Citiwire blog – A pension fund is not a pension

by Dr. Ros Altmann

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A pension fund is not a pension

There are some essential truths that people need to understand, when planning to provide later life income. For example, most people do not realise the difference between their ‘pension fund’ and their ‘pension’. They think they are saving ‘in a pension’ but they are not. Getting income out of their fund in later life is a completely separate issue, and the money being put in cannot predict what pension income they will get out later, because there are so many risks that can affect the outcome. Annuities are little understood and the FSA has failed to regulate them in the consumer interest. Alternatives to standard annuities are not widely offered. This has left millions of people with inadequate retirement provision.

Part of the confusion has arisen because, with final salary schemes, workers’ contributions did allow them to predict what pension they would receive later. However, the reason for that was that employers had to step in to make up any shortfall. Without that employer obligation, people cannot predict what income they will get at all.

Some of the issues facing people when planning for their retirement and some of the confusion about what pensions are all about are addressed in the report I have just written for MetLife. It’s an independent assessment of the challenges facing people planning their retirement and the dangers of relying on equity investments. You can read it at: https://www.rosaltmann.com/Planning_for_Retirement.pdf.