Can the industry make pensioners happy?

This oft-quoted wisdom is unable to capture the full, more complex, picture, but does have a particular resonance for pensioners. If you have enough money then old age can be a treasure trove of cruises, long lunches and bowling greens; those less well-off will be uncomfortably dependent on the winter fuel allowance.

Recent figures from the Office for National Statistics show that 1.2m people aged over 65 are still in work. Some may be delighted that their increased life expectancy and health enables them to carry on doing a job they love, but many are forced into it by inadequate pension saving. 

A bundled product that allows investment growth during an initial period after retirement, and then automatically converts to a guaranteed income for life, could be the best of both worlds

And many of the 90 per cent of over-65s who are not still working might have preferred to do so to enhance their retirement income, if health and employment prospects allowed. In any event, the fact that so many people continue working after 65 clearly shows that they value the added financial security an extended period of work will bring them.

Anecdotal evidence also supports this conclusion. I recall an elderly scheme member ringing me up during an exercise to commute trivial pensions. This lady had been offered a £200 lump sum in exchange for a £10 per year pension that she had long forgotten. 

She was extremely pleased because she would now be able to afford a new pair of glasses, having broken hers a few weeks earlier. Less dramatically, a decent income in retirement can free pensioners to take taxis to visit friends, particularly if they suffer from reduced mobility, or to buy a new lightweight lawnmower so they can continue to enjoy their garden (if they have one).

I firmly believe this makes the pensions industry a great force for good in society, enabling people to provide for a decent retirement.

However, I suspect we are still struggling to provide all the right product features for consumers. The debate about flexibility after freedom and choice highlighted the risk of people drawing out their entire pension pot and blowing it in an orgy of Lamborghini purchases. 

Underspending is also a risk

I do worry slightly about people running their pots down too quickly after retirement, either by forgetting the occasional need for exceptional expenditure, or simply underestimating their longevity. 

Incidentally, the projections genuinely show that most people will live longer than the current average, so it is hardly surprising that people will get caught out. 

My main concern though is for those pensioners who live too frugally, eking out their savings to make sure they last a lifetime, and effectively living on the bread line to leave a higher inheritance.

Conventional wisdom suggests that it is completely rational for people to cash in modest pension pots at retirement, as ‘two grand in the hand’ is better than a miserly two pounds a week. 

That is true for many people, but Mr Micawber could testify to the fact that just a small extra income can be the difference between happiness and misery. 

Young want security

Equally, an eValue survey in January found that 55 per cent of 20-somethings aspire to a guaranteed level of income in retirement – so perhaps there is a bright future for annuities after all. I certainly think there should be. 

Being forced to buy an annuity and lock into low rates at a single point in time was not a great idea, but a reliable and secure income in later life is exactly what people need and want. 

On the other hand, we know that some pensioners become increasingly vulnerable over time, so we cannot rely on them making good decisions forever. 

A bundled product that allows investment growth during an initial period after retirement, and then automatically converts to a guaranteed income for life, could be the best of both worlds and should surely be attractive.  

Hugh Nolan is president of the Society of Pension Professionals