security of her final salary pension) to “yikes!” (a self-employed pal, aged 30, who has no pension at all).

“Confused” was the top answer (“lost” and “uninformed” also featured). Yet those of us who had engaged with pension saving a bit more did not feel much better, choosing “exasperated”, “opaque” and “joyless” to describe our experiences.

My own choice of word was “argh”. I had a letter from my pensions provider last month about tax thresholds that was so full of jargon and long-winded caveats, it may as well have been written in Sanskrit.

While pensions are clearly something most of us find very complex, pension providers are ultra wary of giving anything that could be construed as “advice” when they attempt to communicate with us.

Why? Financial advice is a strictly regulated activity. If you need help deciphering all the jargon and tax rules, you’ll have to pay a financial adviser — and they are not cheap (evidenced by the friend who wrote “fleeced”).

Even so, as a well paid professional, at least he’s been able to access advice and make significant pension savings. Many working people cannot afford to do either.

This explains why the UK’s “advice gap” is huge — only 9 per cent of UK adults ever see a financial adviser.

The death of generous final salary schemes means that for most of us, managing our own pensions and investments is something we will need to do throughout our working lives and well into retirement.

Leaving your money invested in the stock market after you have retired is now the norm — exposing individuals to far greater levels of risk. When you consider that most people feel themselves ill-equipped to deal with this, it’s a looming disaster.

Yet it is a problem that US asset management giant Vanguard sees as a huge opportunity. This week, it started a price war by launching a fully advised pension service for less than half the amount typically charged by other UK advisory firms.

A bit like the Ryanair of the investment world, Vanguard is a low-cost, no-frills proposition (although I suspect its customer service ratings are somewhat higher than the airline).

All too often, it feels like the pensions world does not want to engage with us. But to get the best bang for our buck, we also need to ask more questions and be more demanding of our providers

The target audience are people like me in their 40s, in the midst of what advisers call the “accumulation phase”, where we are saving up as much as we can towards retirement. Refreshingly, Vanguard wants to make this as simple as possible and there are lessons we can all take from this approach.

Customers must have at least £50,000 to invest and start by completing a digital fact-find. The most difficult questions are probably “when do you want to retire?” and “how much income do you want in retirement?”

You’ll need to have a stab at those in order to be given a savings target to aim at, and a cash flow visualisation showing how the money flowing in to be invested now could grow over time and hopefully flow out as income after you retire.

James Norton, who leads Vanguard’s financial planning team, says this helps address the question he believes is behind most of the confusion and worry associated with pension savings — “Will I have enough money to last me?”

Another important question is whether customers are saving the maximum amount into their workplace pension to bag the “free money” of matched contributions. If you don’t know the answer, put it at the top of your to-do list now.

They will also be probed about unused tax allowances. If you earn a six-figure salary and you’ve never heard of carry forward, add that to your list as well.

It’s not just the fees that will be a game changer. Most people will rely on a combination of pensions and stocks and shares Isas in retirement. Vanguard offers both, and will allocate your cash accordingly in the most tax-efficient manner, eliminating yet more complexity at a stroke.

Nevertheless, there are some important caveats. The fees are so cheap because it’s restricted advice (you can only invest in Vanguard’s own range of passive funds) and for now at least, it does not cover the “decumulation” phase — managing your investments during retirement, the point at which many people seek financial advice. Customers won’t get access to bolt-on services that other advisers commonly provide like tax planning and protection insurance.

I’m eager to see how consumers respond to this approach and what effect this has on the rest of the market. Anything that helps to make pension saving clearer, less daunting and easier to engage with will be a bonus.

All too often, it feels like the pensions world does not want to engage with us. But to get the best bang for our buck, we also need to ask more questions and be more demanding of our providers.

A year ago, I would have been more inclined to believe the argument that many young people were uninterested in pensions. However, the surging numbers who have started investing during the pandemic has changed my mind.

Sadly, I’ve not yet seen any memes proclaim “I’ve upped my contributions into my company pension” or “tax relief has boosted my investment pot by 40 per cent”. Yet in the long term, both of these could easily eclipse short-term gains from trading shares in GameStop.

Next week, the FT is running a series of free online events giving younger readers the chance to tell us how they feel about areas of the financial world where the odds seem stacked against them.

Pensions are one. The housing market is another (indeed, many have eschewed pension saving to prioritise getting a housing deposit together).

So if you’re feeling confused, frustrated or even angry, I would urge you to sign up for the session next Tuesday lunchtime with me, Josephine Cumbo, the FT’s global pensions correspondent, and Sebastian Payne, Whitehall editor and host of the Payne’s Politics podcast — and a millennial who admits to needing help with his pension.

Whatever word you’d use to describe them, the dreadful jargon and complexity makes pensions an area of personal finance that’s easy to ignore. But when you stop to think about what’s at stake, it’s hard to overstate the danger of putting it off for another day. 

Sign up for the FT’s free NextGen series of digital events next week including “Pensions: A decent retirement for the young” via newdeal.live.ft.com

Claer Barrett is the FT’s consumer editor: claer.barrett@ft.com; Twitter @Claerb; Instagram @Claerb