It’s better when we do it together

On Sunday I wrote a blog about the ten things I wanted to see in the Government’s response to the Consultation it’s been running following the retirement reforms announced in the budget. You can read it here.

As we’re ten out of ten, we’re pretty happy with the decisions taken, but the announcements haven’t been universally welcomed. Witness this exchange

@henryhtapper Many ppl reaching scheme pension age will still be working so 'do nothing' may be best decision&Advice not reqd

— Ros Altmann (@rosaltmann) July 21, 2014

@rosaltmann We must find a default option that's 90% good for 90% of folk- got it! #CDC #bollofree @pensionschamp

— Henry Tapper (@henryhtapper) July 21, 2014

@henryhtapper @rosaltmann whose the 'we'?

— Alan Higham (@alanhigham100) July 21, 2014

Several tweeps picked up on Pension Champ (Alan Higham’s) tweet (a rebuke to me for claiming to speak on behalf of others without a mandate!). So I will try to explain what I meant by “we”.

I am trying to speak for 18m people in the UK for whom work is not just a means of paying the bills but also somewhere where they generate income for later years.

When “we” pay national insurance we earn credits for our single state pension, when “we” don’t opt-out , we are enrolled into a workplace pension and many of us go further and use payroll to make voluntary contributions to insure against us running out of money in later years.

We know that whatever we save, we are unlikely to see, simply from our retirement savings, a sustainable income that replaces our previous standard of living. We know that we will either have to keep on working (Ros Altmann’s older worker’s agenda) or cut back or rely on money trickling down from older generations.

The “we”, I am talking about are the people I have worked with since I left college school in 1979, the younger people I work with and those who helped me along the way, many of whom are now enjoying the fruits of their labours in their later years.

And if I am talking about us collectively , it is because we behave collectively. We flock to people who are on our side like Martin Lewis (and Ros, Alan Higham and Paul Lewis)

Alan Higham hit the nail on the head yesterday when he pointed out that even Martin Lewis had fallen for George Osborne’s line that you’ll be able to get free impartial advice about your pension options from April 2015.

Pensions are changing next year – but you'll be able to get free, impartial advice from April http://t.co/hqQzfLaxbZ

— MoneySavingExpert (@MoneySavingExp) July 21, 2014

Alan’s comment was that 7m people rely on Martin for information, guidance- many would say “advice” and that if he interchanges the words, then it’s likely his 7m readers do too.

The BBC ran its news story yesterday as “New pensioners to get independent advice” though the “advice” has now changed to “guidance, “we” have read “advice”, George has called it “advice” and in every guidance session from April 2015 the question on the lips of everyone of “us” will be “so what should I do?”.

Which is the one question that “guidance” cannot answer but “advice” can. Advice includes the provision of a definitive course of action and guidance doesn’t.

And – coming back to my tweet, 90% of “us” want to be at least 90% right. We want a – solution that we can fall back on if our best endeavours leave us flummoxed as to what to do.

When we get presented with the investment choices on our works savings plan, 90% of us choose the default despite us knowing there may be something better out there.

And when we come to retirement 90% of us will want a solution that is reliable, predictable and understandable, that pays out fair shares and is there or there about in terms of the best rate.

Most of us do not want to plead that we are on our last legs and go for an “impaired life annuity”, most of us do not want to appoint a stockbroker or wealth manager to run a bespoke investment strategy with our retirement savings. We want to do what other people are doing and we want to be protected from the negative aspects of herd decision making by Government and Governance.

Which leads me to my big point. Currently there is no consensus product. We have annuities (on which you should take advice), we have individual drawdown (on which you should take advice) and we have “cash” which is what you take if you are a mug- because you will pay lots of tax and get a depreciating Lambhorgini and a hole in your packet by the time you are 75.

People are going to go to those guidance sessions and come out feeling they’ve been presented with Hobson’s choice, an advised product or the risk of financial impecunity in later years.

And this is exactly how those who sell financial advice want it to stay. A polarised choice between an advised annuity and advised drawdown with the prospect of blowing it if you don’t take advice is the content of the guidance guarantee that most financial advisers want.

But it’s not what “we” want. “We” want something that doesn’t lock us into an annuity for the rest of our lives and doesn’t have the servicing costs and unreliability of individual drawdown.

We want to roll back the years to the day when our pension fund provided us with a pension without us having to do much more than give the bank account details into which we wanted the pension paid. We want to know that the process is properly governed and that the rate the pension is paid is sustainable (eg the money won’t run out).

Most of all “we” and I include myself in this, don’t want to have to bother with our pension- we want it to take care of itself to leave us to go fell-walking or umpiring cricket or writing books on fly-fishing (ok- that’s my ideal and I’m sure you have yours!).

So ultimately people want to be advised about what people like them normally do. They don’t want to be told what to do and they certainly don’t want to be told they have to take advice.

Given the information about what’s out there, and what others are doing, most people will do a little investigation and then they will do what most other people are doing, a few will buy an annuity and a few will opt for advised drawdown.

Right now, no-one is building the non-advised product, and that is because they are scared. Asset managers and insurers are scared about annoying IFAs and scared that a mass market product will reduce their margins. Some insurers hope that by sitting on their backsides – people will return and buy annuities, many see the high margins in individual drawdown denied them from workplace pensions.

Employee Benefit Consultantsand insurers or are busy trying to become asset managers themselves,

Advisers are happy to see the status quo continue.

And the status quo will continue until someone in Government gives a big green light to a Legal & General or a NOW or NEST or someone we haven’t even heard of yet – to allow them to build products that offer non-advised drawdown and ultimately the more radical CDC product.

“We” want that product, the 7m people who follow Martin Lewis want that product, the 18m people George Osborne reckons will benefit from the new pension freedoms want that better product.

And in saying this, I am not dissing advice. Advice is essential for people who want it and for those whose financial affairs warrant it. The market for in retirement advice has massive growth potential but it is not the mass market.

Non- advised products-  the Single State Pension and the workplace pension you’ve saved into, will produce non-advised pensions for most of us.  “We” means both the general population and the people they rely on to provide pensions.

This article first appeared in http://www.pensionplaypen.com