“Shoulda, woulda, coulda”: yet more evidence suggests income beats choice in retirement
Beverley Knight is a woman well aware of the consequences of poor decision-making.
“Now ‘Shoulda, woulda, coulda’ means I’m out of time,
“Coz ‘Shoulda, woulda, coulda’, can’t change your mind.”
Inexplicably, popular music tends to gives more attention to matters of the heart than it does to retirement planning. So Ms Knight was in this case bemoaning the choices that led to the break-up of a relationship. It will probably be some years before her work focuses on pensions.
But if you needed more evidence of the inappropriateness of recent pension freedom reforms leaving savers open to “should, woulda, coulda” regrets in old age it is provided by important new research from the Strategic Society Centre.
The Centre, doing the sort of analysis that would have best been carried out by the government ahead of the changes that came in in April, shows that having a secure income that covers basic needs, provides scope for leisure activities and gives people more choices in their lives, is in virtually every case, a greater source of satisfaction than increased wealth.
The only group for whom wealth gave greater benefit than small increase in income was the very poorest for whom having a cushion against financial shocks is of particular value.
Its analysis found that the level of secure income achieved by an individual appears strongly associated with participation in leisure activities, such as going to the cinema or eating out, in a way that wealth isn’t.
Both income and wealth were associated with civic participation. But income alone was associated with being a member of the likes of tenants’ groups, political parties or education, arts or music groups.
Income, but not wealth, was associated with whether people report “the conditions of my life are excellent” and “so far I have got the important things I want in life”.
The importance of income and the well-established fact that people have limited ability to plan for the future again suggest that defaults or nudges towards retirement solutions may be the best way of steering us through pensions freedom.
There is a strong case for government setting out what it thinks a good retirement income strategy is. In the absence of this, NEST has done very valuable work setting out a model that focuses on the provision of an income stream while also providing the comfort of a cash buffer together with longevity insurance to ensure that people do not run out of money in old age.
The Strategic Society’ Centre’s work also casts doubt on the merits of creating a secondary annuity market that would allow people to cash in policies that provide them with a secure income in return for a cash lump sum.
The risk is that without defaults, we, like Beverley, make decisions that are not in our long-term interests. By the time we realise our mistakes “‘Shoulda, woulda, coulda’ means I’m out of time”.