Pension complexity – myth or mindset
Our guest blog comes from mercer-elect’s Simon Griffiths. You might know Sage for our business software, but with mercer-elect we’ve recently started helping small businesses with their pension plans. So, Simon knows a thing or two about pensions and can tell his “asset classes” from his “fiduciary”. Here Simons slays some pension gobbledygook.
January 23rd saw the arrival of the Chinese New Year and, in best Bruce Lee tradition, we now find ourselves in the Year of the Dragon.
Whether you are from the Dungeons and Dragons generation or one of the more recent Hungarian Horntail aficionados from Harry Potter; dragons portray a magical, mysterious, mythical image of scales, spiked tails, huge teeth and claws, not to mention the fiery breath destroying most things in its path. It is also true that this image generally comes unstuck at the hands of a fairly simple dragon slayer – armed with nothing more than a short sword or a broomstick. 
Pensions – let’s keep it simple
The same logic can be applied (with a little Harry Potter based imagination) to the myth that shrouds the pension environment. Mention a pension and everyone immediately thinks complexity, confusion and runs for cover. Even the National Employment Savings Trust Corporation (NEST), set up to manage the pension scheme designed as a result of the Government’s aim for individuals to have their own personal pension account, has produced a phrasebook to help individuals understand some of the phrases in common usage. It tells us they will:
- Avoid using phrases like “asset classes” to describe different types of investment or;
- “Fiduciary responsibility” to describe the legal duty to act in a member’s interest,
only to introduce other phrases like:
- Consolidation phase – to describe one of three NEST retirement date fund phases
All perfectly clear then – and this is before you even get to actuaries, longevity swaps and annuity rates!
Think of your pension as a savings plan
Why do we have to think it is so complicated? At its basic level a pension is a savings plan for when you retire, nothing more, nothing less.
Forget the retirement aspect for a moment. If you are lucky enough in the current environment to have some spare money at the end of each month, or have some savings that you want to put away, and you were faced with the following choices, what would you do?
What are your options?
OPTION A: Use a service that charges a high fee every year to cover their set-up and running costs, thus reducing the amount of your money that is left to be invested and, even then doesn’t pay any attention to what how your savings are growing.
OR
OPTION B: Use a service which has a low fee, thus leaving more money available to be invested – and has experts checking to make sure that they are getting the best rate of returns available
Simple – go for option B. So why is a pension any different?
That is why Sage Pension, provided by mercer-elect, has been established. To act as the simple myth slayer to make sure you can get good value and simplicity when you want to start saving for later life.
Auto-enrolment
Auto-enrolment may have been delayed for organisations under 50 employees (watch this blog for more information on this week’s announcement), but all other organisations will still have to ensure something is in place. Even if you employ less than 50 people, why wouldn’t you want to start saving and benefiting from the tax advantages sooner rather than later? For more information download our pension guide or visit the website at http://www.sage.co.uk/sage-pensions
So “Gong Hei Fard Choy!” as they say in Macau and Hong Kong or “Xin Nian Kuai Le!” in other parts of China to welcome the Year of The Dragon and remember, when you are looking to slay the complex pension myth – we’re here to help.
Let’s hear your confusing pensions terms
In the meantime, what are the most confusing pension terms you have come across? Add a comment and I’ll try and translate them for you.
Simon Griffiths, mercer-elect
