fudging, nudging (and attitude budging)

I’m getting frustrated by the latest buzzwords in the savings (pensions) debate.

education” and “nudge”.

“Education” is wheeled out as the soft-soap solution now we don’t “sell pensions”. It’s nicer to dress up the business of persuading people to defer spending with a polysyllabic but it’s not very helpful.

Education works well enough when we are dealing with youngsters who have the innocence to accept new ideas without the experience of knock-backs.

But education can be a two edged sword. This week we witnessed the reaction of a group of students faced with an A level question that had no answer- an impossible question.

The reaction? – Frustration leading to anger. As one commentator put it..

Screw up a kid’s education and you get screwed up kids. Screwed up kids don’t want to learn.

Impossible questions which have no answers are common enough to those involved in pensions

Should I save or pay off my debt?

Should I save if by saving I lose out on state benefits?

Should I contract out of the second state pension?

Should I join my company pension if I’m thinking of leaving the company?

What happens when we are forced to take decisions on life-changing matters for which there are no right answers is that we take no decision. Faced with 1000 fund choices in a DC scheme, behaviourists will tell you most people will take no decision. Most savers view default investment options with relief

thank God I don’t have to decide!

When people approach retirement they are faced with a slew of choices – some seem easy (tax-free cash or extra pension), some harder (do I leave my spouse a pension or gamble on my dying after him/her). We may have choices to draw-down income rather than to buy a guaranteed annuity. Is that a choice most of us understand – is it a choice we really want?

The trouble is that we get disillusioned. We take choices when we are young and things don’t always work out. We join the company but leave before our pension “vests”. Many people took financial advice to opt-out of their company pension scheme, or buy an FSAVC rather than a company AVC or invest in a personal pension that is now shrinking by the day under the weight of charges.

When we get disillusioned, we spread the bad news. We moan to our family, our friends and work colleagues and create a little “cloud” of disillusionment. This cloud merges with other people’s clouds till we get local prejudices. These local prejudices build into general prejudices which articulate themselves in some version of the phrase “pensions are a rip-off”.

In other words, what starts out as a wish to get educated , realises itself in a sales experience and detoriates into disillusionment, is the standard experience of many members of the public. Frustration leading to anger

Screw up a saver’s education and you get screwed up savers. Screwed up savers don’t want to save.

Reseach suggests the public are only too educated on the problem of retirement income. as a recent Scottish Widows press release puts it

awareness in the importance of saving is not translating into action.

The buzzword “education” is comfortable to organisations like the NAPF and other trade bodies. It implies that there is a willingness to learn. This may be the case by those at school but it is not my experience of those of my generation who are cynical of educational programs which are no more than sales pitches.

Which brings me on to “nudge”:-  a phrase out of the New Labour spin cabinet if ever there was one. The idea is that you can persuade people into good behaviours by nudging them an inch at a time – but regularly enough to get them there in the end. The idea is supposed to work because we are dealing with long-term financial planning (very nudgeworthy).

Like “education”, “nudging” makes the pensions industry comfortable. It’s a cosy way of pulling the wool over people’s eyes for their own good. We put hoods over horses heads to get them into the starting stalls -for their own good. The guards at Guancanamo Bay did the same thing – for the public good..you get where I’m heading.

The public are wary of education, wary of being nudged and I suspect that they will be extremely wary of auto-enrolment (which will not sneak into our lives unnoticed). If the default positions we are establishing on savings, accumulation and decumulation work – and can be shown to work – then in time experience will be good and confidence will return. But the opposite could also be true. If we tell people why they should do something without warning them of the risks we sell.

If we are to educate- it needs to be an education on how to take decisions, not on what decisions to take.

We will not be able to educate people to take impossible decisions , nor should we regard what is going on with defaults as education. Nudging isn’t education- it’s impulsion.

Buy-now; understand later.

Education, certainly for people of my generation needs to take second place to action.

There’s no harm in well-managed defaults, maintaining the DIY option makes for a more sustainable concensus. But let’s not dress up what we are doing in fancy clothes. We are not educating. Can we take out the spin and (self) deception and accept inertia selling for what it is?

As long as the end justifies the means– but that’s another story.

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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