The world of pensions can seem dull and boring. Scratch beneath the surface and it becomes a confusing place, with governments forever tinkering with the minute detail of our retirement plans.
In a previous life I worked as a pensions journalist so I know first-hand how complicated it can be.
However, there was always one person who could be depended on to help struggling pensions journalists and in turn their baffled readers. Someone who had the knack of simplifying the complex pensions web and who wasn’t afraid of highlighting how a government proposal would affect different people, revealing the good, the bad and the ugly of UK pensions policy.
Step forward Dr Ros Altmann. Despite frequently being in touch with her and shamelessly using all her analysis notes to get to grips with various pension issues, I had never had the chance to sit down with her properly and put the world of pensions to rights.
So one cold, rainy day in May we meet up in central London for coffee. Although she left her job as director-general of Saga in February, she is still busy with other part-time senior roles (she has a meeting with the London School of Economics, where she holds three different positions, after our coffee meeting) and as a media commentator.
While Altmann is great at explaining pensions and campaigning for pensioners’ rights, behind the warm and friendly exterior she is also a top economist and investment banker.
With her economist hat on, I ask her about the UK economy and when we might start seeing some good news. ‘I don’t think the UK is still a basket case,’ she says. ‘We’re not in recession, or depression. The economy is growing, but slowly.’
Altmann has not been shy of airing her criticism about the Bank of England’s quantitative easing (QE) programme, believing it has had a devastating effect on annuity rates and pension liabilities while also increasing inflation. ‘QE has helped and damaged different parts of the economy,’ she reasons. ‘It is not clear to me that the net effect of QE has been a stimulus.’
Her main worry is that incoming BoE governor Mark Carney will be too ‘gung-ho’ and could extend the QE programme. ‘Although we have headwinds from Europe, there’s a good chance of 2 to 3 per cent growth in the UK over the next year. We’ve already got £375 billion of QE, which is a third of GDP. If we create more QE it will be like good money after bad.’
Altmann’s view is that the economy must be rebalanced with interest rates rising slowly. ‘Either you make groups poorer [such as pensioners] or you work out how to cope with slightly higher interest rates.’
It is the subject of pensions, though, that Altmann focused on during her academic days and that she still feels most passionate about. It is also where she spies the most challenges: long-term care funding, the pensioner rate of inflation (‘about five percentage points higher than the national rate of inflation!’ she exclaims), annuities and the political perspective, to name a few.
Talking on the latter, she says: ‘There is this political view that pensioners are well off and have pots of money they don’t deserve. Actually only 2 per cent of pensioners pay the higher rate of income tax. Pensioners need the money they have saved – they are going to have a long retirement. Taking money off them sends a bad message to younger generations.’
She is also cross with the government at the way it has sped up the rise in the state pension age. It will increase to 66 by 2020, and while it was originally due to rise to 67 between 2034 and 2036 it will now do so eight years earlier, between 2026 and 2028.
‘You’ve got to give people a chance to plan,’ says Altmann. ‘Many women in their 50s are already retired and are caring for others, and to be told you have to wait longer to receive the state pension is unacceptable.’
On a brighter note, she is pleased that a simpler flat-rate pension will come into effect in 2016, and agrees with the decision to raise the state pension age. ‘It should have risen years ago, we’re way behind the demographic curve,’ she notes.
But holding the government to account over looming scandals in the pensions industry is what Altmann does best, and at the moment, she is most worried about annuities. ‘The process of buying an annuity is better than it was before, but it’s still not good enough,’ she warns.
According to Altmann, the first issue is that most people don’t know what an annuity is, the second is that the product is completely inflexible and the third is the charges or commission people have to pay to purchase an annuity. ‘It’s a scandal,’ she declares.
While pension holders need to become more informed about their rights to buy an annuity from any company they want, websites that have set up to help consumers do this pose a problem, says Altmann. ‘Websites claim to offer a free service. At the last minute they say they will deduct 3-3.5 per cent, so consumers do pay and it could be the wrong annuity,’ she explains. ‘There is a duty on regulators to look after consumers who are looking for an annuity. Consumers are at the mercy of these annuity websites and salesmen.’
The Financial Conduct Authority is examining annuity rates and whether insurers help consumers to shop around for the best rates. It is expected to report its findings later this year.
In addition to ensuring consumers are protected, Altmann thinks pensions and annuities should be overhauled and become more flexible to aid pension saving in the UK. ‘Where do I start? I’d get rid of the word “pension”, apart from the state pension. The word pension is associated with so many scandals and mis-selling. I would keep it simple – you would get your state pension from the government at age x. If you need more you would have personal “life savings” or “later-life savings” to give you a better lifestyle in retirement.’
In Altmann’s world savers would be able to withdraw from their pensions before they retired, perhaps to buy a house, fund long-term care or because they had ‘fallen on hard times’. She suggests only the employer’s pension contribution should be locked away until retirement. Another idea she thinks should be adopted more widely across the UK is the practice of putting some or all of any pay rise into your pension. ‘You shouldn’t miss the money, as you never saw it in your pay packet. The US does it a lot. But unfortunately it’s not part of the official policy on auto-enrolment in the UK.’
I ask whether she would make pension saving compulsory. ‘Not with our current system of pensions,’ she retorts.
For all of Altmann’s opinions on how pensions should change in our country and how pensioners can help themselves (see the box above), I wonder what she has lined up for her own retirement. She frowns at the idea. ‘I don’t intend to retire. I would definitely continue part-time work. I’ve seen so many people who have become depressed, debilitated or bored. They had so looked forward to retiring, with this “golden pot” of money. But once they are out of work, it’s hard to get back in.’
In terms of finances, Altmann says she’s lucky to have a defined benefit pension from her days working for the government. She also has defined contribution pensions, a self-invested personal pension and an Isa. ‘I have lately been contributing to my Isa the most, just because it’s more flexible than a pension.’
I ask whether she’s thought about flying the flag for savers and pensioners more seriously – by running for parliament. ‘Oh I wouldn’t know which party to go for,’ she says. ‘The House of Lords maybe? I would love to have some direct influence. I want to be part of the debate, because I don’t have all the answers.’
For now of course, Altmann seems to have her hands full. She has three children and does charity work. ‘I get involved with youth activities. I like to swim, I do a bit of walking. I live in Finchley and my favourite spot in London is Hampstead Heath looking out from Parliament Hill.’
But you never know, maybe one day we will see Altmann pop up again in the government, putting lords and ministers through their paces and helping to shape a simpler and fairer pensions landscape once and for all.
How to have a comfortable retirement
● Make a plan. Think about two or three scenarios: what might happen in the future in terms of financial and human capital?
● Don’t rule out part-time work. This can benefit both your finances and your health.
● Think carefully about annuity rates. Even if you can get an impaired rate now because you smoke, you may become more seriously ill later when you could benefit from a much higher rate.
● Don’t make a decision alone. Talk to your partner, and to a retirement specialist if you can afford to.
● Diversify. Consider using other types of product such as fixed term annuities or investment-linked products, as well as conventional annuities, to improve flexibility of income and help protect against inflation.
● Think laterally. If you have a small defined contribution pension you can manage without, it will pass to your partner tax-free when you die, which might be a better option.