Scheme members often hear how giving up their daily cup of takeaway coffee and putting the money saved into their pension will help significantly boost their income in retirement.
While I drink coffee, I much prefer beer. And while I don't mind making sacrifices now, I really want to know what I am making those sacrifices for.
So I asked myself another question. How much money would I have to accumulate in my pension pot to be able to afford a pint of beer each week in retirement?
Well a pint of good beer in my (expensive) local pub in Surbiton now costs £3.50 a pint. At one pint a week - and assuming no regular customer discount - that will cost me £182 a year.
Of course, beer goes up with inflation (in fact, it often goes up at a rate much higher than inflation, but let's ignore that complexity for now).
So how much would an annuity cost me should I want an income of £182 a year going up with inflation from age 65?
Looking at latest annuity rates, the best RPI-linked rate is around 3.69% - meaning my weekly pint of beer will cost me a colossal £4,926 at retirement.
But I like some crisps with my beer. A bag of my salt and vinegar favourites costs around 70p. Using the same methodology, this will add a further £985 to my retirement costs. It looks like I will only be having the crisps every other week then.
My wife likes an occasional half of shandy or maybe a small glass of wine.... Well, I think, when we retire, she will have to buy her own. And my son? Forget it.
While I trivialise, the problem is very real. Scheme members who annuitise now are getting what appears like a terrible deal (and, I expect, not very much beer).
Steve Webb says he will now set up an annuities task force to take a proper look at decumulation.
Rates are now so low that annuities struggle to produce to produce any investment gain after inflation is taken into account.
A better way in which to fund retirement - and my weekly pint of beer - is long overdue.
