Every country shares a problem with pensions, which is simply how to ensure that they are provided at the required levels. Whether that’s a state pension or a social contract that makes people understand that they’re on their own, each government needs to find a way to keep a large majority of its populace fed and housed sufficiently in their retirement that they won’t cause problems (and, we hope, with more altruistic motives than that).
It’s interesting, then, that the US and UK have decided upon different solutions to this problem (primarily individual based in the US, state based in the UK), yet have both run in to similar operational issues. Both countries have decided that the best way to encourage retirement saving is to have lots of options, be they employer-based schemes, self employed pension plans, 401k plans, IRAs, personal pensions, stakeholder pensions, and the list goes on. Admittedly I’m an oddity, having lived in 2 countries, but right now my wife and I have 10 pension plans between us, not including any government provision. And that’s not because we’ve been working the system; almost all of this has come about because of job moves.
I understand why all these things have developed (politics is a game, and a handy way of winning the game is to introduce new cards), but in the mess of options the point of such plans has been missed. That point isn’t for people to have a pension plan, it’s for them to have savings. To do that I need a place to put my money – let’s call that a ‘pension plan’. I need to be able to pay money into my plan, I need surety that it will be safe (not a guarantee of return, necessarily, but a promise that I won’t suffer due to the managing company’s bankruptcy, for example), and I need transparency around the fund’s balance and performance.
And that’s it. I’d like favourable tax treatment, and contributions from my employer, and low fees, and a bunch of other things. I’d accept limits on how much I can withdraw, and when, and some element of compulsion. But none of these things are necessary. What I don’t need at any point is more than one plan.
Update: Forgot to mention that this was sparked by this article on the flaws in 401k legislation.