The advent of freedom and choice has made people think about and value their accrued pension benefits more than at any time I can remember. Pensions used to sit firmly in the “boring” box but now, all of a sudden, they are interesting. This is great news and well overdue.
There is one big issue, however. People with defined benefit pensions, both deferred and active, have no idea whatsoever what their accrued benefits are worth. And why should they? It is very difficult to get a straight answer from anyone involved in the high priesthood of pensions to something as seemingly simple as “how much is my accrued pension worth?”
For an ordinary member of the public, even having access to a pension priest is nigh on impossible, let alone being able to talk to them and having a hope in hell of understanding their response.
Thank goodness we have professional financial advisers who can ask the high priests of pensions the right questions, in the right way, to get the right answers for clients. But is that really the most efficient way of getting information on the value of the UK’s vast pension savings to the millions of people that would quite like to know what they are worth? Imagine if the same principle applied to housing and the millions of homeowners in the country had to consult some kind of oracle to find out what their properties were worth. The tabloids would be having a field day.
For many people in DB schemes with substantial past service entitlements built up, the value of their pension benefits could easily outweigh the value of the houses they live in. Houses they have spent a working lifetime paying for. I would imagine those people probably know to the penny what their properties are worth but will not have a clue about the value of their other major lifetime purchase, their pension. That is just crazy and, in the 21st century, ridiculous too.
It is high time the trustees of DB schemes should be required to furnish all deferred and active members with an annual statement of the cash value of their pension holdings. We are no longer in the early 1990s when the current transfer assessment systems were spawned: a time when the cash value hardly mattered anyway as people were obliged to accept an income from an arbitrary age in return for their pension money, and when very few people would find it advisable to transfer from the DB to the defined contribution regime.
It should not be left to advisers to interrogate the pensions oracle for all interested clients. We need a requirement on DB pension schemes, including those run for Government employees, to tell each and every member each and every year the current cash value of their pension rights.
Steve Bee is director at Jargonfree Benefits