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'When I'm eighty-four' - Your pension dilemma

Updated 23 November 2022

4min read

Nick Green
Financial Journalist

Pension freedom might look like a dream come true. But for many it has the potential to become a nightmare very quickly. Alan Steel, chairman of Alan Steel Asset Management, draws on forty years of industry experience to warn against rushing into any pension arrangements without proper advice.


‘When I get older, losing my hair

Many years from now

Will you still be telling me my income’s fine…?’

(With apologies to The Beatles.) But that’s the big question: will you still have enough to feed you when you’re 84? A lot of recent research (such as Royal London’s report ‘Pensions Through The Ages’) is pessimistic. Those retiring today haven’t saved enough.  Really? Apparently a third rely totally on state handouts and aren’t pleased about it. And even those with private pension pots aren’t happy bunnies either – 72 per cent of them wish they’d saved more.

Hardly surprising, when 7 out of 10 retirees with private pensions have amassed an average pot of only £72,000.  And even though that will at least top up their state pensions, it’ll play havoc with their bucket lists. All those dreams of a cushy retirement in the sun, seeing the wonders of the world at last? Forget it.

Why we need to learn from the past

Clearly it’s too late for some – but what lessons have they learned? What tips can they give for people who are still in a position to make a difference to their own lives? Helpfully enough, they advise today’s under-forties to 1) Start saving earlier 2) Set meaningful goals 3) Check progress yearly and reassess, and finally 4) Go talk to an independent financial adviser (IFA).

But what do today’s under-forties think will encourage pension saving? Simples. Apparently 84 per cent of them reckon if they had an incentive of a top up of £1 for every £2 they saved, they’d definitely go for it. So how about an extra incentive? How about a guaranteed income return for life on your fund of over 10 per cent at 65, or even better almost 16 per cent. Would that help convince them to save more? You might say that’s a no-brainer.

Well, in the mid-1970s (when todays retirees were in their twenties), average tax top-up was 50 per cent for basic rate taxpayers, and in the 1980s (when they were in their thirties), top-ups averaged over 40 per cent. What’s more, annuities paid out 15.7 per cent for a 65 year old man retiring in 1980. Even 15 years later, annuity rates were above 10 per cent for 65 year olds… remember this is guaranteed for life. And yet did these double whammy incentives succeed in spectacular fashion? Er, no.

So why didn’t they work? For starters, the hundreds of changes to pensions legislation since 1987 (and especially over the last 15 years) has thoroughly confused savers, even those with a good grasp of figures and money management (who according to National Numeracy surveys are not in the majority). Human nature in its various forms has resulted in many people buying products they didn’t understand and not receiving the necessary levels of customer care. In short, it has become a bit of a mess – and not one that can be easily sorted out with a broad stroke like pension freedom.

Drawdown isn’t a magic bullet

Pension freedom has been touted as the solution – we can all have drawdown plans now instead of annuities. Problem solved? Far from it. In the 20 years of drawdown schemes being available, do I know anybody who chose maximum drawdown and didn’t later regret it? Nope. Their choice was influenced solely by the perceived poor value in annuity rates at the time. They’d fallen from the returns in the 1980s by 50 per cent. So the solution seemed obvious: buy a drawdown, remove a higher yield, wait for annuity rates to rise again, then switch back to annuities. Simples. And it was anything but.

What happened to annuity rates in the seventies through to the late eighties was an anomaly. Looking at long gilt yields back to the mid-19th Century, the norm is what we have now. So if you’re buying a drawdown to take a much higher income, beware. Research last year showed a majority of retirees desire an income guaranteed for life. And remember, average longevity is increasing. Married? One of you could well live well beyond 84. That’s a long time to rely on a Freedom Drawdown kitty to last if it’s not invested properly, if the charges are too high, if too much is removed as income, and if investors are not given hands-on guidance from the beginning throughout the life of the plan by experienced, skilled, independent financial advisers.

Drawdown plans have the potential to end up with more drawbacks than you can imagine. Choose your advisers very carefully, because your future life is in their hands. Will they still feed you when you’re 84? Don’t wait until many years from now – if you didn’t do it ‘Yesterday’, find your adviser today.


Alan Steel is Chairman of Alan Steel Asset Management, which he formed in 1975. He and the business have survived five stock market crashes, and he continues to help clients who would love to retire early but can’t see how.

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.